Question for Saul re NXPI

Saul,

It does not appear, based upon the posts I have reviewed on this board, that you own any shares of NXP. I am wondering whether there are any particular reasons for that.

To be clear, I am comfortable making my own decisions about which stocks to buy, sell, etc. That said, I am curious as to whether it is a stock you have given consideration to and then decided not to buy and, if so, your thought process in that regard, or whether you’ve simply just not looked into it.

Thank you,
az5speedy

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It does not appear, based upon the posts I have reviewed on this board, that you own any shares of NXP. I am wondering whether there are any particular reasons for that…I am curious as to whether it is a stock you have given consideration to and then decided not to buy and, if so, your thought process in that regard, or whether you’ve simply just not looked into it. Thank you,
az5speedy

Hi Speedy, That is a good question. NXPI is a stock I have looked at, and one that is still on my watch list, but here’s why I haven’t taken a position in it. It does have a great story, but revenue from 2014 to 2015 was up only 8% (from $5.65 to $6.10 billion). Earnings were up only 17.6% on the year, and were down 10 cents in the Dec quarter from $1.35 to $1.25. To invest in it I’d have to direct funds away from another company that is growing much faster. NXPI is also a big company with a lot of moving parts and I’m not sure whether those new exciting ones will be big enough to push the needle. If you have thoughts about it, and know more about it than the little I do, I would REALLY appreciate you sharing that information and your opinions.

Saul

I have looked and NXPI too and was contemplating to move a part from my SWKS allocation to NXPI (for the sake of diversifying a bit). Apart from the lower growth Saul did mention NXPI has also 8bn in long-term debt whereas SWKS is virtually debt free.
Having said that debt obviously didn’t hold back NXPI stock from multiplying several times since 2012…
Anyways, I just feel there is more margin of safety in a debt free balance sheet.

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Thank you, Saul.
As always, I appreciate your insight.

Unfortunately, I do not have any additional info regarding NXPI…mostly that it was just heavily touted by at least a couple of MF services. However, if I find additional info, I will happily share it with you.

az5speedy

re: NXPI

“One Stock for the ‘Personalized Computing Era” the Motley Fools are teasing is, NXP Semiconductor (NXPI).

http://www.stockgumshoe.com/reviews/motley-fool-rule-breaker…

Quillnpenn -

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I’ve looked more into NXPI because it’s a MF pick since 2011, and a pick by Ophir Gottlieb’s newsletter. Here’s the story in brief. It’s touted because they have a dominant position in near field communication (NFC), which is just what you would think. Pass your phone by a hub and pay your bill without touching. Will dominate all that mobile pay, etc, blah, blah, blah. Indeed it may. But as of an article last October, the price had risen over 500% since 2011, but revenue had grown 36% over the same time (that’s up 36% in four years, not 36% per year). Before that there revenue was shrinking every year since they were spun off, as I remember (may not be accurate). Their growth of revenue last year was 8% as just reported. With a merger they are now one of the biggest semiconductor companies, but with a lot of debt, very affected by economic tailwinds, slow growing, and not that exciting. They also have all the problems of being a European company, with strict labor laws, and the general European outlook that being too profitable, and growing too fast, is somehow not seemly. They are not a little company for whom near-field is its primary, rapidly growing segment. This company has many other divisions which will grow at differing rates (or shrink). I may be making a big mistake, but I prefer Skyworks. I’ll pass on it for now.

Saul

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One of NXP’s business is automotive, and I believe that’s what drove them to acquire Freescale. NXP has long made the “Dirana” chip, which is the dominant audio processing chip in automotive applications. Freescale is one of the major player in CPU chips for automotive infotainment systems, so there’s some possible synergy there, but infotainment systems are already in most cars, so it’s not likely to be a huge growth opportunity.

NFC applications, OTOH, are going to grow like gangbusters. I don’t know if NXP has the best solution and I don’t know who the competition is. As for the company having lots of other divisions, so did Apple during its big growth phase. Sometimes it’s good to have multiple divisions that can support each other when one takes off, but I do agree that other times they can be diversions or drains on resources needed to feed the growing one.

Hard to say, so I’ve stayed out.

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The other big thing with NXPI is driverless cars:
http://www.fool.com/investing/general/2016/05/18/instant-ana…

Here’s a long-term-view article that just came out:
http://www.fool.com/investing/2016/07/02/what-to-expect-from…

[From Wikipedia] NXP started out as Signetics in 1961, founded by engineers who left Fairchild Semiconductor so they could make integrated circuits instead of single components. It’s a very early Silicon Valley pioneer in the field. (When Fairchild started making IC’s in 1964, Signetics was at a disadvantage, since Fairchild was larger and better funded.)

Signetics was bought by Philips in 1975, went through some gyrations and spinoffs, and was taken private in 2006, when it acquired the name NXP. The IPO was in 2010, with 34 million shares at $14 each. It acquired some other companies, including Freescale in 2015.

More details at https://en.wikipedia.org/wiki/NXP_Semiconductor

(Intel was also founded by former Fairchild engineers. It’s interesting that Signetics was founded 7 years earlier than Intel.)

Skyworks came into being as the merger of the wireless chip divisions of Alpha Industries and Conexant Systems in 2002. (Conexant was originally part of Rockwell International, and Conexant brand dial-up modems are still found in many computers.)

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A big consideration for NXP is how well the merger with Freescale is working out. And how good the management is. And how much the debt gets in the way.

What’s interesting is that Vuru.com gave it a “growth price” of over $70 a share, assuming a 5% growth rate and a (fairly high) discount rate of 15%. This is close to its current share price. A lot of well-known growth stocks get quite low growth prices at this website; for instance, Starbucks gets valued at less than half its current share price. (They assume a much higher growth rate for Skyworks, by the way, but end up giving it a lower share price than NXP relative to its current price.)

While I’ve been advised to ignore the story of “story stocks” and focus on financial performance, I think this is a case where the story is especially compelling, because of how many important emerging industries they’re in. For one thing, they hold about 9000 patents in relevant fields. And they offer virtually one-stop shopping for automotive driving control, making them very tough competition for Nvidia.

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