Major chip manufacturers have successively released their second-quarter financial reports, and there is no good news for consumer electronics.
Inventory is still being cleared, and manufacturers are not optimistic about the overall market performance and forecasts. For example, Texas Instruments, which is mainly focused on general-purpose chips, and Qualcomm, which specializes in consumer mobile chips, both highlight the weakness of the overall environment. Texas Instruments, as a semiconductor industry benchmark, has seen a decline in both revenue and net profit in the second quarter. It also indicated that except for the automotive sector, all other markets are experiencing reduced orders. Soft demand for smartphones has dragged down Qualcomm’s overall performance, with significant declines in revenue and net profit. The company plans to cut jobs to address weak demand. Other companies are similarly affected by the slump in consumer electronics, albeit to varying degrees.
In contrast, automotive chips, which account for a relatively small proportion of the semiconductor industry, have performed well. Some manufacturers have managed to withstand the decline in revenue by focusing on automotive chips, while others have achieved substantial profits solely from automotive sales.
This trend is consistent with the performance of the chip spot market. Over the past month, there has been a partial recovery in chip prices, but no significant changes. Amid the backdrop of a return to normal prices for a variety of general-purpose chips, the prices of a few automotive chips remain resilient. In summary, consumer electronics have yet to emerge from a period of stagnation, while the value of automotive chips has been reevaluated in recent years due to the empowerment of intelligence, becoming a new driving force in the semiconductor industry.
Through the financial reports of eight major chip manufacturers, we will gain insight into the current overall demand for chips and the extent to which automotive chips contribute to their respective revenues. Which manufacturers can stand out from the crowd and see a glimmer of hope amid this downturn?
01
NXP: Consumer Electronics are Struggling, but Automotive Chips are Holding Up
In the first quarter, NXP emerged from the trough of the consumer market, and in the second quarter, its Chinese market did not show a true rebound. The third quarter’s capacity utilization rate is expected to continue at a moderate level of around 70%, while markets like automotive remain robust. The revenue boost from improved product offerings partially offsets the impact of capacity utilization.
In the second quarter, NXP’s revenue reached $3.3 billion, with automotive business revenue reaching $1.866 billion, a year-on-year increase of 9% and a sequential increase of 2%. Overall, automotive chip revenue has accounted for over half of the total. Q3 is anticipated to see single-digit growth in both sequential and year-on-year automotive revenue, with sustained strong demand for automotive and core industrial business. Some supply shortages will persist until the end of the year. Reports suggest that NXP’s capacity for the latter half of the year is mostly booked for automotive demand, and automotive chips remain the primary growth driver.
In the spot market, shortages are decreasing overall, while arrivals at the agent’s end are increasing, and some materials are experiencing price inversions. In June and July, NXP’s demand continued to focus on automotive and certain industrial products. Shortages of specific materials persist, such as S912ZVxxx, MK64, and MK70xxx, with expectations that the shortages will continue into the next year. Shortages for the general automotive MCU FS32 series, K142xxx, and K144xxx have significantly diminished, with current shortages mainly concentrated on K146xxx and K148xxx.
Pricing, including that for the automotive business, will see an increase. The actual consumption in the automotive market is not weak, and the only price pressure observed is on low-end MCUs in China. However, NXP is nearing the abandonment of this market segment.
In Q3, NXP will maintain a channel inventory turnover of 1.6 months, consistent with previous quarters’ practices, and below the long-term target of 2.5 months. If continued strong channel sales are observed shortly, the company might begin increasing channel inventory. The company currently holds ample inventory to meet potential demand rebounds.
02
Texas Instruments: Automotive Chips cannot rescue the overall Performance
Texas Instruments is a leader in analog chips and boasts the largest customer base and product catalog among its peers. As a result, its profits and forecasts serve as indicators reflecting demand across numerous sectors of the economy.
In the second quarter, Texas Instruments recorded a revenue of $4.53 billion, a year-on-year decrease of 13.1%, with a net profit of $1.722 billion, down 25% year-on-year. The company’s outlook for the third quarter is relatively weak, indicating that the subdued market demand for key semiconductor components continues to persist, signaling challenging times for the semiconductor industry.
In the second quarter, Texas Instruments’ automotive chip sector stood as the only bright spot, while sales of products in all other end markets continued to remain sluggish. Customer order reductions have led to an increase in Texas Instruments’ chip inventory, which has now risen to a level of 207 days. The value of inventory goods is expected to continue rising in the third quarter.
