NXP Semiconductors Free Cash Flow Jumps

Key Points

• Revenue reached $2.93 billion for Q2 2025, surpassing both guidance and analyst estimates but declining 6% from the prior year.

• Automotive segment revenue stabilized year over year, halting five quarters of declines.

• Adjusted free cash flow climbed 20.6% to $696 million for Q2 2025, with a $257 million dividend paid during the quarter.

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NXP Semiconductors (NASDAQ:NXPI), a leading supplier of chips for automotive, industrial, IoT, and mobile applications, reported financial results for the second quarter ended June 29, 2025. The company reported GAAP revenue and non-GAAP earnings per share (EPS) that modestly topped analyst estimates, lifted by stabilization across automotive chips and sequential improvement in several end markets. Revenue (GAAP) stood at $2.93 billion, up from the midpoint guidance and above the $2.90 billion GAAP revenue expected by analysts. Non-GAAP EPS landed at $2.72, compared with an estimated $2.68. Year over year, both revenue (GAAP) and non-GAAP diluted EPS declined amid lingering inventory headwinds and uneven demand outside automotive. Management framed the quarter as modestly better than projections, with stabilization in key segments but persistent caution in the face of inventory and macroeconomic uncertainties.

Source: NXP Semiconductors. Note: Analyst estimates provided by FactSet.

About NXP Semiconductors: Business Model and Recent Focuses

NXP Semiconductors is a global chipmaker known for analog and mixed-signal semiconductors used in cars, smart devices, industrial automation, and communications infrastructure. Its products power technologies ranging from advanced driver aid systems to 5G telecom equipment and secure mobile payments.

In recent years, the company has focused on strategies designed to capture growth in automotive semiconductors—especially as vehicles evolve to become software-defined and more connected. It is also pushing into key areas like industrial automation, IoT (the Internet of Things, or networks of connected devices), and 5G telecom applications. Success in these businesses depends on product innovation, scaling manufacturing capacity, and establishing a broad customer base through proprietary technologies or strategic acquisitions.

Quarterly Review: Financials, Segments, and Strategic Updates

NXP posted GAAP revenue above both internal guidance and consensus estimates but saw a 6% decline from the same period last year. The revenue figure benefited from flat performance in its automotive segment, ending five quarters of year-over-year declines at $1.73 billion (GAAP), attributed to improving demand signals in Asia, even as inventory normalization continues with key Western automotive customers.

The Industrial & IoT segment earned $546 million, down 11% year-over-year but up 7% sequentially. Growth came from design wins in consumer IoT devices in China, while core industrial demand stayed soft. The Mobile segment remained a smaller and declining part of NXP’s mix, down 4% year-over-year to $331 million. The Communications Infrastructure & Other segment reported $320 million, decreasing sharply by 27% year-on-year. Despite softness in several areas, total gross margin remained steady sequentially at 56.5% on a non-GAAP basis, though it was below prior-year levels.

Strategic milestones in automotive played a prominent role in the quarter. On May 8, 2025, the company launched the S32R47 imaging radar processor, which supports advanced driver-assistance and offers up to twice the processing power over its prior version. Further, on June 17, 2025, the company completed its acquisition of TTTech Auto, a specialist in automotive safety systems and middleware for software-defined vehicles. Another partnership, with Rimac Technology announced on June 12, 2025, aims to co-develop a software-defined vehicle architecture for advanced automotive domain and zonal control functions.

The company’s hybrid manufacturing approach—operating internal factories, joint venture fabs, and external partner foundries—remains a focus. For the quarter, days sales in inventory decreased to 158 from 169 the previous quarter. Capital expenditures were $83 million. Research and development expenses stood at $573 million on a GAAP basis, with ongoing investment in autonomous systems, IoT, and edge machine learning products. Despite the revenue downturn, robust cash generation continued, with non-GAAP free cash flow increasing 20.6% to $696 million, giving a margin of about 24 % of sales.

NXP paid out $257 million in dividends and repurchased $204 million in shares during the quarter. The company’s gross financial leverage rose to 2.4x from 1.9x a year ago.

Product and Technology Highlights

During the quarter, NXP advanced its automotive processor portfolio with the introduction of the S32R47 imaging radar processor, a chip designed for advanced vehicle safety and autonomy. Imaging radar processors help cars “see” their environment, supporting safety features from adaptive cruise control to automated emergency braking. This new generation processor is intended to address more demanding levels of autonomous driving by doubling processing capability.

The completion of the TTTech Auto acquisition brought in leading software platforms for safety-critical automotive systems and software-defined vehicles. Software-defined vehicles are cars whose functionality is increasingly dictated by software, allowing new features and ongoing system updates after the car leaves the factory. NXP also announced a partnership with Rimac Technology, a company known for electric vehicle systems, to co-develop automotive controllers and architectures tailored to next-generation vehicles. These product and partnering updates align with the company’s long-term focus areas of increasing market share in automotive chips and broadening its solution set for new mobility trends.

Outlook and Investor Considerations

Looking ahead, management provided guidance for the third quarter. NXP expects GAAP revenue between $3.05 and $3.25 billion for Q3 2025, with the midpoint implying an 8% sequential increase in revenue guidance but a 6% decrease in GAAP revenue compared to the same quarter last year. The non-GAAP operating margin is expected to reach 33.7% for Q3 2025. Non-GAAP EPS is predicted at $3.10 for Q3 2025. Management noted the Q3 2025 forecast reflects an “emerging cyclical improvement” in the company’s main markets, though it emphasized ongoing market uncertainty, particularly related to tariffs, inventory trends, and global macroeconomic factors.

No full-year guidance was issued. The company cited external uncertainties and highlighted that it will continue with a quarter-by-quarter approach to forecasting until volatility subsides, as stated in its prior earnings communications. Investors may wish to monitor developments related to automotive inventory levels, execution on recent acquisitions, shifts in core demand trends for IoT and communications infrastructure, and the impact of broader economic and geopolitical events on semiconductor demand and supply chains.

NXPI paid a quarterly dividend of $257 million during the quarter.

Note: Revenue and net income are presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool recommends NXP Semiconductors. The Motley Fool has a disclosure policy.