# How NXP makes money

CXProWealth Business Lens · NXP (NXPI) · Q3 FY2026

Read from the 10-Q for the period 2026-06-29 to 2026-09-27, filed 2026-10-27 with the SEC (accession 0001413447-26-000059): https://www.sec.gov/Archives/edgar/data/1413447/000141344726000059/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $3.8B (+33.5% on the year)
- Operating income: $1.2B (operating margin 32.4%)
- Net income: $884.0M (net margin 23.3%)
- Gross margin: 57.8%
- Free cash flow: $1.2B (31.8% of revenue)
- Cash conversion (operating cash flow / net income): 1.42x
- Capital expenditure: 1.3% of revenue

## Where the money goes (Q3 FY2026)

- Revenue → Cost of revenue: $1.6B
- Revenue → Gross profit: $2.2B
- Gross profit → Total operating expenses: $958.0M
- Total operating expenses → Research and development: $615.0M
- Total operating expenses → Selling, general and administrative: $313.0M
- Total operating expenses → Amortization of acquisition-related intangible assets: $30.0M
- Gross profit → Other income (expense): $3.0M
- Gross profit → Operating income (loss): $1.2B
- Operating income (loss) → Other financial income (expense): $97.0M
- Operating income (loss) → Income (loss) before income taxes: $1.1B
- Income (loss) before income taxes → Benefit (provision) for income taxes: $228.0M
- Income (loss) before income taxes → Results relating to equity-accounted investees: $4.0M
- Income (loss) before income taxes → Net income (loss): $899.0M
- Net income (loss) → Less: Net income (loss) attributable to non-controlling interests: $15.0M
- Net income (loss) → Net income (loss) attributable to stockholders: $884.0M

## Where the revenue comes from

### ContractWithCustomerSalesChannel (Supplemental Financial Information - Schedule of Disaggregation of revenue (Details))

| Member | Value | Share |
|---|---:|---:|
| Distributors | $2.2B | 59.3% |
| Direct | $1.5B | 39.6% |
| Other | $44.0M | 1.2% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q3 FY2026 | Of revenue |
|---|---:|---:|
| Revenue | $3.8B | 100% |
| Cost of revenue | ($1.6B) | 42.2% |
| **Gross profit** | $2.2B | 57.8% |
| Research and development | ($615.0M) | 16.2% |
| Selling, general and administrative | ($313.0M) | 8.3% |
| Amortization of acquisition-related intangible assets | ($30.0M) | 0.8% |
| **Total operating expenses** | ($958.0M) | 25.3% |
| Other income (expense) | -$3.0M | 0.1% |
| **Operating income (loss)** | $1.2B | 32.4% |
| Other financial income (expense) | -$97.0M | 2.6% |
| **Income (loss) before income taxes** | $1.1B | 29.9% |
| Benefit (provision) for income taxes | ($228.0M) | 6.0% |
| Results relating to equity-accounted investees | -$4.0M | 0.1% |
| **Net income (loss)** | $899.0M | 23.7% |
| Less: Net income (loss) attributable to non-controlling interests | $15.0M | 0.4% |
| **Net income (loss) attributable to stockholders** | $884.0M | 23.3% |
| Basic net income (loss) (in dollars per share) | $4 | 0.0% |
| Diluted net income (loss) (in dollars per share) | $3 | 0.0% |
| Basic (in shares) | 252,123,000 |  |
| Diluted (in shares) | 253,831,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2009 | $3.5B | -$931.0M | -$167.0M | -$701.0M | $92.0M | -$793.0M |
| FY2010 | $4.4B | $273.0M | -$456.0M | $361.0M | $258.0M | $103.0M |
| FY2011 | $4.2B | $357.0M | $390.0M | $175.0M | $221.0M | -$46.0M |
| FY2012 | $4.4B | $412.0M | -$115.0M | $722.0M | $251.0M | $471.0M |
| FY2013 | $4.8B | $651.0M | $348.0M | $891.0M | $215.0M | $676.0M |
| FY2014 | $5.6B | $1.0B | $539.0M | $1.5B | $329.0M | $1.1B |
| FY2015 | $6.1B | $2.0B | $1.5B | $1.3B | $341.0M | $989.0M |
| FY2016 | $9.5B | -$150.0M | $200.0M | $2.3B | $389.0M | $1.9B |
| FY2017 | $9.3B | $2.1B | $2.2B | $2.4B | $552.0M | $1.9B |
| FY2018 | $9.4B | $2.7B | $2.2B | $4.4B | $611.0M | $3.8B |
| FY2019 | $8.9B | $641.0M | $243.0M | $2.4B | $526.0M | $1.8B |
| FY2020 | $8.6B | $418.0M | $52.0M | $2.5B | $392.0M | $2.1B |
| FY2021 | $11.1B | $2.6B | $1.9B | $3.1B | $767.0M | $2.3B |
| FY2022 | $13.2B | $3.8B | $2.8B | $3.9B | $1.1B | $2.8B |
| FY2023 | $13.3B | $3.7B | $2.8B | $3.5B | $827.0M | $2.7B |
| FY2024 | $12.6B | $3.4B | $2.5B | $2.8B | $727.0M | $2.1B |
| FY2025 | $12.3B | $3.0B | $2.0B | $2.8B | $397.0M | $2.4B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: -2.7% (year before -5.0%): accelerating
- Operating income: -10.8% (year before -6.7%): slowing
- Net income: -19.5% (year before -10.3%): slowing
- Free cash flow: +17.9% (year before -23.5%): accelerating

