What are the three major European semiconductor manufacturers anxious about?

Recently, three European semiconductor companies, STMicro, NXP, and Infineon, have announced their financial reports, among which the automotive semiconductor business has declined to varying degrees. However, American companies such as Qualcomm and Nvidia are growing strongly in the automotive chip market. Automotive chips used to be the fastest-growing business of the three European semiconductor companies, and it was the second growth curve after the industrial semiconductor business. In the face of the aggressive offensive of competitors and the European new energy vehicle market is less than expected, the anxiety of these three European semiconductor companies has become increasingly strong - both offense and defense seem to have become problems.

The automotive chip business slowed down

Although the names of the financial settlement cycles of various enterprises are different, in general, in the first three months of 2024, the automotive business, as the mainstay of each company's revenue, is difficult to "carry the beam" in the context of slowing market demand growth, which affects the company's overall financial performance.

ST's first-quarter revenue of $3.47 billion and gross margin of 41.7% were below the median of the expected range. This was mainly due to lower sales performance in the automotive and industrial segments.

Back in the fourth quarter of 2023, STMicroelectronics expressed concerns about the automotive market. Jean-Marc Chery, CEO of STMicroelectronics, believes that end demand in the automotive market is stabilizing and business growth is slowing. In the first quarter, the automotive market accounted for 46% of ST's revenue, but revenue fell 14% year-over-year.

Infineon's revenue for the fiscal second quarter ended March 31, 2024 was EUR 3,662 million, down 2 percent sequentially and 12 percent year-on-year. Among them, the automotive division (ATV) segment revenue reached 2.078 billion euros, which was relatively stable compared to 2.085 billion euros in the previous quarter, but the decline in its profits and margins also showed that the current automotive market is facing certain price pressures.

"Many end markets remain weak, while customers and distributors continue to reduce semiconductor inventory levels. Demand for consumer electronics remains weak, and growth in the automotive industry has slowed significantly. Infineon CEO Jochen Hanebeck said in the earnings conference that Infineon has also lowered its guidance for the fiscal year given at the beginning of the year from 16 billion euros (plus or minus 500 million euros) to 15.1 billion euros (plus or minus 400 million euros).

NXP's first-quarter revenue was $3.13 billion, up 0.2% year-over-year, showing a relatively flat performance. Its revenue in the automotive market was about 1.8 billion, not only down 5% year-on-year, but also declining for the first time after four consecutive quarters of quarter-on-quarter growth.

On the whole, the automobile market accounts for more than 40% of the operating share of the three companies, but because it is in a cycle of slowing growth, coupled with the lack of obvious signs of recovery in the industrial, consumer electronics and other market sectors, several companies are worried about this.

There is a structural surplus of automotive chips

The main reason why the revenue performance of the European "troika" is lower than expected is the imbalance between the supply and demand of automotive chips. After experiencing a "core shortage" in 2020-2021, the auto market has experienced a short-term structural surplus.

Gong Ruijiao, an analyst at Trend Force, told China Electronics News that the short-term structural surplus of automotive chips is manifested in the obvious inventory pressure of some products, while the momentum of some products is relatively stable.

Specifically, general-purpose chips such as MCU and PMIC (power management chips) are currently in the stage of price reduction and destocking due to the high inventory level caused by a large number of car companies hoarding goods in the past two years; However, the demand for power semiconductors, computing chips and other chips has gradually increased with the deepening of the process of automobile electrification, intelligence, and networking, and there is even a situation where supply exceeds demand in the short term.

From the perspective of an established car core company, it is not easy to quickly solve the two problems of structural surplus.

Judging from the characteristics of the automobile industry chain, it will take some time to digest the inventory.

STMicroelectronics' financial report data shows that the inventory in the quarter was 2.69 billion US dollars, with no significant fluctuations from the previous quarter, and its DIO (inventory turnover days) was 122 days, an increase of 18 days from the previous quarter, compared with the end of the "core shortage", the DIO level was around 100 days. NXP's DIO for the quarter was 144 days, the highest level for five consecutive quarters. The extended operation time of the inventory cycle also means that the demand for car cores by car companies has not yet shown obvious signs of easing.

