The semiconductor industry has suffered heavy setbacks as a result of the coronavirus pandemic. While many firms released early predictions to update their first-quarter projections, it turns out that the impact may be worse than originally feared. That’s the case for NXP Semiconductors.
According to a company press release published on April 7, NXP says that its new estimates “reflect a worse than anticipated impact from the COVID-19 pandemic versus what the company had anticipated on March 2.”
When NXP released mid-point guidance related to the impact of COVID-19 at the beginning of March, it predicted revenues $50-$150 million lower than its original outlook. Now, it appears that the first quarter of 2020 is looking even grimmer.
The company now predicts a 3.5 percent year-over-year drop in first-quarter sales. It projects first-quarter revenues of $2.02 billion. Sadly, these new projections are a significant departure from the firm’s March 2 guidance, which projected a 6.3 percent year-over-year growth for the first quarter on $2.23 billion in revenue.
Richard Clemmer, NXP’s CEO, says, “While the supply chain disruption experienced post Lunar New Year in China appears to be subsiding, the end market demand trends in the rest of the world have started to significantly deteriorate.”
The executive also explained that a decrease in demand across the automotive market is a large part of the decline. NXP is widely known for its work in the connected automobile space. It produces components that play key roles in features like radar, computer vision, and vehicle communications.
Clemmer goes on to say, “We continue to be vigilant in the management of our distribution channel, aligning channel inventory to the sales out of the channel, and expect channel inventory to be consistent with prior periods, in the 2.4 months of supply range.”
In accordance with that vigilant stance, NXP chose not to ship approximately $150 USD worth of orders to its various distribution partners. This move has helped it maintain its own normal channel inventory.
Looking on the Bright Side
In times like these, it’s important to remember to look for the positives. For NXP, the future may be uncertain. Fortunately, it has some financial flexibility.
Peter Kelly, NXP’s CFO, says, “While the demand environment is challenging, NXP continues to have a strong balance sheet and excellent liquidity. We expect our cash balance to be USD 1.1 billion as of the end of March, and in addition we have an untapped revolving credit facility of USD 1.5 billion, should we need it.”
The company’s strong fiscal position will help it weather the storm of COVID-19 and get back on track when the pandemic subsides. As consumers start buying cars and automotive manufacturers reopen their plants, it’s likely that NXP will experience a resurgence in the latter half of 2020 and beyond.