## Key insights

### Operating profit grew nearly twice as fast as revenue

Operating expenses rose 7.4% while revenue rose 19.3%, so operating income climbed 37.5% and the operating margin reached 32.4% from 28.1%.

Revenue rose 19.3% to $3,786 million from $3,173 million a year earlier. Total operating expenses rose 7.4% to $958 million and fell to 25.3% of revenue, 2.8 points lower. Operating income rose 37.5% to $1,228 million from $893 million. _(from the filing)_
The filing says the rises in research and development and in selling and administrative costs were driven primarily by increased variable compensation due to improved company performance. Gross profit added to the effect: it rose 22.5%, faster than revenue, which the filing attributes to higher sales volumes and utilization. _(from the filing)_
The same pattern shows against the prior quarter. Revenue rose to $3,786 million from $3,496 million, while operating income rose further in proportion, to $1,228 million from $1,071 million. _(from the filing)_
Analysis: because the filing names performance-linked pay as the main source of the cost increase, the engineering base itself grew less than the reported expense lines. That is why so much of each extra dollar of revenue reached operating income, and also why part of this year's expense would ease in a weaker year. _(analysis)_

### Margins above any full year in the record

Gross margin of 57.8% and operating margin of 32.4% both exceed every full year in the record, where operating margin peaked at 28.8%.

Across the full years in the record, the highest operating margin was 28.8%, on revenue of $13,205 million and operating income of $3,797 million. The highest gross margin came in that same year, with gross profit of $7,517 million, still below this quarter's 57.8%. The latest full year ran at a gross margin of 54.7%, on revenue of $12,269 million, gross profit of $6,716 million and operating income of $3,047 million. _(from the filing)_
The filing attributes the gross margin gain over the prior quarter, 57.8% against 57.3%, to higher sales volumes and higher manufacturing utilization, and the gain over the year-earlier 56.3% to higher volumes and utilization. Cost of revenue grew 15.2% while revenue grew 19.3%. _(from the filing)_
Analysis: this sets one quarter against full years, and a single quarter can run above a year's average. The comparison shows how far the cost structure has moved with fuller factories and slower expense growth, not what a full year will deliver. _(analysis)_

### Free cash flow reached 1.36 times net profit

Free cash flow of $1,205 million was 1.36 times net income attributable to stockholders and more than double the $508 million of a year earlier.

