There is no shortage of chips, will the automotive supply chain change?-EEWORLD

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Trends in the semiconductor market are unusual. Although the overall trend is towards recovery, the trends for automotive semiconductors and power semiconductors, which had been strong before, are beginning to slow down. Most Japanese semiconductor makers, whose products have a high presence in the automotive and industrial equipment sectors, have been performing strongly before in those areas. However, now the wave of a strong automotive industry and a weak smartphone/PC industry is about to be overtaken. What happens next?

The entire semiconductor market is recovering

According to World Semiconductor Market Statistics (WSTS), the global semiconductor market grew by 15.5% year-on-year in January 2024, achieving double-digit growth for the third consecutive month, although the growth rate was slightly lower than the 19.0% in December 2023.

Year-on-year growth rate of global semiconductor market; source: World Semiconductor Market Statistics (WSTS)

As can be seen from the figure, the memory market is recovering rapidly: the performance in January 2024 increased by 88.8% year-on-year, much higher than the 63.0% in December 2023. If you look at the growth rate alone, the market is even expected to exceed the previous peak. However, this growth rate is a reaction to the poor memory market conditions a year ago (-58.6% year-on-year). While memory demand increased due to lower inventory levels for smartphones and PCs, demand for both smartphones and PCs was not activated. For various memory manufacturers, market conditions have not yet fully recovered, and the production of DRAM and NAND flash memory has not yet reached full capacity. If the factory is at full capacity, Kioxia will consider listing this time, but it seems that negotiations have not yet materialized. Not only in Kioxia, but also in the memory industry, it is interesting to expect a full market recovery in the future.

Regardless, demand for semiconductors in key applications such as smartphones and PCs is sure to revive, which is also a factor in the recovery of the memory market.

Semiconductor growth beyond memory slows

In January 2024, excluding memory, the year-on-year growth rate of semiconductors was 5.5%. That's down from 9.5% growth in December 2024, but here's the rub: Markets for PC and smartphone devices like MPUs and application processors are doing well, but markets like automotive semiconductors and power semiconductors that have performed well so far are declining .

Let's take a closer look.

Overall sales of analog ICs fell 1.8% year-on-year. There have been 13 consecutive months of negative growth since January 2023, mainly due to the downturn in general analog ICs. But supply of such chips has been extremely difficult during the coronavirus pandemic, and as a result, temporary demand has surged around the world. Now that chip supply has returned to normal and temporary demand has disappeared, past demand must be adjusted.

Taking analog ICs for specific applications as an example, mobile phone sales experienced negative growth for 12 consecutive months before September 2023, but turned to positive growth from October 2023. The performance in January 2024 was particularly outstanding, with an increase of 38.9% over the same month. In contrast, automotive analog ICs, which have maintained a growth of more than 20% for a long time, suddenly began to stagnate, growing by 10.9% in December 2023 and only 1.9% in January 2024.

Due to the recovery of the MPU market, the overall microprocessor market grew by 8.1% year-on-year, recording positive growth for seven consecutive months since July 2023. In January 2024, the MPU market grew particularly strongly, with a year-on-year growth of 33.1%, proving that demand in the personal computer market is recovering. In contrast, the MCU market has experienced negative growth for three consecutive months since November 2023, and fell sharply by 22.0% in January 2024. The automotive MCU market, like the automotive analog market, has maintained a long-term growth of more than 20%, but it increased by 15.3% in December 2023 and fell by 9.5% in January 2024, falling into negative growth.

The discrete device market fell 9.4% year-on-year. The market continues to swing back and forth between positive and negative growth. As with general-purpose analog ICs, the market for small-signal devices used in all areas declined sharply due to the disappearance of temporary demand, but this was offset by high-power semiconductors. However, the power semiconductor market fell by 8.4% in January 2024, and 20 months of positive growth since May 2022 finally fell into negative territory. Power semiconductors are widely used in industrial equipment, but demand has been increasing in recent years as equipment indispensable for automobile electrification. The negative growth may be due to lower demand from automotive applications.

Automotive semiconductors accompanying actual needs

Observing the trends in the automobile industry, China will terminate its subsidy policy for electric vehicles (EV) at the end of 2022 and Europe at the end of 2023. Although the end of subsidies has long been expected, it may be affected by rising interest rates and other companies. Mercedes-Benz, Ford, General Motors (GM), Tesla and other companies are all re-evaluating EV-related investment plans. Will this affect the demand for automotive semiconductors? It turned out not to be.

It is true that the outlook for the EV market has been revised downwards overall, but only the production composition has changed, such as increasing the proportion of hybrid electric vehicles (HEV) and plug-in hybrid electric vehicles (PHEV). The auto industry as a whole is not in a blanket decline. Compound power semiconductors such as SiC (silicon carbide) may be affected by EV demand, but SiC's share of the power semiconductor market is only a few percentage points. Currently, the main players in the power semiconductor market are IGBTs and MOSFETs using silicon, with these two devices accounting for 93% of the market share by 2023.

Although the decline in the share of EV vehicles may have a negative impact on the IGBT/MOSFET market, why is the demand for in-vehicle analog and in-vehicle MCUs reduced? There may be other reasons for this.

General analog and small-signal devices have been forced into negative growth due to the disappearance of temporary demand. For automotive semiconductors and power semiconductors, they have been supported by strong actual demand. This is undoubtedly true, but doesn’t a temporary need arise? In the automotive industry, are only minimum orders placed for hard-to-obtain automotive semiconductors? Absolutely not the case.

If you want to produce 100 cars, but can only purchase semiconductors for 80 or 90 cars, your purchasing staff will naturally place an order for more than required. In the context of fierce global competition, it is absolutely impossible to "lose the competition for chips." Even for automotive semiconductors and power semiconductors, which have been supported by strong real demand, there is temporary demand. As the shortage of automotive semiconductors is resolved, over-ordered devices are beginning to accumulate. This impact is reasonable given the recent downturn.

There is no shortage of chips, and the automotive market is reaching an inflection point

In the medium to long term, the author believes that as the electrification and intelligence of automobiles increase, the demand for semiconductors will continue to grow, and the above-mentioned supply and demand adjustment will not exist for a long time. However, the author also believes that the automotive industry's semiconductor supply chain may undergo significant changes due to this inflection point.

Specifically, the response to “software-defined vehicles” (SDV).

The image of software in cars; the top picture is the traditional type, the bottom picture is the software-defined vehicle (SDV) type

Although cars have long had a lot of software on board, all of it was attached to separate ECUs to control their respective hardware.

However, with the development of automobile intelligence, every automobile function tends to be software-based. The hardware remains in traditional form, but functionality evolves through updated software. This can be understood by imagining the smartphones we use every day.

Although the sudden mention of SDV may seem a bit abrupt, in the automotive industry, this trend is steadily advancing. Moreover, this change will greatly change the role of ECU manufacturers (especially first-tier suppliers), which will also significantly change the semiconductor supply chain. When the supply of semiconductors was tight, there was no room to change the supply chain, but as the balance between supply and demand eases, there is now a shift towards considering SDV in the direction of automobile manufacturing.

As this turning point approaches, equipment manufacturers are likely to be first concerned about declining sales. However, it is also crucial to provide SDV-oriented proposals to device users. On the contrary, if you do nothing, not only will sales decline, but you also need to consider the risk of being eliminated from the existing supply chain. I hope that equipment manufacturers and ECU manufacturers will not be swayed by this turning point, but can develop strategies to turn this into an opportunity for themselves.

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