NXP Semiconductors forecast lower-than-expected third-quarter revenue on Monday, citing sluggish demand from automotive customers and rising geopolitical risks.
The Dutch semiconductor manufacturer recorded its steepest quarterly revenue decline in four years in the second quarter, with automotive sales experiencing their sharpest drop in more than three years, according to LSEG data. NXP projects Q3 revenue between $3.15 billion and $3.35 billion, falling short of the analysts’ average estimate of $3.36 billion.
Automotive industry clients, NXP’s largest segment, have reduced orders due to tepid demand, as they await improvements in the macroeconomic environment and potential interest rate cuts by global central banks. In Q2, revenue from the automotive segment fell 7 percent to $1.73 billion, while total revenue of $3.13 billion aligned with estimates.
The semiconductor industry is also grappling with the impact of strained trade relations between China, the U.S., and the European Union, Reuters news report said. Chinese companies are increasingly investing in the production of legacy chips amid tightening export restrictions, which could intensify competition and negatively affect NXP’s sales in China. In 2023, China accounted for about 33 percent of NXP’s total annual revenue.
Despite challenges in the automotive sector, NXP’s mobile segment showed promising growth, with a 21 percent increase in revenue to $345 million, driven by artificial intelligence-linked upgrades and a rebound in smartphone demand.
For the third quarter, NXP expects adjusted earnings per share to have a midpoint of $3.42, missing analysts’ estimates of $3.61.
To mitigate risks and diversify its manufacturing base beyond China, NXP has invested $1.6 billion for a 40 percent stake in a joint venture with TSMC-backed Vanguard to produce silicon wafers in Singapore.
This strategic shift reflects NXP’s efforts to navigate the challenging economic landscape while seeking growth opportunities in emerging markets and technologies.