NXPI -NXP Semiconductors N.V.

[Gregmal]

Adding on weakness too here around $83. I think the dependency on China (~24% of revenues) and automobile is probably causing the weakness in the stock. I like the growth runway here.

 

Agreed. I've added about 20% to my position last couple days. My only concern, you touched on though. It's there with auto, and it's there with semis. The whole sector is out of favor and trading at these whacky kind of valuations. And as a GM shareholder I can attest to the nuisance of how long these overhangs can persist. There's nothing IMO that will prevent this from trading at single digit multiples for the near to medium term. I do like this here though. So whatever.

 

 

[ValueMaven]

I added today as well under $83.  It is now my top holding. 

[Spekulatius]

Adding on weakness too here around $83. I think the dependency on China (~24% of revenues) and automobile is probably causing the weakness in the stock. I like the growth runway here.

 

Agreed. I've added about 20% to my position last couple days. My only concern, you touched on though. It's there with auto, and it's there with semis. The whole sector is out of favor and trading at these whacky kind of valuations. And as a GM shareholder I can attest to the nuisance of how long these overhangs can persist. There's nothing IMO that will prevent this from trading at single digit multiples for the near to medium term. I do like this here though. So whatever.

 

No question the stock could go lower.  I was quite impressed by their recent investor presentation that was touching upon the growth markets they are in. Essentially, they are providing the shovels for the internet of things, automobile electrification and self driving cars. I think they are in a good spot.

[Jurgis]

Why do you guys think this is cheap? Going with 6 month FCF, I get ~1.5B annualized and market cap of ~28B, it's trading at ~18 P/FCF and similar EV/FCF. Yeah, there was $2B termination fee, but even with that cash ~= debt. (Not looking at earnings, since P/E looks much worse). OK, it's not very expensive, but it's also a semicon, which are cyclical.  ::) Does it have a moat? It's not Intel or Arm for sure.

[peterHK]

Why do you guys think this is cheap? Going with 6 month FCF, I get ~1.5B annualized and market cap of ~28B, it's trading at ~18 P/FCF and similar EV/FCF. Yeah, there was $2B termination fee, but even with that cash ~= debt. (Not looking at earnings, since P/E looks much worse). OK, it's not very expensive, but it's also a semicon, which are cyclical.  ::) Does it have a moat? It's not Intel or Arm for sure.

 

Go read Marathon's Capital Returns. Analog semis and digital semis are very very different businesses. Analog has lots of moats (engineering talent, fab specification, customer relationships, long life cycle products etc.).

 

For FCF, watch the large change in payables. Normalizing that swing of ~$200+mn gives you more FCF.

 

[Spekulatius]

Why do you guys think this is cheap? Going with 6 month FCF, I get ~1.5B annualized and market cap of ~28B, it's trading at ~18 P/FCF and similar EV/FCF. Yeah, there was $2B termination fee, but even with that cash ~= debt. (Not looking at earnings, since P/E looks much worse). OK, it's not very expensive, but it's also a semicon, which are cyclical.  ::) Does it have a moat? It's not Intel or Arm for sure.

 

I think market cap is around $25B and FCF is $1.7-1.8B or a 7% FCF yield. It’s not super cheap, but it isn’t expensive at all. Yes, I agree the working capital changes should be ignored.

[Gregmal]

Where's Elliot? If it was "surely" worth $135 standalone a couple months ago, I'd expect them to be making a bid real soon! If they weren't dishonest and largely full of shit...

[given2invest]

Where's Elliot? If it was "surely" worth $135 standalone a couple months ago, I'd expect them to be making a bid real soon! If they weren't dishonest and largely full of shit...

 

Go look at the filings...they were selling aggressively in the 90's most deal break.

[ValueMaven]

This is my largest position and I am underwater...

 

Its trading at like 9.5x earnings, growing like a weed, buying back a ton of stock, clean balance-sheet, and now pays a divy.  NXP is the post child of a buster merger-arb gone wrong.  Right now its being thrown out with the broader semi-space selloff. 

 

If it keeps selling off, i will buy more

[Spekulatius]

This is my largest position and I am underwater...

 

Its trading at like 9.5x earnings, growing like a weed, buying back a ton of stock, clean balance-sheet, and now pays a divy.  NXP is the post child of a buster merger-arb gone wrong.  Right now its being thrown out with the broader semi-space selloff. 

 

If it keeps selling off, i will buy more

 

Agreed, but I have seen some really whacky prices  with semis over the years. also, the business can turn on a dime and run cold for 2-3 quarters. In the long run, this looks like winner, but the ride could be a bit bumpier than envisioned. I bought a few more today as well.

[Gregmal]

Where's Elliot? If it was "surely" worth $135 standalone a couple months ago, I'd expect them to be making a bid real soon! If they weren't dishonest and largely full of shit...

 

Go look at the filings...they were selling aggressively in the 90's most deal break.

 

I was being sarcastic. I know they are hypocritical pieces of shit.

[given2invest]

Where's Elliot? If it was "surely" worth $135 standalone a couple months ago, I'd expect them to be making a bid real soon! If they weren't dishonest and largely full of shit...

 

Go look at the filings...they were selling aggressively in the 90's most deal break.

 

I was being sarcastic. I know they are hypocritical pieces of shit.

 

After this bullshit ATHN "bid" their cred is largely shot.

[Spekulatius]

I highly recommend going through the 9/11 investor presentation to anyone interested in NXPI:

http://phx.corporate-ir.net/External.File?t=1&item=VHlwZT0yfFBhcmVudElEPTUyNzQ0OTB8Q2hpbGRJRD02OTk5NTU=

[colinwalt]

I believe this is the correct link:

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDExMjk1fENoaWxkSUQ9LTF8VHlwZT0z&t=1&cb=636722914720272581

[Spekulatius]

^ Thank you. My link posted above is in fact broken.