In the spot market, apart from automotive materials, other series have generally returned to normal lead times of 6-8 weeks. Both major automotive manufacturers and TI have entered into delivery guarantee agreements, making it difficult for short-supply situations to emerge for TI in the short term.
03
Renesas: The Automotive Sector achieves Double Growth, but the Outlook remains uncertain
Renesas’ second-quarter financial report reveals revenue of 368.7 billion Japanese yen, a year-on-year decrease of 2.1%, and an operating profit of 97.3 billion Japanese yen, down 11.7% year-on-year. The front-end capacity utilization rate in the second quarter is around 60%, slightly lower than expected. Renesas anticipates a 4.5% year-on-year decrease and a 0.3% sequential increase in sales for the third quarter, totaling 370 billion Japanese yen (±7.5 billion Japanese yen).
Renesas achieved a double increase in the automotive sector, with a sequential increase of 0.7% and a year-on-year increase of 3.4%, accounting for 46% and reaching 169.4 billion Japanese yen (approximately 870 million yuan), ranking second in historical quarterly revenue.
However, Renesas CEO Shiba expressed that the outlook for the automotive industry remains uncertain. Two main factors are at play: the rapid growth of electric vehicles (EVs) in China and the decline of internal combustion engines; and cash flow constraints among global tier-one customers leading to cautious inventory management. Shiba stated that the current supply and demand situation for automotive semiconductors can be summarized as follows: limited supply first, followed by short-term shortages caused by increased demand.
Compared to the previous quarter, Renesas’ overall inventory decreased this quarter. However, Renesas predicts that overall inventory levels for both the industrial and automotive sectors will continue to rise in the next quarter. In the spot market, Renesas experienced a surge in demand for automotive MCUs in the second quarter, and due to increased demand in the electric vehicle and renewable energy sectors, shortages are expected to arise next year.
04
Onsemi: Strong Growth, Achieving New Records
While the macroeconomic environment remains weak, ON Semiconductor maintains impressive financial performance. Driven by growth in the automotive and industrial markets, ON Semiconductor achieved new milestones in the second quarter, surpassing expectations in both revenue and earnings per share. In Q2, ON Semiconductor’s automotive business revenue exceeded $1 billion, marking a 35% year-on-year increase and a historic high. Industrial business revenue reached $609.3 million, up 5% from the previous year, and silicon carbide revenue nearly quadrupled year-on-year. In 2022, ON Semiconductor doubled its market share in silicon carbide and coupled with its 40% market share in image sensors in the ADAS market, the company’s revenue has started to exhibit robust growth.
Due to the strong demand for key power semiconductors like IGBTs in the electric vehicle market and the global semiconductor supply shortage, ON Semiconductor’s IGBT order delivery times are relatively long. The company’s spot purchase costs remain high, and the current products in high demand include automotive power products and image sensor products, such as the NCVxxx, SZxxx, and ARxxx series. Currently, order lead times have been advanced to 15 weeks.
In the second quarter, ON Semiconductor’s inventory increased by $149.5 million compared to the previous quarter. Inventory turnover days stood at 163 days, increasing by 4 days sequentially. The demand for consumer chips from ON Semiconductor is expected to remain soft in the second half of the year, particularly with intensified competition in domestically produced consumer chips.
05
Qualcomm: Automotive sees a significant increase of 12.7%, but struggles against the decline in the smartphone sector
Qualcomm’s latest financial report reveals a quarterly revenue of $8.451 billion, marking a 22.7% year-on-year decrease. The Semiconductor Business (QCT) revenue amounted to $7.17 billion, down 24% year-on-year.
Qualcomm’s automotive business generated $434 million in revenue, showing a notable increase of 12.7%. Furthermore, Qualcomm anticipates even higher income in the next quarter. Previously, Qualcomm had forecasted that its automotive business revenue would surpass $9 billion by the fiscal year 2031.
However, the impressive performance in the automotive sector struggles to counterbalance the weak performance of the mobile phone and IoT businesses. Smartphone revenue in this quarter declined by 21.6%, and revenue from smartphone chips also dropped 25% year-on-year to $5.26 billion, significantly impacting the company’s overall performance. While the automotive business achieved double-digit growth, its current contribution remains around 5%.
In the third quarter of the 2023 fiscal year (23Q2), Qualcomm’s inventory remains at $6.628 billion, reflecting a 22.3% year-on-year increase. Although the inventory is still at a relatively high level, there is apparent destocking occurring on a sequential basis. Qualcomm’s inventory level remains relatively elevated, posing a certain pressure on the gross margin for the next quarter.
