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How has the chip shortage lifted NXP Semiconductors share price?

Despite the industry’s shortage of semiconductor chips, NXP Semiconductors’s [NXPI] share price remains in high demand.

While its performance throughout January was relatively flat, the stock reached an intraday high of $200.19 on 16 February and ended the first two months of the year up 14.8%.

Shares in the Dutch-American chipmaker have also been outperforming the market. The stock beat the S&P 500 by 10.4% last year and was up a total 23.37% so far in 2021 at $199.91, outpacing the S&P 500’s 7.25% rise in the same period (as of 15 March’s close).

According to ETF.com, circa 13.4 million NXP Semiconductors shares are held across 95 US funds, with the Defiance Next Gen Connectivity ETF [FIVG] having the largest allocation at 5.4% on 12 March.

Funds like the VanEck Vectors Semiconductor ETF [SMH] and iShares PHLX Semiconductor ETF [SOXX] — which have 2.4% and 4.2% weightings in NXP Semiconductors respectively — were up 5.7% and 6.3%, respectively, year-to-date (through 15 March).

 

Growing automotive appetite

The fact that NXP Semiconductors shares have been trending upwards amid the global shortage of chips could indicate that the market thinks it’s in a strong position to weather the storm.

Indeed, the company eased investors’ concerns when it announced on 11 March that it had resumed initial operations at two of its wafer manufacturing plants in Austin, Texas, which had been forced to go offline on 15 February due to a severe winter storm.

Kurt Sievers, CEO of NXP Semiconductors, said the company was working to ramp up to full production following the supply disruptions. He also stated he does not expect any impact on its revenue guidance for the first quarter of 2021.

The company forecast total revenue to be in a range of between $2.5bn and $2.6bn for the upcoming quarter. It expected an impact of about $100m of revenue in the second quarter.

The guidance was issued off the back of robust fourth-quarter results on 1 February, which showed revenue growing 9% year-over-year to $2.5bn driven by the automotive and mobile markets.

According to Robert Castellano, president of The Information Network, 47% of NXP Semiconductors’ revenues are from the automotive sector. He also wrote in Seeking Alpha that revenues from the industry increased by 23.8% from the previous quarter.

Castellano believed the shortage in integrated circuits “presents an opportunity to buy semiconductor companies with exposure to the automotive industry”, adding that first-quarter revenues should further reflect the buying potential of semiconductor stocks.

 

Signs of a glut?

NXP Semiconductors, Renesas Electronics [6723] and Infineon Technologies [IFX] are the leading chipmakers that serve the automotive semiconductor market, with each generating a substantial share of revenue from the sector.

With the global automotive chip market forecast to reach $52.9bn by 2025, according to an Industry Research report, NXP Semiconductors could emerge as a leading force in the area.

$52.9billion

Estimated valuation of the global automotive chip market by 2025

  

However, it may face a supply glut in the near term because of rising lead times, which could be leading to double ordering. The average wait time has increased from 13 weeks in January to 14.1, Christopher Rolland, an analyst at Susquehanna, wrote in a note seen by Bloomberg. NXP Semiconductors reportedly saw lead times jump by four weeks in January.

The publication also noted that the industry’s revenue rose just 1.6% in January, which was the slowest rise in more than two decades. “While things appear red-hot for semis in the short term, we are growing more cautious over the long-term outlook as we believe the industry may be over-shipping to true demand,” Rolland said.

For Hidetoshi Shibata, CEO at Renesas, the supply disruptions could persist into the second half of 2021, but he also noted that it has led to a newfound appreciation for chipmakers.

““Cars are increasingly turning into electronic devices, and it’s breaking the traditional supply chain models. That much has been made clear. Now that everyone has noticed, maybe we can have a constructive conversation about this” - Hidetoshi Shibata, CEO at Renesas

 

“Cars are increasingly turning into electronic devices, and it’s breaking the traditional supply chain models,” Shibata told Bloomberg. “That much has been made clear. Now that everyone has noticed, maybe we can have a constructive conversation about this.”

NXP Semiconductors shares are rated a strong buy among 18 analysts on TipRanks, with an average 12-month price target of $202.83, representing a 1.46% climb from its 15 March close.

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