[ValueMaven]

This is my top holding, and I really like the thesis here...basically, it is being treated as a commodity like semi- with regards to the sell-off.  I think at this point management needs a few strong quarters before the street starts to apply a higher multiple on the business.  Aggressive buyback + dividend will help return capital to shareholders.  Who mights, someone might bid for these guys again...you never know.

[pcm983]

so what do people think here? seems like market pricing in cycle turning and you cant own this without disagreeing on that point? is that the right way to think about it?

[given2invest]

I think that's the issue.  Numbers are going to get worse and hard to buy into that.  But at some level...who cares.  For me that's probably more like $60.

[Gregmal]

so what do people think here? seems like market pricing in cycle turning and you cant own this without disagreeing on that point? is that the right way to think about it?

 

I added as recently as yesterday. My thoughts are that if the cycle doesn't turn, and turn down BADLY. This is a steal. In other words, I win if things get better, stay the same, or marginally deteriorate.

 

It's funny, because there's always a ton of consensus on the whole market timing thing. Not saying some cant do it, but it's kind of a given that the smartest guys generally believe you can't "time" the market. So while this is a consensus amongst sophisticated investors, you still get all these boneheads who regularly talk about "peak cycle" or whatever when in reality it's the same thing and historically it's been shown that the "cycle" people are no different than the people always calling market tops. Just buy good businesses at attractive prices. Easy enough.

[pcm983]

thanks for the comments. but if you don't believe the cycle can be called, is it consistent to also think you can do the inverse? because you are basically saying you think cycle ranges from moderately bad to good for vs. market at substantial downturn? also if nxpi heavily exposed to autos and autos getting crushed seems bad no?

[Gregmal]

thanks for the comments. but if you don't believe the cycle can be called, is it consistent to also think you can do the inverse? because you are basically saying you think cycle ranges from moderately bad to good for vs. market at substantial downturn? also if nxpi heavily exposed to autos and autos getting crushed seems bad no?

 

I kind of interpret it more in the context of stepping back and determining back of the envelope probability of events. If it is going to take a multiple standard deviation type of event to justify a current multiple, I just kind of think it's silly to let that get in the way of something that looks compelling. What if the cycle turns to me is the same as "what if the S&P drops 50%"... I mean, if it does, so be it. But as we've seen not just over the past decade, but really throughout history, is that those are poor reasons not to invest.

 

Case in point...Auto's have been getting the "peak cycle" crap from pundits since what? 2014? And the pundits have been 100% wrong. A good company with solid leadership will reward you over the long haul by stacking all that "peak cycle" cash, year, after year, after year. Without opening the can of worms relating to good and bad management(especially with autos), that's kind of what I see the risk being here. The "cycle" screamers will put a bit of a lid on the multiples for a while, but I like what NXP's management has outlined in terms of their plans for the cash..

[peterHK]

The fact is this is a cyclical business, and cycles DO turn. NXPI is particularly leveraged to autos, which we know are interest rate sensitive. We know that interest rates have gone up rapidly in the US, much less so in Europe, and not really in China, though China auto sales were down for the first time in like 25 years recently.

 

I don't think it's difficult to say that the auto market has slowed, and that there is a risk of it slowing further given the delta in rates vs. a year or two ago. 

 

That being said, NXPI has high margins, generates a lot of cash, and is going to return it all to you. Over a full cycle, that's a recipe for success when coupled to a business model that can grow 2x the market. Furthermore, NXPI trades at a significant discount to peers, so over a full cycle if that discount closes, it is likely to outperform.

 

So I think the right answer here is that we are likely towards the end of the cycle, but no one knows when it will turn. Given that, size the position accordingly or start to hedge it out if it's too large.

[Gregmal]

The fact is this is a cyclical business, and cycles DO turn. NXPI is particularly leveraged to autos, which we know are interest rate sensitive. We know that interest rates have gone up rapidly in the US, much less so in Europe, and not really in China, though China auto sales were down for the first time in like 25 years recently.

 

I don't think it's difficult to say that the auto market has slowed, and that there is a risk of it slowing further given the delta in rates vs. a year or two ago. 

 

That being said, NXPI has high margins, generates a lot of cash, and is going to return it all to you. Over a full cycle, that's a recipe for success when coupled to a business model that can grow 2x the market. Furthermore, NXPI trades at a significant discount to peers, so over a full cycle if that discount closes, it is likely to outperform.

 

So I think the right answer here is that we are likely towards the end of the cycle, but no one knows when it will turn. Given that, size the position accordingly or start to hedge it out if it's too large.

 

The bolded is probably the part I did a poor job communicating but yea, that's the key. Have the ability to remain flexible.

[tylerdurden]

I think it mainly depends on your time horizon. If it is 3-5 years, higher chance the fluctuations in price would not change the end outcome on this investment, even there is a downturn in cycle. Hell, if your horizon is forever as for some people who cares, as long as you think you are buying on the cheap side.

 

With autos, it seems to me with electrification and more driverless functions coming in, nxpi should do ok even if the auto industry doesn’t do that great. Weight of the electric vehicles and driverless type cars will be higher in any case. Not talking about full driverless yet. That’s long time away.

 

[Gregmal]

Will be interesting to see the guidance, but given that these guys went balls to the wall with the buyback, and were speaking very confidently at conferences in September(IIRC), I think the quarterly numbers come in very strong.