Why NXP Semiconductor Crashed 10% in October

By Evan Niu, CFAFool.com

What: Shares of NXP Semiconductor were enjoying a good month in October... until the company reported earnings. After the release, shares crashed by 19%, giving up all of the month's gains up until that point. After everything was said and done, shares were down 10% for the month, according to S&P Capital IQ data. Overall, the figures were undoubtedly disappointing.

So what: Revenue in the third quarter totaled $1.52 billion, a hair shy of the $1.55 billion that the Street was expecting. The company was able to deliver a bottom line beat, however, with $1.57 per share in adjusted profit. The market was expecting just $1.50 per share in adjusted profit. Sales were below the low end of management's guidance for the quarter, and adjusted gross margin came in at 49.1%. The real kicker was in the guidance.

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Now what: NXP said it expects revenue in the fourth quarter to fall by "low to upper-teens range," which caught investors completely off guard. Total revenue is expected to be $1.5 billion, with an adjusted gross margin of around 49.1%. Chip demand has been sluggish, particularly in China. CEO Rick Clemmer said the forecast "reflects a much more cautious view" about NXP's prospects on the horizon.

The company's secure interfaces and power segment is expected to be hit the worst, with revenue expected to fall "in the high-twenty to low-thirty percent range" and should be around $270 million. This division includes NFC chips, where NXP is a market leader and enjoys brand strength, and the weakness surprised management.

On the bright side, the $40 billion merger with Freescale Semiconductor is proceeding through regulatory hoops without issue, and the company expects the mega deal to close by year's end. NXP is already planning out the integration that will lead to the cost synergies that the companies hope to achieve with the deal.

The article Why NXP Semiconductor Crashed 10% in October originally appeared on Fool.com.

Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NXP Semiconductors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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