The entire semiconductor space may be running hot today, but with volume and content growth in autos, recovery and new market opportunities in industrial and communication markets, and lean channel inventories, it may take some time for record-high lead-times to shrink. And even when they do (they always do…), NXP Semiconductors (NXPI) has strong multiyear secular growth drivers that can cushion the blow relative to other chip companies.
I’ve definitely underestimated the Street’s enthusiasm for chip names, but I at least got it right in preferring NXP within the space, as the shares have risen more than 75% since my last update – handily outperforming the sector and more direct peers like Texas Instruments (TXN) and Microchip (MCHP), though Renesas (OTCPK:RNECY) and ON (ON) have done even better (though ON with a restructuring/self-improvement theme).
I don’t know when the music is going to stop for the chip sector; in the past, high lead-times have led to weaker results down the road, but maybe this cycle will be different. I don’t really like the long-term prospective returns in the space now, but I do like NXP’s relatively better growth outlook. If management can really deliver on margin leverage (a challenge for the company in the past), so much the better. I can see the appeal in NXP from better growth prospects and a “have to own something” standpoint, though I don’t plan to chase the shares up here.
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