NXP Semiconductors may be getting thrown out with the bathwater, analyst suggests
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The broader stock market and more narrowly, the semiconductor industry, has fallen sharply this year on worries over rising interest rates, the war in Europe, a potential recession and several other reasons.
While some semiconductor stocks are down more than 30% year-to-date, one name that may have been unduly lumped in is NXP Semiconductors (NASDAQ:NXPI), according to investment firm Barclays.
Analyst Blayne Curtis, who rates NXP Semiconductors (NXPI) shares overweight, notes that the Dutch semiconductor company led by President and Chief Executive Kurt Sievers, is experiencing "strong secular tailwinds" from a number of areas, especially automotive.
Although semiconductors are especially economic sensitive, Curtis, who recently trimmed the price target on NXP Semiconductors (NXPI) because of a lower market multiple, added that the stock should be on investors "shopping list for better days."

After meeting with NXP's (NXPI) management, Curtis said he came away with a "greater appreciation" for how strong the tailwinds are, especially in automotive. However, there is a "very large disconnect" between what companies are seeing on the ground and what the market is pricing in.


"We do believe the cyclical/macro headwinds will be stronger than the soft landing the company was advocating for, but this will still be a name to own on the other side given the strength of the secular drivers," Curtis wrote in the note. 


Curtis added that NXP's (NXPI) automotive business, which is likely to see continued growth in areas like powertrain, body/comfort and networking, as well as overall increased content in electric vehicles, should strengthen throughout the decade and keep a "sustainable [double digit] growth rate."



The company's management also pointed out that demand still exceeds supply by a healthy amount, with 20% of shortages in its automotive and industrial businesses actually getting worse over the past couple of quarters. NXP (NXPI) has not released its backlog in some time, but Curtis estimates that it is between 1.5 and 2 years, similar to what others in the space have said publicly.


On the supply side, NXP (NXPI) said it expects to see a "gradual improvement" throughout the year, but even with the PC and smartphone markets being weaker than they have been in the past, not a "single wafer" has been freed up for other areas, Curtis pointed out.



Other areas of opportunity for NXP Semiconductor (NXPI) include its push into domain and zonal controller over the next two or three years, which could be worth between $3B and $5B in revenue by 2030. For comparison purposes, NXP generated $300M in domain and zonal controller-related revenue in 2021, a number that is expected to increase to $600M in 2024.


The push to nearly $5B in revenue is due to several design wins that have been awarded now, but won't see the light of day until the 2025 to 2030 timeframe.



The company's exposure to the hybrid and electric vehicle markets is seen as "ahead of expectations," usually between $30 and $40, but as much as $100 per vehicle, depending upon the size of the battery.


Going out further, NXP (NXPI) could have as much as $300 to $400 worth of content in cars, if propulsion controller, inverter and some power content are included. Ultimately, this could be a $500M business in 2024, up from $200M in 2021, Curtis added.


Last, but not least, is NXP's (NXPI) continued push into the radar business. What was worth $600M in 2021 could be worth as much as $1.2B in 2024, with Curtis noting that the opportunity is similar to that in electric vehicles in that it is "broader than the radio," requiring a complete system.


Earlier this month, it was reported that Samsung (OTC:SSNLF) was interesting in acquiring NXP Semiconductor (NXPI), adding to multi-year speculation that the two companies would eventually combine.