NXP Semiconductors‘ NXPI shares have lost 12.2% in a month against the industry, the Zacks Computer & Technology sector and the S&P 500 index’s declines of 14.2%, 10% and 5.4%, respectively.

The NXPI stock is also currently trading below its 50-day moving average, indicating a bearish trend.

The company has been suffering from broad-based inventory digestion by its key customers, which makes its near-term prospects foggy. Due to inventory corrections, it also reported weak second-quarter 2024 results, wherein both earnings and revenues declined 6.7% and 5% on a year-over-year basis, respectively.

Growing macroeconomic uncertainties, high inflation and rising geo-political tensions are other headwinds for the company.

NXPI Shares Trading Below 50-Day SMA

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NXP Semiconductors faces stiff competition from other well-established players in the semiconductor space, including Analog Devices ADI, Infineon Technologies, Intel INTC, Mediatek, Microchip, NVIDIA, Qualcomm, Renesas Electronics, STMicroelectronics and Texas Instruments TXN. This poses a serious threat to its market position and huge pricing pressure on it.

Nevertheless, NXPI’s strong portfolio of semiconductor products, including microcontrollers, application processors, communication processors, connectivity chipsets, analog and interface devices, RF power amplifiers, security controllers and sensors, is expected to boost its long-term prospects in the automotive, industrial & Internet of Things (IoT), mobile and communication infrastructure end-markets.

One-Month Price Performance

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Given the combination of risks and rewards, the critical question arises: should investors buy, hold or sell NXP Semiconductors shares now?

Mega Industry Trends Drive Long-Term Growth

The semiconductor industry has been staging a solid rebound on growing demand and the optimism surrounding artificial intelligence. NXPI is well-positioned to capitalize on this trend on the back of its portfolio strength.

Growing preference for smart and connected electronic equipment, and increased use of high-performance edge and media devices and low-power IoT nodes are expected to continue driving the demand for NXP Semiconductors’ wide range of sensors, processors, connectivity and secure solutions. Also, increasing demand for connected devices and smart home products is likely to boost the company’s prospects in the industrial and IoT market over the long haul.

The growing proliferation of automobile electrification is a positive. Thanks to this, electric vehicle makers are increasingly adopting NXP Semiconductors’ electrification solutions and radar systems. EV OEMS are also introducing software-defined vehicle solutions that are driving demand for its high-performance processes.

Solid demand for technologically advanced products with increased safety, dependability, comfort and efficiency bodes well for NXPI’s automotive business. The company’s strong investments to expand its analog and interface product offerings to capitalize on the increasing electronic content in automobiles, remain noteworthy.

The solid adoption of 5G and growing demand for cloud solutions present a significant opportunity for NXPI. The rising requirement for better digital communication capabilities and digital content is another positive. NXP Semiconductors is well-poised to capitalize on this trend on the back of its strength in RF power for base stations, and robust communication processors and wireless connectivity solutions.

These favorable trends, along with a strong product portfolio, are expected to drive NXPI’s top-line growth in the long haul. The Zacks Consensus Estimate for 2025 revenues is pegged at $13.97, indicating year-over-year growth of 8.1%.

Inventory Correction & Geo-Political Tensions Hurt Near-Term Prospects

NXP Semiconductors is facing significant challenges in two of its key markets — automotive and communication infrastructure.

In second-quarter 2024, it witnessed a 7% year-over-year fall in its automotive revenues, which accounts for the majority of the total revenues. Increased inventory correction by direct Tier 1 customers was the primary factor behind this.

NXPI also witnessed a year-over-year decline of 23% in its communication infrastructure revenues. This was also due to broad-based inventory correction.

From a channel perspective, the company’s distribution inventory was 1.7 months in the second quarter. It continues to operate well below its long-term target of 2.5 months of inventory in the channel.

In the second half of 2024, NXP Semiconductors expects the inventory digestion process at select direct Tier 1 auto customers to extend. It anticipates shipment to be below the automotive end demand, which, in turn, makes its prospects in the automotive market bleak for 2024.

For third-quarter 2024, NXPI expects automotive revenues to be down in the low-single-digit percent range from the year-ago quarter’s reported level.

Moreover, escalating tensions between the United States and China do not bode well for the semiconductor companies. Stricter export policies in China are acting as major headwinds.

Downward Estimate Revision at a Glance

The macro challenges surrounding the near-term prospects of NXPI Semiconductors are expected to hurt its financial performance in 2024. This is reflected in the downward estimate revision.

For third-quarter 2024, NXPI expects revenues of $3.150-$3.350 billion, indicating a year-over-year fall of 5% at the mid-point. The Zacks Consensus Estimate for the same is pegged at $3.25 billion, suggesting a year-over-year decline of 5.3%.

The company anticipates non-GAAP earnings of $3.21-$3.63 per share. The consensus mark for the same stands at $3.44, indicating a year-over-year fall of 7%. The estimate has been revised downward by 5.2% over the past 30 days.

For 2024, the Zacks Consensus Estimate for revenues is pegged at $12.92 billion, suggesting a year-over-year dip of 2.7%.

The consensus mark for 2024 earnings is pegged at $13.58 per share, indicating a year-over-year decline of 3.1%. The estimate has moved south by 3% over the past 30 days.

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Moreover, NXPI has a Value Score of F and a Growth Score of C at present, which is hard to ignore.

Conclusion

Given the combination of stretched valuations, intense competition, declining sales growth, macroeconomic headwinds and downward estimate revision, selling the NXPI stock now appears to be a prudent move.

Currently, NXP Semiconductors carries a Zacks Rank #5 (Strong Sell).

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