Inventory cycle of STMicroelectronics in the past 3 years (data source: STMicroelectronics, compiled by China Electronics News)

"Compared with consumer electronics, the traditional automotive industry has a longer sales cycle and a more complex supply chain." Sheng Linghai, vice president of Gatner, told reporters, "Because OEMs do not buy chips directly, but through Tier 1. Tier 1 chips must be assembled into modules before they can be delivered to OEMs, which then schedule production according to orders. "Due to the interlocking production scheduling process, the higher requirements for management accuracy and timeliness, and the large number and variety of long-tail goods in the automotive supply chain, the complexity of the supply chain has increased the difficulty of overall inventory operation.

From the perspective of enterprise technology reserves, in order to cope with the new demand for cockpit and autonomous driving chips brought about by the trend of automobile electrification and intelligence, the technology migration cost of old car cores is higher than that of Fabless enterprises that mainly focus on computing power chips.

Electric vehicles are often referred to as "mobile phones on wheels", a metaphor that highlights the many similar uses of electric vehicles to mobile phones outside of driving. Taking the intelligent cockpit as an example, in addition to the basic requirements such as environmental perception and human-computer interaction, more functions that require the combination of software and hardware, such as full LCD instrument panel and in-vehicle entertainment, have also been born, and these are inseparable from the construction of the underlying operating system of the cockpit. Data processing capabilities, software application ecology, operating system (OS) and its compatibility, these new requirements are more feasible for computing chip companies to migrate.

As mentioned above, the other side of the structural shortage of automotive chips is that the market demand for on-board computing chips is relatively strong, which is also reflected in the financial reports of some computing chip companies. Qualcomm relies on the cockpit chip Snapdragon 8295, autonomous driving chip Snapdragon 8650 and other related on-board solutions, its automotive business has been booming, data shows that Qualcomm's automotive business revenue in the second fiscal quarter exceeded 600 million US dollars, an increase of 35% year-on-year. NVIDIA's automotive business revenue has grown steadily, and its autonomous driving chips Orin and Thor are being used in many domestic new energy vehicle brands such as Xiaomi and Ideal.

Nvidia's revenue trend in the automotive market in the past three years (data source: NVIDIA)

Electric vehicles in Europe and the United States are not as good as expected

Behind the structural surplus of the automotive chip market is that the current process of automobile electrification in the European and American auto markets is less than expected.

"Outside of the Chinese market, demand for electric vehicles has slowed down." Infineon's CEO Jochen Hanebeck gave observations on the automotive market when the company announced its financial results for the first fiscal quarter of 2024 (the statistical period ended December 31, 2023).

On the one hand, the sales of electric vehicles in Europe and the United States have not yet reached a sufficient proportion. On April 23, the International Energy Agency released the "2024 Global Electric Vehicle Outlook", which predicts that China's electric vehicle sales will account for about 45% of China's domestic car sales in 2024; In the U.S. and Europe, EVs are expected to account for only one-ninth and one-quarter of sales, respectively.

On the other hand, the implementation of electric vehicles in Europe and the United States has also slowed down slightly. According to statistics from the European Automobile Manufacturers' Association (ACEA), car registrations in the European Union fell by 5.2% in March, the first decline this year. Among them, the sales of gasoline and diesel vehicles fell sharply, and the sales of pure electric vehicles fell by 11.3%, accounting for 13% of the market share, and only the market share of hybrid vehicles increased.

