Under the impact of tariffs, NXP Semiconductors' Q2 automotive chip sales were weak, and Q3 revenue is expected to decline further, dropping over 5% in after-hours trading | Earnings Report Insights

The latest financial report shows that Dutch semiconductor giant NXP Semiconductors saw a slowdown in revenue decline last quarter, but sales of its main business, automotive chips, remain weak. Facing the impact of U.S. tariffs, the company's guidance for this quarter remains cautious.

After the earnings report was released, NXP's U.S. stock (NXPI), which had already risen over 1%, plummeted in after-hours trading, currently down over 5%.

On July 21, Eastern Time, Netflix announced its financial performance for the second quarter ending June 29 and provided guidance for the third quarter.

1) Key Financial Data:

Revenue: Second-quarter operating revenue was $2.93 billion, a year-on-year decrease of 6%, with analysts expecting $2.9 billion, down 9% year-on-year in the first quarter.

EPS: The second-quarter adjusted diluted earnings per share (EPS) under non-GAAP was $2.72, a year-on-year decrease of 15%, with analysts expecting $2.68, down 19% year-on-year in the first quarter.

Operating Profit: The second-quarter adjusted operating profit was $935 million, a year-on-year decrease of 13%, down 16% year-on-year in the first quarter.

Gross Profit: The second-quarter adjusted gross profit was $1.65 billion, a year-on-year decrease of 10%, with an adjusted gross margin of 56.5%, down 2.1 percentage points year-on-year. The gross profit in the first quarter decreased by 12% year-on-year, and the gross margin decreased by 2.1 percentage points to 56.1%.

2) Performance Guidance:

Revenue: Expected third-quarter revenue is $3.05 billion to $3.25 billion, with analysts expecting $3.07 billion.

EPS: Expected third-quarter adjusted EPS is $2.89 to $3.30, with analysts expecting $3.06.

Operating Profit: Expected third-quarter adjusted operating profit is $998 million to $1.12 billion, with analysts expecting $1.02 billion.

Gross Profit: Expected third-quarter adjusted gross profit is $1.72 billion to $1.87 billion, with an adjusted gross margin of 56.5%, and analysts expecting 56.9%.

Q2 Revenue and Profit Declines Slightly Exceed Expectations; Automotive Revenue Stops Five-Quarter Decline

The financial report shows that NXP's revenue and profit in the second quarter both slowed their decline compared to the first quarter, and the degree of slowdown slightly exceeded Wall Street's expectations.

In the second quarter, NXP's year-on-year revenue decline slowed from 9% in the first quarter to 6%, while analysts expected a decline of nearly 7.3%.

The year-on-year decline in NXP's EPS earnings slowed from 19% in the first quarter to 15% in the second quarter, with analysts expecting a decline of nearly 16.3%. The adjusted net profit in the second quarter decreased by 17% year-on-year to $690 million, a decline that was also lower than the 20% drop in the first quarter.

Commentators believe that NXP's second-quarter performance was mainly affected by the weak automotive market and the tariff war initiated by U.S. President Trump, with automotive chips contributing to more than half of the company's revenue In NXP Semiconductors' main business, the largest segment, automotive, recorded revenue of $1.73 billion in the second quarter, slightly exceeding the level from a year ago, halting a trend of year-on-year declines for five consecutive quarters, as revenue from the automotive business in the first quarter had decreased by 7% year-on-year.

NXP's second-largest business, industrial and IoT (Internet of Things), saw revenue of nearly $550 million in the second quarter, a year-on-year decline of 11%, consistent with the decline in the first quarter. Mobile business revenue was $330 million, down 4% year-on-year, slightly exceeding the 3% decline in the first quarter.

Third Quarter Revenue Guidance Indicates a Maximum Decline of 6%, Median Guidance Down 3%

Looking ahead to this quarter, NXP's revenue guidance range of $3.05 billion to $3.25 billion indicates that the company expects third-quarter revenue to be flat year-on-year to a decline of 6%. The median of NXP's revenue guidance range is $3.15 billion, equivalent to a year-on-year decline of 3%. The analyst expectation of $3.07 billion is at the lower end of the guidance range.

NXP's gross profit guidance range of $1.72 billion to $1.87 billion implies that gross profit is expected to decline year-on-year by 1.2% to 8.9% in the third quarter. The operating profit guidance of $998 million to $1.12 billion suggests that operating profit is expected to decline year-on-year by 2.5% to 13.4%.

NXP's CEO Kurt Sievers stated that the guidance for the third quarter reflects, to some extent, improvements in the company's core end markets.

Commentators believe that, like its peers, NXP has been struggling to cope with the oversupply of chips required for electric vehicles and manufacturing. Additionally, weak demand in the automotive and industrial sectors may weigh on NXP and its competitors Infineon and STMicroelectronics' sales.

Last week, due to intensified competition and a downturn in the automotive market, French automotive giant Renault significantly lowered its operating profit margin expectations for this year. Due to the dual impact of U.S. tariffs and hefty restructuring costs, on Monday, Stellantis, the world's fourth-largest automaker headquartered in Europe, unexpectedly announced a shift from profit to loss in the first half of this year, expecting a net loss of €2.3 billion in the first half, compared to a profit of €5.6 billion in the same period last year.

Bloomberg Industry Research analyst Ken Hui pointed out in a report released last week that due to fierce competition and a downturn in the automotive market, automotive chip manufacturers may face greater pricing pressure following Renault's downgrade of its outlook, and European customers' replenishment demand facing tariff shocks will come to an end.

Furthermore, Hui expects that the recovery in industrial chip revenue may not be sustainable, as orders from factory automation leader Yaskawa Electric fell short of expectations in the first quarter, and the company has lowered its full-year guidance considering the risks of tariffs