In-depth understanding of automotive system-on-chip (SoC) series 2: automotive chip industry and supply chain

The first thing to do is to clarify the automotive chip supply chain, which is a long and complex supply chain.

There are two sources for automotive chips. One is IDM , or integrated device manufacturer, which completes the three main links of chip design, production, and packaging and testing. The other is foundry. Some IC design companies, or fabless companies, do not have their own fabs and entrust foundries to produce chips.

When it is not cost-effective or the production capacity is insufficient, IDM will entrust some chips to the foundry for production. After the foundry produces the chips, they will go to the packaging and testing factory, and then they will be shipped to IDM/Fabless after the packaging and testing is completed. Some chips will be shipped to the foundry first after the packaging and testing is completed, and then transferred to IDM/Fabless, so that IDM/Fabless only needs to deal with the foundry.

After getting the chips, IDM/Fabless mostly ships them to large Tier 1 suppliers, and a small amount is also shipped to distribution networks. For some manufacturers with relatively low demand, IDM/Fabless sometimes has high direct sales costs, so they sell them to these manufacturers with relatively low demand through distributors, usually small and micro-sized Tier 1 suppliers that supply small and micro-sized car manufacturers.

Except for car manufacturers like BYD that complete many components in-house, they will not purchase chips directly. Therefore, it is definitely wrong to say that car manufacturers reduce production due to chip shortages. Car manufacturers are not directly facing chip manufacturers but Tier1, so they can only say that a certain component is in short supply. As for whether it is a chip shortage or insufficient production capacity of Tier1, only Tier1 knows best, and the information heard by car manufacturers is second-hand information. There are also very few chips, such as Tesla's FSD, which are manufactured by Samsung and purchased from Samsung.

There are also some electronic manufacturing services (EMS) such as Flextronics, Quanta, and Pegatron, which directly purchase chips from IDM/Fabless. Quanta purchases and manufactures Tesla's car computers and intelligent driving systems for Tesla, and Flextronics manufactures car computers and lights for Ford. Apart from this, few automotive products are commissioned to be manufactured by EMS manufacturers.

It usually takes 100-120 days, or about 3-4 months, for Tier 1 to order automotive chips and get the products. For example, NXP has a typical inventory cycle of 110 days. It takes about 1 month to get chips from Tier 1, manufacture products, and deliver them to vehicle manufacturers. It takes about 1-2 months for vehicle manufacturers to get components provided by Tier 1, put them on the assembly line, and then ship them to 4S stores. In other words, automotive chip manufacturers will lag behind vehicle manufacturers' demand by 5-6 months.

Typical representative manufacturers in each field are shown in the table below.

Source: Company reports

In 2019, the global automotive semiconductor market size was approximately US$37.2 billion. About 87% of automotive semiconductors came from IDMs, and about 13% came from Fabless. Automotive semiconductors can be divided into five categories:

1) Power semiconductors, mainly including Power Management ICs, LDO , DC/DC , MOSFET , IGBT , Diodes (Fast Recovery, Schottky, High Voltage). Power semiconductors are the most important component of automotive semiconductors, accounting for about 43% of the automotive semiconductor market.

2) ASSP, ASIC, analog, hybrid IC, FPGA, DSP and GPU, excluding MCU , account for about 20% of the automotive semiconductor market.

3) MCU, which accounts for about 20% of the automotive semiconductor market.

4) Sensors, mainly including image sensors, MEMS sensors, and Hall sensors , accounting for about 8% of the automotive semiconductor market.

5) Memory, including various embedded memories, SRAM, DRAM, and FLASH, accounting for about 9% of the market.

The following table shows the revenue rankings of the world's top ten automotive semiconductor companies in 2019 and 2020. The proportion of automotive business in total revenue is the data for 2020. Except for Bosch, the automotive business does not exceed half. The global automotive semiconductor market size was approximately US$37.2 billion in 2019 and shrank to US$35 billion in 2020.

Top 10 Global Automotive Semiconductor Companies by Revenue in 2020

Source: Company reports

Image source: IC Insight

The above chart shows the ranking of sub-sectors. In the sensor sector, Bosch ranks first, mainly in acceleration sensors , liquid level sensors , air pressure sensors , gravity sensors and IMUs, which are basically MEMS sensors. Infineon is mainly in magnetic sensors, current, pressure, radar sensors and MEMS microphones . ON Semiconductor is mainly in image sensors. Melexis is mainly in current, speed, pressure, magnetic, temperature, speed, and optical sensors . NXP is mainly in radar sensors.

