NXP Semiconductors NV: A Soaring 5G Stock for 2021 & Beyond

A 5G Stock You Likely Haven’t Considered

Chip makers have had a choppy ride over the past few years, but now they’re back in the spotlight. In just the last three months (as of January 14, 2021), the PHLX Semiconductor Sector Index surged 27%, substantially outperforming the Nasdaq Composite’s 11.9% gain over the same period.

Of course, the semiconductor industry is known to be cyclical, so volatility is all part of the game. However, there’s something that could substantially boost chip makers’ investor appeal in the coming years: 5G.

You see, 5G networks offer significantly faster data transmission speeds (up to 100 times faster than 4G networks, theoretically) while also dramatically reducing latency. This should enable tons of new applications.

And guess what all the new 5G gadgets and infrastructure need to turn those applications into reality? Yep, they need semiconductor chips.

One chip maker that’s well positioned to capitalize on the increasing 5G deployment is NXP Semiconductors NV (NASDAQ:NXPI). It’s a Dutch-American semiconductor manufacturer with headquarters in Eindhoven, Netherlands and Austin, TX.

The company, which has been around for more than six decades, serves four major end markets: Automotive; Industrial & IoT; Mobile; and Communication Infrastructure & Other.

In December, NXP Semiconductor launched the second generation of comprehensive “Airfast” radio frequency (RF) power multi-chip modules (MCMs) that are designed to support the evolution of 5G antenna system requirements for cellular base stations. (Source: “NXP Extends its Leadership in 5G Infrastructure with 2nd Generation RF Multi-Chip Modules That Amp Up Frequency, Power and Efficiency,” NXP Semiconductors NV, December 2, 2020.)

The new Airfast module delivers 20% more output power than the previous-generation module. It also provides extended frequency coverage and features a power-added efficiency of 45%, which is four points higher than the previous-generation module.

“Our aggressive drive for integration brings more features into each module, which means fewer components for our customers to source, assemble and test,” said Paul Hart, NXP Semiconductors’ executive vice president and general manager of Radio Power. (Source: Ibid.)

“The result is a higher power yet more cost-effective, compact design. This translates into faster time to market for our customers and mobile network operators who are tackling the need for 5G expansion.”

Looking at the company’s financials, we see that NXP Semiconductors NV was impacted by the pandemic in the second quarter of 2020. But since then, things have started to improve.

According to the company’s latest earnings report, NXP Semiconductors generated $2.3 billion of total revenue in the third quarter of 2020, marking a 25% increase from the second quarter. That was in line with what the company earned in the year-ago period. (Source: “NXP Semiconductors Reports Third Quarter 2020 Results,” NXP Semiconductors NV, October 26, 2020.)

The highlight was the Automotive segment, which delivered 43% sales growth sequentially to $964.9 million. In the same period, the Mobile segment delivered 32% sales growth, the Industrial & IoT segment delivered 18% sales growth, and the Communication Infrastructure & Other segment remained flat.

And even though the company incurred a generally accepted accounting principles (GAAP) net loss of $0.08 per share in the third quarter of 2020, the amount was substantially lower than the $0.77-per-share net loss reported for the second quarter.

The pandemic has obviously caused some delays in 5G deployment, but there’s little doubt that we’re entering a 5G supercycle. NXP Semiconductors NV is already a leading player in the 5G infrastructure business, and with a new generation of offerings, the company could enter a new growth phase.

NXP Semiconductors NV (NASDAQ:NXPI) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Remember when I said in the beginning that the PHLX Semiconductor Sector Index was up a solid 27% over the past three months?

Well, during the same period, NXP Semiconductors stock delivered a more impressive gain of 31.6%. And as 5G deployment picks up, I wouldn’t be surprised to see NXPI stock climb to new highs.