Last year, semiconductor sales could set a historic high, and the entire industry increased by 13.7% to 468.8 billion US dollars. Car, factory automation and Internet of Things (IoT), and other uses have brought huge long-term winds in recent years.
This year, it will be a slow year for the industry, but at some point, the above trend will once again, and sales growth will recover. NXP semiconductor and Texas Instruments are the largest two chip suppliers in automotive companies and industrial applications. In the long run, investors will not be wrong to these two stocks, but today we have to narrow the choice to a single best stock.
Image Source: Getty Images
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What did these companies do?
NXP semiconductor provides a variety of chip products for automotive, industrial and Internet of Things fields, and provides security technology for banking. The company has more than 25,000 customers, from AutoLiv, Bosch and Delphi
Top car suppliers such as Technologies to include Amazon.com and Apple leading consumption brands.
NXP has been open for more than 50 years. In 2018, the company has created $ 9.4 billion in income to occupy the first or second of the market share in most product categories.
In addition to providing chips for automotive and industrial companies, Texas Instruments also produces chips for various consumer products such as electric toothbrush and calculator, and apple's iPhone. Due to its low-cost manufacturing process, the company can sell chips with competitive price, which has been carefully adjusted in nearly a century.
NXP and TI are leading in the automotive market. The car income is 48% of the top of Zhixu, and most of the IT instruments are from the portfolio of products that are sold to the automotive and industrial market. These markets are very attractive to these companies because the product life cycle is very long, customer relationship is tight, and the profit margin is very high.
Last year, NXP and Ti's operating profit margin were 28.8% and 42.5%, respectively, indicating the competitive moat of the two companies. These chip supplies have spent decades to stream their manufacturing processes and establish relationships with almost unable to copy.
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Which company has grown faster?
After a record of the semiconductor industry, 2019 will be a year of growth in a year. Does not include economic issues, chip companies are also compared to severe annual growth.
In 2018, NXP's sales increased by 1.6%. Over the past five years, the company's income and free cash flow increased by 83% and 349%, respectively, and part of the reasons is acquisition. However, the macro trend caught up with the company in the fourth quarter of last year, and sales fell by 2% year-on-year. The company will blame sales in the weakness of the China Auto and Industrial Market, which also disrupted the sales growth of Texas instruments.
Texas Instruments have grown 5.5% last year. In the past five years, income and free cash flow have climbed 26% and 89%, respectively. However, as expected, the company has weak demand in the first quarter, causing revenue fell by 5% year-on-year, while earning 7% per share.
The two companies expect income in the short term to be reduced, but NXP expects demand in the second quarter to come. For the first quarter, NXP expects revenue will fall by 8% year-on-year.
At present, analysts expect NXP to report by 5% to $ 8.94 billion in 2019. On the other hand, analysts expect TI to report annual revenue of 14.92 billion US dollars, down 5.5% year-on-year.
These two companies have currently no advantage, but NXP is obviously a better growth company in the past five years. Looking forward to 2019, analysts expect NXP's annual profit growth rate of approximately 11%, and they expect TI's annual benefits will increase by 8%.
One reason that NXP may grow faster is its RF (RF) technology to benefit chips from 5G deployment and Internet of Things. This fully reflects the advantages of NXP because the company is the first supplier of RF power.
Advantage: NXP semiconductor.
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Tough
The chip industry has experienced the cycle of demand and weakness, depending on the economic situation. Powerful financial status can help companies have passed the difficulties and may have increased value-added acquisitions and dividends, thereby creating shareholders' returns.
The following is a comparison of NXP and TI key financial indicators:
Data Source: YCHARTS TTM = Over the past 12 months
Overall, the financial situation of Texas Instruments far exceeds NXP. TI is a large-scale company based on income, and its debt is small, and the operating rate is also higher.
Advantage: Texas Instruments.
Pricing
The following is how two companies are superimposed on the valuation:
Source: Yahoo Finance! PE = P / E ratio. PEG = P / E rate growth
Considering analysts expect the company's annual profit growth rate of approximately 11%, NXP 12.96's long-term price-earnings ratio looks very cheap. Ti's dividend yield is high, but this is due to a higher dividend interest rate. Overall, NXP is currently a better value.
Advantage: NXP semiconductor
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NXP is a better choice
Considering that almost all things are getting higher and higher, especially the increase in the content of the car chip, NXP and TI should be a robust investment.
However, NXP is a better choice because it has an advantage in valuation and growth expectations.
(Source: US stock research agency)
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