Operating cash flow was $1,256 million, 1.42 times net income attributable to stockholders of $884 million. Capital spending was $51 million, 4.1% of operating cash flow, against $77 million a year earlier, leaving free cash flow of $1,205 million, 31.8% of revenue. _(from the filing)_
A year earlier, operating cash flow was $585 million and free cash flow $508 million, against net income attributable to stockholders of $631 million. The filing points to accrued variable compensation as a main driver of the rise in liabilities this year, which is pay earned but not yet paid out. _(from the filing)_
The company's free cash flow subtracts spending on plant and equipment only. Equity contributions to its foundry ventures sit in investing cash flow, and payments to secure production supply sit in operating cash flow, so capacity is also being paid for on other lines. _(from the filing)_
Analysis: the gap between cash and profit has two parts. Some is timing, such as bonuses accrued now and paid later, which reverses when they are paid. Some is structural, since depreciation runs above the low capital spending. Several quarters would be needed before treating this ratio as normal. _(analysis)_

### Competitive edge

- **One engineering base serves several end markets** Research and development rose 7.0% to $615 million while revenue rose 19.3%, so engineering spend fell to 16.2% of revenue from 18.1%.
- **Partner foundries keep NXP's own capital spending low** Capital spending was $51 million, 1.3% of revenue, while NXP secures added capacity through stakes in foundry ventures rather than new plants of its own.
- **Distributors extend reach at low selling cost** Distributors sold $2,244 million, 59.3% of revenue, while selling, general and administrative costs fell to 8.3% of revenue from 9.0%.

### What to watch

- **The same operating leverage cuts the other way** From the record's peak revenue year to the latest full year, revenue fell 7.6% while operating income fell 16.8%, more than twice as fast.
- **Foundry commitments are owed whatever demand does** NXP has committed further equity to VSMC and ESMC and a lifetime minimum loading of the VSMC factory, obligations that hold if demand weakens.
- **Distributor orders sit one step from end demand** With 59.3% of revenue sold through distributors, reported sales follow channel orders, which can run ahead of or behind what end customers use.

## Investor view

**NXP's operating income rose 37.5% as its costs grew far slower than its revenue**

### How it makes money

NXP designs and sells semiconductors, mainly processors and mixed-signal products, into four end markets it names in the filing: Automotive, Industrial & IoT, Mobile, and Communication Infrastructure & Other. Automotive is the largest. The company reports a single segment, so the chief executive reviews the business as one whole rather than as separate units. _(from the filing)_
The quarter brought in revenue of $3,786 million. Making the chips cost $1,597 million, which left gross profit of $2,189 million, a gross margin of 57.8%. That margin is the room the business has to fund design work, sales and profit. _(from the filing)_
Research and development is the largest expense: $615 million, or 16.2% of revenue. Selling, general and administrative costs were $313 million, or 8.3% of revenue. After these and $30 million of amortization from past acquisitions, operating income was $1,228 million, an operating margin of 32.4%. _(from the filing)_
Most chips reach customers through distributors. Distributor sales were $2,244 million, 59.3% of revenue, against $1,498 million, or 39.6%, sold directly. The remaining $44 million is listed as other. _(from the filing)_
Manufacturing leans on partners. NXP consolidates SSMC, a joint venture with TSMC, and has equity stakes in two foundry ventures, VSMC and ESMC, in exchange for secured capacity. Capital spending on its own plant and equipment was $51 million in the quarter, 1.3% of revenue. _(from the filing)_