06
STMicroelectronics N.V.: Automotive and industrial sectors prop up overall performance
STMicroelectronics’ second-quarter revenue increased to $4.33 billion (approximately 31.055 billion Chinese Yuan), marking a 12.7% year-on-year growth; net profit reached $1 billion (approximately 7.172 billion Chinese Yuan), reflecting a 15.5% year-on-year increase.
ST’s automotive and discrete group (ADG) achieved a 34% growth in revenue in the second quarter, reaching $1.96 billion (approximately 14.057 billion Chinese Yuan), constituting 45% of the company’s total revenue and bolstering its overall performance. However, ST’s CEO noted that the growth in the automotive and industrial sectors was somewhat hindered by the decline in personal electronic products.
This quarter, ST’s inventory turnover days increased to 126 days sequentially. Production activities are expected to decrease in Q3 and Q4, with an anticipated reduction to 100-110 days by year-end. In the market, ST’s demand is primarily concentrated in automotive materials, such as VNI4140KTR and VNH3SP30TR-E, often commanding relatively higher prices. Currently, ST’s backlog coverage ratio in the automotive, power energy, and professional B2B industrial sectors is higher than that of the past six quarters, and the backlog is expected to be fulfilled by 2024. New orders are trending towards normal levels.
07
Analog Devices: The proportion of the automotive business continues to rise, reaching nearly a quarter
In the second quarter of this year, Analog Devices (ADI) achieved its 13th consecutive quarter of sequential growth, setting a new record for revenue at $3.26 billion, a 10% year-on-year increase from the previous year. Moreover, ADI’s gross profit margin for the quarter reached nearly 74%, with an operating profit margin exceeding 51%.
Industrial and automotive segments remain the largest revenue sources for ADI, with the automotive business witnessing a 24% growth, contributing to a rise in its share of total revenue from 21% in the previous quarter to 24%. Notably, battery management and in-cabin connectivity solutions in the automotive sector showed remarkable growth, collectively increasing by nearly 40% year-on-year. However, ADI anticipates a slight decline of around 4% in revenue from these two markets in the third quarter, with a sequential decrease. On the other hand, revenue from the consumer market is expected to show a sequential increase.
Inventory turnover days for ADI increased to 168 days in this quarter, with expectations of a decrease in inventory levels in the latter half of the year. In the market, ADI’s general components are well stocked, while materials for industrial control, medical, and automotive regulations continue to experience shortages. Some materials facing shortages still have lead times exceeding 30 weeks.
08
Infineon: Surpassing the slump, achieving robust growth
Infineon’s latest financial report reveals that in the third quarter of the 2023 fiscal year, the company achieved a revenue of €4.089 billion, with a profit of €1.067 billion and a profit margin of 26.1%.
Infineon’s CEO stated that the company delivered a strong performance in the third quarter, while the semiconductor market trends remain mixed. On one hand, there continues to be a strong demand for electric vehicles, renewable energy, and related applications. On the other hand, demand for consumer goods applications such as personal computers and smartphones remains relatively low. Infineon’s ability to excel in a challenging market environment can be attributed to its consistent focus on digital transformation and the structural growth drivers of transitioning to a green economy.
This quarter, Infineon’s inventory levels saw a slight increase. In the spot market over the past few months, demand for Infineon’s automotive materials has declined significantly, and the market price of the once-hot SAK series has dropped significantly since the beginning of the year. Some IGBT models are still in short supply, with lead times typically exceeding 40 weeks. There is significant inventory pressure in the MOS sector, with some models experiencing inverted market prices.
09
Words in the end
The latest report from SIG indicates that global chip lead times have remained below 20 weeks in July, but the recovery is proving to be longer than expected. Considering the performance of the aforementioned eight major chip manufacturers, overall inventory levels are generally at a high level currently, and destocking is still ongoing. Top-tier original manufacturers, represented by Texas Instruments, have seen a significant increase in inventory. Despite the revenue growth brought by automotive chips, the chip market as a whole is still undergoing a slow recovery.
The World Semiconductor Trade Statistics (WSTS) Spring 2023 Global Semiconductor Sales Forecast projects that with a robust recovery, sales are expected to rebound to $576 billion in 2024, marking an 11.8% growth and potentially setting a new historical high record. The market is keeping a close watch on the latter half of this year, as both domestic and international economies gradually stabilize, hinting at a potential bottoming and reversal of the semiconductor industry’s business cycle.
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