NXP Semiconductors N.V. (NXPI - Free Report) recently acquired high-speed automotive Ethernet subsystem technology provider, OmniPHY, for an undisclosed amount. This deal marks a major step for NXP in its efforts toward autonomous driving, as the industry witnesses a revolution in automotive networking.
What Drove the Acquisition?
With the evolution of self-driven cars, the need for high data capacity and speed has become increasingly important. Upcoming next-generation vehicles will require more advanced capabilities like eight or more cameras, high definition radar, lidar and V2X capability. These requirements will create newer and more complex challenges for current car networks.
The synergistic combination of NXP’s long documented expertise in vehicle networking and OmniPHY’s high quality technology will enhance the delivery of automotive Ethernet solutions and speed up the advancement of the former in the rapidly evolving self-driving industry.
NXP is optimistic about its automotive business, which raked in record revenues of more than $1 billion in its last reported quarter, marking a healthy 7% year-over-year rally.
Other Strategic Growth Driving Initiatives
NXP has conducted certain acquisitions in the past, which have proved to be fruitful for its business. The most significant buyout was of Freescale in 2015, which propelled NXP to the top, making it the largest semiconductor supplier to the automotive industry.
Apart from acquisitions, intelligent divestitures like the spin-off of its Standard Products business has been beneficial for the company and has allowed it to focus on high growth segments.
NXP’s Road to Recovery
The acquisition of OmniPHY comes weeks after the termination of the Qualcomm-NXP deal. The broken deal, which would have been the largest acquisition in the chip industry, caused NXP’s shares to plummet, prompting a decision to buy back $5 billion worth of its shares. On a year-to-date basis, NXP’s shares have lost 20.4% compared to the industry’s decline of 0.1%.
The NXP-OmniPHY deal makes us optimistic about the prospects of NXP as an independent player in the emerging automotive networking market.
Zacks Rank & Stocks to Consider
NXP currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader Computer and Technology sector are Qualys, Inc. (QLYS - Free Report) and Fortinet, Inc. (FTNT - Free Report) , each sporting a Zacks Rank #1 (Strong Buy), and Virtusa Corporation (VRTU - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth for Qualys, Fortinet and Virtusa is projected to be 8%, 16.8% and 20% respectively.
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