NXP Semiconductors (NXPI -0.59%) just reported its financial results for the first quarter of 2023. The Dutch-American company's revenue was down year over year, but it still managed to beat its own guidance with a side order of robust earnings in this period. The company is making its way through a cyclical downturn in consumer-exposed businesses, boosted by its leading role in the resurgent automotive and industrial niches.

Financial results

Total revenue for the quarter was $3.12 billion, ever so slightly down from $3.14 billion in the same period last year. I'd call it a rounding error. The gross margin according to generally accepted accounting principles (GAAP) was 56.7%. The unadjusted operating margin was 26.4%, and NXP's non-GAAP diluted net income per share was $3.19.

The results exceeded Wall Street's consensus targets by a comfortable margin. Your average analyst would have settled for earnings of roughly $3.02 per share on top-line sales near $3 billion.

The company also produced respectable cash profits. During the first quarter of 2023, NXP Semiconductors generated $632 million in cash flow from operations, with net capital expense investments of $251 million, resulting in free cash flow of $381 million. That's down from $530 million in the year-ago period, but again, still a respectable result given the struggling global economy. As if to soothe investors' rattled nerves, the company paid out cash dividends of $219 million during the quarter.

Management's outlook

Looking ahead, NXP Semiconductors' management sees signs of recovery amid the cyclical downturn in consumer-exposed businesses. The company is cautiously optimistic about the future, and it expects to continue navigating this cyclical downswing thanks to strong sales in its automotive and industrial businesses.

In a statement, NXP CEO Kurt Sievers said, "Solid first-quarter results, guidance for the second quarter, and our early views into the second half of the year underpin a cautious optimism that NXP is successfully navigating through the cyclical downturn in our consumer-exposed businesses."

Factors driving NXP management's optimism

Management's bullish mood is based on several factors.

  • The company is a leader in key markets, such as automotive computing and mobile security/authentication chips, which have shown resilience during the cyclical downturn.
  • NXP has also been investing in new products and technologies, such as the i.MX 95 family of applications processors and the EdgeLock SE051H, a single-chip secure element designed for the freshly launched connectivity standard known as Matter. These investments are expected to help the company find new growth opportunities in niches such as smart home devices and high-performance edge computing systems.
  • The largest and most important part of this company -- automotive computing products, which accounted for 59% of this quarter's total sales -- is also the fastest-growing segment. Automotive sales rose 17% year over year, pointing to a broad market recovery in the carmaking industry.

NXP Semiconductors also expects to benefit from the rise of smart connected devices, smart factories and homes, smart connected cars, and data-center servers, all of which are driving waves of semiconductor growth. The company's leadership in key markets and investments in new products and technologies make it a stock to watch as the industry navigates through the cyclical downturn.

What have investors learned here?

NXP crushed Wall Street's low expectations even if the year-over-year comparisons didn't look great. While the company's Q1 2023 revenue was down year over year, it still posted robust earnings and respectable cash profits.

This solid report reveals that NXP is safely navigating the cyclical downturn in consumer-exposed businesses. For this, the company can thank its leadership in key markets such as automotive computing plus mobile security and authentication chips. Every time you pay for your groceries or your gas with a mobile app, you probably connected your phone to the cash register or gas pump through NXP's near-field communication chips. It's a smaller revenue stream than the massive automotive opportunity, but it's always nice to have an utterly robust side gig to fall back on.

As the industry charts a collective course out of the macroeconomic downturn, NXP Semiconductors' leadership in key markets and investments in new products and technologies make it a stock to watch. Overall, investors should take note of the company's resilience in today's challenging market and consider how well the company might perform when the economy gets back on its feet again.