### What shifted

Revenue rose 19.3% to $3,786 million from $3,173 million a year earlier, and was above the $3,496 million of the prior quarter. The filing says Automotive, Industrial & IoT and Communication Infrastructure & Other grew, driven by processors and mixed-signal products, while Mobile declined. _(from the filing)_
Gross margin widened to 57.8% from 56.3%, a gain of 1.5 points, because cost of revenue grew 15.2% while revenue grew 19.3%. The filing attributes the increase in gross profit to "higher sales volumes and utilization": more chips moving through factories whose costs are largely fixed. _(from the filing)_
Operating expenses rose only 7.4% to $958 million, falling to 25.3% of revenue, 2.8 points lower. Research and development grew 7.0% and selling and administrative costs 9.4%; the filing says both increases were driven mainly by "increased variable compensation expenses due to improved company performance". Operating income rose 37.5% to $1,228 million, and the operating margin moved to 32.4% from 28.1%. _(from the filing)_
Below operating income, the tax provision rose 54.1% to $228 million, an effective rate of 20.2% against 18.6% a year earlier. Net income attributable to stockholders still rose 40.1% to $884 million. Diluted earnings per share were $3.48 against $2.48, on 253.8 million diluted shares against 254.3 million, so nearly all of the per-share gain came from profit, not a smaller share count. _(from the filing)_
Cash ran ahead of profit. Operating cash flow was $1,256 million and capital spending $51 million, leaving free cash flow of $1,205 million, 31.8% of revenue. Operating cash flow was 1.42 times net income attributable to stockholders. The filing points to accrued variable compensation among the liabilities that rose this year, which is pay earned but not yet paid out. _(from the filing)_

### Risks in the filing

The quarterly report states that there have been no material changes to the risk factors in the most recent annual report. The risks this filing itself spells out sit in its notes on commitments, debt and contingencies. _(from the filing)_
Foundry commitments are fixed obligations. NXP has committed further equity to VSMC and ESMC, and has agreed with VSMC on a minimum loading of the factory over its lifetime once wafer production starts, a purchase commitment that applies whether or not NXP's own demand needs that capacity. It also carries other purchase commitments with suppliers stretching over many years. _(from the filing)_
The company carries fixed-rate notes and European Investment Bank loans. Financial expense was $97 million in the quarter against $98 million a year earlier. Cash held in SSMC is not fully NXP's: under the joint venture agreement, part of any dividend goes to TSMC, and non-controlling interests took $15 million of net income in the quarter. _(from the filing)_
NXP says it is regularly involved in claims and litigation, including contractual, personal injury and intellectual property disputes, and that acquisitions and divestments can lead to further claims. The personal injury suits it defended for Motorola were settled and paid during the year, and the filing says no further financial impact is expected from them. _(from the filing)_
Of these, the foundry commitments are the one the numbers already show. Payments to secure production supply flow through operating cash flow, and equity contributions to the foundry ventures through investing cash flow, while the capital spending line stays low. The commitment is visible in cash today and becomes a loading obligation once the new factory runs. _(analysis)_

## Founder view: mechanisms

### One design base sold into many markets

NXP spends heavily on engineering once and sells the resulting processor and mixed-signal families into cars, factories, networks and phones. Each extra unit of revenue does not need a matching unit of design spend, so when demand returns across markets, revenue climbs faster than the engineering budget and the operating margin widens. _(analysis)_

### Fuller factories widen gross margin

Chip factories carry large fixed costs: equipment, depreciation, staff. When more wafers run through them, that fixed cost spreads over more units and each chip costs less to make. The filing names utilization as a driver of this quarter's gross margin gain, which is this mechanism at work. _(analysis)_

### Capacity secured through partners, not owned fabs

Instead of building every factory itself, NXP takes equity stakes in foundry ventures and commits to take their output, in exchange for reserved capacity. This keeps its own capital spending low while still securing supply, but it swaps a building cost for a long purchase obligation and moves part of the spending off the capital expenditure line. _(analysis)_

### Distributors reach the long tail

NXP sends most of its volume through distributors, who keep inventory, handle small orders and support many customers NXP could not serve one by one. NXP keeps the design relationship and engineering, the channel carries the logistics and the breadth. It widens reach at low selling cost, at the price of seeing end demand one step removed. _(analysis)_

## Member research

Signed-in members read, on the page: what NXP's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- NXP 10-Q for the period to 2026-09-27: https://www.sec.gov/Archives/edgar/data/1413447/000141344726000059/ (2026-10-27)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02