In the MCU field, NXP is mainly in the power transmission field, including EPS, ESP, engine management, transmission management, body, air conditioning, headlights, keys and seats. Renesas is mainly in the instrumentation, car computer, engine management, motor control and chassis, and almost has a monopoly in the instrumentation and car computer fields. Infineon is mainly in ADAS, chassis, engine control, power transmission, and almost has a monopoly in the ADAS field. Texas Instruments is mainly in the body, lighting, and power transmission fields. Microchip is mainly in the body and ADAS fields.

In the field of power components, Infineon mainly produces IGBT, MOSFET, and driver IC. STMicroelectronics mainly produces SiC , MOSFET, and driver IC. Rohm Semiconductor mainly produces driver IC and LDO. Texas Instruments mainly produces driver IC and PMIC. ON Semiconductor mainly produces MOSFET.

Global wafer foundry revenue rankings from 2018 to 2020

Source: IC Insight

In 2019, the global automotive semiconductor market was worth about $37.2 billion. It shrank to $35 billion in 2020 and grew strongly in 2021, with an estimated growth rate of 30%. The market size reached $45.5 billion, of which about 90% came from IDMs and about 10% from Fabless. In other words, 90% of them designed and manufactured their own chips, and 10% of them designed their own chips and commissioned them to foundries. In other words, the scale of automotive chip foundry is about $4.5 billion. This is a small market with low profits, and foundries have no motivation to be aggressive.

TSMC has a market share of about 50% in the field of automotive chip foundry, followed by STMicroelectronics, which is the only foundry for Mobileye except EyeQ5, with a market share of about 24%, followed by Samsung, with an estimated 15% share, and then Global Foundries, with a market share of about 9%. This market concentration is extremely high. The quality of a foundry cannot be judged by the revenue scale alone. It is necessary to look at the gross profit margin, operating profit margin and pre-tax net profit margin.

Revenue, gross profit margin, operating profit margin and pre-tax net profit margin of the world's six largest wafer foundries in the third quarter of 2021

Source: Company reports

In the table above, Global Foundries has been losing money for a long time and has just been listed in the United States. In the first half of 2021, Global Foundries' gross profit margin just turned positive. Samsung's wafer foundry business is affiliated with the system LSI department. It has not disclosed any financial data of the single wafer foundry business. Wafer foundry is the main business of the system LSI department, but not all. In addition to wafer foundry, Samsung's system LSI department also sells chips to the outside world, such as image sensors, cockpit SoC chips supplied to Audi, and other chips.

Samsung's system LSI division's operating profit margin in the third quarter is expected to be only 11%, 5% in the second quarter and -5% in the first quarter. Considering that the profit margin of the system LSI division's chips sold separately is much higher than that of foundry, Samsung's foundry business operating profit margin in the third quarter will definitely be lower than 10%, and is expected to be only 8-9%, which is a significant gap compared with the three major foundries in Taiwan. It is estimated that Samsung's foundry business revenue in the third quarter was about US$4.5 billion. Samsung's foundry business is large but not strong. On the other hand, TSMC's operating profit margin is four times that of Samsung.

For foundry of automotive chips below 12 nanometers, only TSMC and Samsung are available. Samsung has sufficient production capacity and low price, although its performance is poor, it is the choice of most pragmatists, such as Rockchip, Ambarella, and Baidu. TSMC has good performance, but high price, tight production capacity, and requires long queues.

Global Foundries' main products in the automotive field

Image source: Global Foundries

Image source: Amkor

Amkor is the world's largest automotive chip packaging manufacturer, accounting for about 13% of its revenue, or about $650 million. Electronic component distributors are also part of the automotive chip supply chain. Large vehicle manufacturers and international Tier 1s have stable demand, and chip manufacturers sign quarterly or annual supply contracts with them. Other small manufacturers do not supply directly, but are supplied by distributors. Distributors have the most profound understanding of the market supply and demand relationship, so when supply is tight, they will hoard goods, forming a snowball effect. 

Top 15 Electronic Component Distributors in the World 2019-2020

Source: Company reports

 The above 15 international distributors can be divided into four categories:

1) Authorized distributors, represented by Arrow, WPG, Avnet, and Fuchang, have close cooperation with upstream original manufacturers, have sufficient say in products, and are the "reservoir" and "buffer zone" of upstream and downstream customers. The future development trend is that the big ones will always be big, especially Arrow, the only authorized agent of Texas Instruments in the world.