Dive Brief:
- Netherlands-based chipmaker NXP Semiconductors is struggling to bring down its bloated inventory levels amid stagnant automotive demand, President and CEO Kurt Sievers told investors during the company's Q2 earnings call.
- Revenue from the company's automotive segment, which made up the largest portion of NXP's revenue in 2023, "troughed" in the second quarter, bringing overall revenue down 5% year over year.
- Sievers noted the company continues to mitigate slower demand in a soft automotive market. NXP now expects the "inventory digestion process" at some direct Tier 1 auto customers to extend into the second half of the year, taking longer than expected to normalize stock levels.
Dive Insight:
NXP originally targeted getting 2.5 months' worth of inventory into the distribution channel this year, but with auto customers still hesitant to increase orders, that goal is slipping away.
Instead, the chipmaker is forecasting 1.8 months' of inventory in the distribution channel next quarter, as it stages stock in a "very controlled and targeted manner," the CEO told investors.
Combined with continued weakness in NXP's core industrial markets in Europe and the Americas, the company is now expecting a revenue decline for the fiscal year.
One of the issues the chipmaker faces is automakers' desire to keep low inventory backlogs, which range between two and 12 weeks, making it harder for NXP to push out product.
Sievers noted the company's strategy to keep inventory channels lean in a bid to turn back to growth in the coming months amid expectations of a reacceleration in the auto sector in the second half of the year.
"We still have a little bit of work to do in the third quarter to get there," the CEO said. "The tide is already changing, but we are not through."
NXP is among many chipmakers struggling this year amid a slowdown in the auto industry. Amkor Technology's automotive and industrial business' revenue plunged 22% in Q1, and the company's sales in the segment were down again in Q2.
"The coverage in this market is taking longer than anticipated due to weak demand and ongoing inventory corrections," Amkor President and CEO Giel Rutten said on a July 29 earnings call.