European new car registrations in March, of which BEVs accounted for 13% of the total number (Source: European Automobile Manufacturers Association)

"The key is the price of electricity." Sheng Linghai said, "Europe has less natural resource reserves for power generation, and natural gas is more dependent on imports, which will lead to two situations in European electricity prices, one is high prices, and the other is unstable price fluctuations." Therefore, for European consumers, electric vehicles are not attractive enough in terms of cost compared to gasoline vehicles. ”

In addition to cost factors, consumers' perception of how to use a car also affects the popularity of electric vehicles in Europe. The person in charge of a Tier 1 enterprise explained to reporters that electric vehicles emphasize the concept of "home", and car companies will build the car into an intelligent mobile private space, so the cockpit and other functions are constantly upgraded, and even on-board refrigerators and other configurations appear; European consumers, on the other hand, pay more attention to the "car"-based experience such as handling and driving feeling, and focus on whether the response curve of the car's powertrain (such as accelerator) and chassis system (such as suspension, steering, and braking) is smooth. The mismatch of mindsets has left the growth of electric vehicles in Europe under-motivated.

The three major factories are actively adjusting their strategies

Despite the structural surplus in the short term and the slowdown in global demand for electric vehicles, overall, the trend of electrification, intelligence, and connectivity is irreversible and will bring more opportunities.

Tao Yang, a semiconductor device analyst at Qunzhi Consulting, believes that although the current penetration rate of intelligence and electrification of European and American car companies is lower than expected, it also reflects that there is a large room for growth in automotive chips. According to the plans of Europe and the United States, a large number of new cars will adopt electrification architecture around 2026 and upgrade relevant intelligent configurations, so the structural surplus of global automotive chips may be alleviated after 2025.

"Restructuring and product innovation, focusing on China" has become the "three axes" of the three European semiconductor giants.

ST has restructured its three product groups into two and implemented a new application marketing organization by end market to provide customers with end-to-end system solutions. Infineon's "Step Up" initiative aims to achieve structural improvements in the company through measures such as increased manufacturing productivity, optimized portfolio management, improved pricing quality and optimized operating costs.

In terms of technology, as the process of software-defined vehicles (SDV) accelerates, NXP has launched the 28nm radar single-chip SAF86xx to achieve "software-defined radar" at the ADAS level, ensuring a seamless migration from edge computing sensors to distributed stream sensors. Later, at the end of March, the company released the S32N55 ultra-highly integrated processor for vehicles, using a 5nm process, with an efficient computing core emphasizing real-time performance, and up to ASIL-D standards in terms of security.

NXP introduces S32N55 (Image source: NXP)

From the perspective of the practical application of new energy vehicles, the cruising range and battery installed capacity have become the key. Silicon carbide can significantly increase the cruising range, or reduce the installed capacity and cost of batteries for the same cruising range. Therefore, more and more car manufacturers have begun to plan silicon carbide technology solutions.

As the main suppliers of automotive power devices, STMicroelectronics and Infineon have also laid out their layouts. STMicroelectronics expands collaboration with ROHM company SiCrystal to ensure stable supply of 6-inch silicon carbide wafers; Infineon further optimized the process and launched the first SiC MOSFET discrete with a breakdown voltage of 2000V this year to meet the fast charging and range requirements of electric vehicles.

In addition, the development momentum of electric vehicles in China is strong, and continuing to cultivate the Chinese market is an important strategy for European automotive chip companies.

It is reported that STMicroelectronics and Sanan Optoelectronics signed an agreement in Chongqing to cooperate in the silicon carbide project; In the Xiaomi SU7 Max, Infineon supplies more than 60 different SiC devices, including power modules and gate drivers for traction inverters using Infineon's 1200V SiC products, in addition to MCUs and PMICs. NXP also cooperates with a number of traditional Chinese automakers and new energy vehicle brands to provide central real-time control systems and battery management systems.

"China has a very rapid pace of innovation in the field of electric vehicles, and we hope to continue to optimize our solutions in the Chinese market." Ron Martino, Vice President and Chief Sales Officer at NXP, said, "For us, China is not only our most important and priority market, but also our most important market. ”

AI phones are on fire, and these chips are assisting!

SMIC Releases First-Quarter Earnings Report, Revenue Up Nearly 20% YoY

Author丨Wang XinhaoEditor丨Zhang Xinyimei Editor丨Mary Producer丨Lian Xiaodong