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Financial Analysis of NXP Semiconductors

Financial Analysis of NXP Semiconductors. Presented by - Akash Gupta Ramzi Abuljadayel Vikas Venkatapathy on April 25, 2019. AGENDA . Stock Overview. Recommendation: Watchlist. Currently Headquartered in Eindhoven, Netherlands .

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Financial Analysis of NXP Semiconductors

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  1. Financial Analysis of NXP Semiconductors Presented by - Akash Gupta Ramzi Abuljadayel Vikas Venkatapathy on April 25, 2019

  2. AGENDA

  3. Stock Overview Recommendation: Watchlist • Currently Headquartered in Eindhoven, Netherlands. • Leader in innovative high-performance mixed-signal solutions. • Has 30,000 employees with operation in more than 30 countries. • 14 manufacturing sites, with seven test and assembly sites and seven wafer fabs. Yahoo finance : https://finance.yahoo.com/quote/NXPI/ Market cap : 29.317B EPS : 6.72 Trailing P/E : 14.90 Current Stock Price : 100.13 Sector : Technology Industry : Semi Conductors

  4. Management Rick Clemmer Executive Director, CEO Richard L. “Rick” Clemmer is the executive director, chief executive officer for NXP.He joined as executive director and chief executive officer on January 1, 2009. Kurt Sievers President, MD- NXP Semiconductors, Germany Kurt Sievers is president of NXP. In addition, Kurt is Managing Director at NXP Semiconductors Germany GmbH.Kurt joined the company in 1995 and rapidly moved through a series of leadership positions. Peter Kelly EVP, CFO Peter Kelly is the EVP and chief financial officer for NXP. Peter is responsible for Strategy and M&A, as well as ensuring a successful integration with Freescale.He joined NXP in 2011 and has 30 years of experience working in the technology industry. Steve Owen EVP Sales & Marketing Steve Owen is executive vice president of Sales & Marketing for NXP. He is responsible for developing a solutions-oriented team focused on company’s strategy: Secure Connections for a Smarter World. David Reed EVP Technology & Operations David Reed is executive vice president of Technology and Operations at NXP. He is responsible for the company’s Technology and Operations Group, which includes both silicon technology development and manufacturing of NXP’s internal and external operations.

  5. Business Segments

  6. Company Overview Revenue (in $ millions) growth by Operating segment $9498 $9407 $9256 $6101 $5647 NXPI Annual Report 2018

  7. Porter’s five forces analysis • High cost of production facilities • Dominance of existing market players • Significant investment in research and development required • Strong supplier contacts and distribution network of existing players • Competes with multinational companies to “fabless” companies • Most industry players have a special product line to serve niche market. • Low backward integration of customers • Industry is dominated by small number of large players. • High switching costs • Low performance to price ratio of other products • IP protection prevents substitutes. • Silicon wafers, chemicals, gases, lead frames, substrates, molding compounds are the main raw materials. • The moderate size of individual suppliers - Diffusion of risk over many companies • Low level of forward integration of suppliers 

  8. Strong Customer base • Diversified presence in several countries • Declining market share of NXP in segments other than automotive. • Willingness of customers to switch to latest technology • Semiconductor content per vehicle is also increasing to address applications such as engine management, fuel economy improvement, driver comfort, convenience and user interface. • Rapid Technological Changes • Shortage of skilled human resources • Intellectual property protection

  9. Automotive NXPI Annual Report 2018 #1 in Automotive semiconductors The combined portfolio after merger with Freescale is complementary ADAS: Radar, Vision, V2X Electrification of Vehicles: Automotive battery management systems for Hybrid vehicles

  10. Secure Identification Solutions NXPI Annual Report 2018

  11. Secure Connected Devices NXPI Annual Report 2018 • Semiconductor-based technologies for connected devices • #1 NFC/Secure Element • #3 broad based MCU Growth drivers: • IoT applications E.g. Smart home, health, cities, wearables and many more • Mobile payments

  12. Secure Interfaces and Infrastructure NXPI Annual Report 2018 Perform tasks related to control and management of digital data. • #1 in RF Power • #2 in communication processors Products: • Smart Antenna solutions focused on high-performance RF amplifiers. • Wireless-infrastructure and communications processors (For LTE, 5G) Growth drivers: • Fast wired USB-C and fast Qi wireless charging in mobile applications • Audio enhancement features in mobile phones.

  13. Industry and Macro Analysis

  14. Semiconductor market in the US from 2008 to 2019 Growth in automotive industry. • Radar chips • Advanced Driver Assistance Systems • Hybrid and Electric Vehicle Systems • In-vehicle Networking • LED lighting • Fuel economy • Emissions Reduction • General body and interior https://www.statista.com/statistics/249509/forecast-of-semiconductor-revenue-in-the-americas-since-2006/

  15. Semiconductor consumption market share worldwide The figure shows the worldwide semiconductor market from 2003 to 2019, by region. https://www.statista.com/statistics/238228/global-semiconductor-market-share-by-region/

  16. Global semiconductor industry revenue growth from 1988 to 2019 Semiconductor sales revenue worldwide from 1987 to 2019 https://www.statista.com/statistics/266973/global-semiconductor-sales-since-1988/ https://www.statista.com/statistics/266976/forecast-revenue-growth-in-the-semiconductor-industry-worldwide/

  17. Capital spending in the global semiconductor industry from 2010 to 2020 (in billion U.S. dollars) Compound annual growth rate of the main semiconductor target markets from 2016 to 2021 https://www.statista.com/statistics/498265/cagr-main-semiconductor-target-markets/ https://www.statista.com/statistics/267396/capital-spending-in-the-semiconductor-industry-until-2015/

  18. Ratio Analysis

  19. Key Ratios Total Debt Equity Net income Total Sales Net income Avg. Shareholders’ Equity Net income Total Assets

  20. Key Ratios Greenblatt Ratio # 1 = EBIT/Tangible Assets Greenblatt Ratio # 2 = EBIT/Enterprise Value

  21. Du Pont Analysis ROE = Net Profit Equity Net Profit Pre-tax Profit * Pre-tax Profit EBIT * EBIT Sales * Sales Assets * Assets Equity

  22. Comparable Analysis

  23. Comparables Evaluation • NXPI Adj. EBITDA 2018: 2,697M • Average EBITDA multiple 2018: • 15.3x • Total debt: 7,354M • Non-controlling interest: 45M Total Equity Value: 33,833M Estimated Share price: $104

  24. Company Valuation

  25. Key Assumptions for the next 5 years • Automotive grow by 6.5% due to ADAS and Electric vehicle growth in demand. (Company guides 7-11%) • Devices grow by 8% due to growth in IoT, mobile payment, smart wearables, etc. • Interface and infrastructure will stay at low growth of 1% due to fast wired USB-C, mainly fast type charging • R&D will stay high at 17.5% of sales in the first two forecasted years and expected to slow after that. • WACC is 12.5% • Terminal growth of 3%, matching Benjamin Graham Growth

  26. DCF Valuation • Estimated share price: $48 • Current Market price: • as of 4/15/19 $100

  27. Recommendation Fair Price Estimated: Comps: $104 x 60% DCF: $ 48 x 40% $81 per share ADD TO WATCHLIST • The company is heavily investing in IoT and ADAS automotive. • These are all successful products and already in the market, but consumers are taking their time to respond to these products. • NXPI is known for its early investment in innovations. It may be overvalued today, but once the demand in automotive sparks, its value should soar We recommend to keep this company in the watchlist

  28. Q&A

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