NXP Semiconductors N.V. — Q2 2021 Form 10-Q
Reporting period: Fiscal quarter and six months ended July 4, 2021; comparisons are against the periods ended June 28, 2020. Amounts are in U.S. dollars unless noted. Interim financial statements are unaudited.
Business context and results
NXP reported record quarterly and first-half revenue as semiconductor demand rebounded from the COVID-19-related downturn. Management attributed growth to broad market recovery and rising automotive semiconductor content tied to electrification, safety and connectivity, with additional strength in Industrial & IoT and Mobile.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $2.596 billion | $1.817 billion | $5.163 billion | $3.838 billion |
| Gross profit | $1.422 billion | $860 million | $2.777 billion | $1.857 billion |
| Gross margin | 54.8% | 47.3% | 53.8% | 48.4% |
| Operating income (loss) | $573 million | $(145) million | $1.065 billion | $(77) million |
| Net income (loss) attributable to shareholders | $397 million | $(214) million | $750 million | $(235) million |
| Diluted EPS | $1.42 | $(0.77) | $2.67 | $(0.84) |
| Operating cash flow | $636 million | $414 million | $1.368 billion | $926 million |
Revenue mix and material changes
- Q2 Automotive revenue was $1.262 billion, up 87.2% year over year; Industrial & IoT was $571 million, up 31.3%; Mobile was $347 million, up 36.1%.
- Communications Infrastructure & Other revenue was $416 million, down 8.2% in Q2. The filing cites reduced network-edge processor demand and lower smart RF antenna shipments affected by the U.S. ban on sales to Huawei; RF Power and some other demand partly offset declines.
- Q2 revenue increased 42.9%, while gross margin rose 7.5 percentage points. Management cited higher revenue, better manufacturing loading and efficiencies, partly offset by less favorable product mix and higher personnel costs.
- Operating expenses fell to $849 million in Q2 from $1.004 billion, largely because acquisition-related intangible amortization declined as certain assets became fully amortized. R&D and SG&A costs increased, mainly from personnel-related costs.
- Prior-year first-half results included a $110 million gain from the sale of Voice and Audio Solutions assets. First-half 2021 intangible amortization also included a $36 million impairment charge related to discontinuation of an IPR&D project.
Cash, debt and capital allocation
- Cash and equivalents were $2.910 billion at July 4, 2021, versus $2.275 billion at year-end 2020. NXP reported $4.410 billion of available liquidity including its $1.5 billion revolving credit facility.
- Total debt was $9.591 billion, up from $7.609 billion at year-end; reported net debt was $6.681 billion. In May, NXP issued $1 billion of 2.5% notes due 2031 and $1 billion of 3.25% notes due 2041. Interest expense was $90 million in Q2 and $177 million in the first half.
- First-half investing cash outflow was $370 million, including $300 million of capital expenditures. Financing cash outflow was $360 million, including $2.108 billion of share repurchases and $260 million of dividends paid.
- NXP declared a Q2 dividend of $0.5625 per share, subsequently paid July 6. It repurchased $1.0 billion, or 5.0 million shares, after quarter-end through August 2.
Outlook, risks and unusual items
- Management said demand returned faster than expected and emphasized serving customer demand. It stated that cash, the revolving facility and anticipated operating cash generation should be adequate for operations, capital needs and potential dividends for at least the next 12 months. The filing provides no numerical revenue or earnings guidance.
- Supplier purchase commitments totaled $3.769 billion, due through 2044; NXP said long-term obligations rose substantially as it secured supply with key manufacturing partners.
- February 2021 winter weather disrupted NXP’s two Austin wafer facilities. The company recognized $109 million of insurance proceeds in Q2 to offset operating losses and continued assessing total recoveries with insurers.
- Legal accruals were $17 million. NXP estimated reasonably possible litigation losses above accruals of $0–$13 million, before potential insurance recoveries. Separate Motorola-related personal-injury indemnity litigation involves unspecified damages that NXP said could be material if claims were proven and recovered.
- Management reported no material changes to previously disclosed risk factors or market-risk disclosures. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Key facts for investors to verify
- Whether demand recovery and automotive, Industrial & IoT, and Mobile growth persist, and how product mix and manufacturing costs affect margins.
- Whether the company can meet customer demand amid long-term supply commitments and higher production needs.
- Use of debt proceeds, the trajectory of net debt, and the sustainability of substantial repurchases and dividends.
- Final insurance recoveries for the Austin disruption and developments in Motorola-related litigation and other claims.
- The impact of Huawei-related restrictions and continued weakness in Communications Infrastructure & Other.