Major automotive chip manufacturers are still waiting for the industry to recover!

Recently, semiconductor manufacturers have released their Q1 quarterly reports and Q2 outlooks. Compared with the prosperous performance of storage manufacturers, the performance of automotive chip manufacturers is quite bleak, with revenue and net profit continuing to decline and inventory levels reaching new highs......

In the past two years, there have been frequent cuts in orders and production of chips in the consumer and industrial sectors. Automotive chips were once the only bright spot in the financial reports of semiconductor manufacturers. Now that the storage industry is clearly recovering, why is the automotive electronics market lagging behind and recovering less than expected?

01. Major automotive chip manufacturers continue to fall

STMicroelectronics

STMicroelectronics' first quarter financial report for 2024 was not as good as market expectations. Revenue for the quarter was US$3.465 billion, down 18% year-on-year and 19% month-on-month; gross profit was US$1.444 billion, down 32% year-on-year and 26% month-on-month, with a gross profit margin of 42%; net profit was US$513 million, down 51% year-on-year and 52% month-on-month.

Mark Chery, president and CEO of STMicroelectronics, said that due to the decline in revenue from automotive and industrial products, both net revenue and gross margin in the first quarter were below the midpoint of the business outlook, while the growth in personal electronics revenue offset some of the decline in total revenue.

"This quarter, the growth in demand for automotive semiconductors slowed down, falling short of our expectations and entering a deceleration phase, while the current industrial market adjustment entered an acceleration phase."

Looking ahead to the second quarter, STMicroelectronics expects revenue to be $3.2 billion, down 26.0% year-on-year and 7.6% month-on-month. In addition, STMicroelectronics lowered its full-year revenue forecast for 2024 from $15.9 billion to $16.9 billion to $14 billion to $15 billion.

Texas Instruments

Texas Instruments' first-quarter financial report showed that quarterly revenue was US$3.66 billion, higher than market expectations and a year-on-year decrease of 16%; net profit was US$1.1 billion, a year-on-year decrease of 35%.

In the first quarter, except for consumer electronics, TI 's terminal revenue declined year-on-year. The industrial market declined by 25%, the automotive electronics market declined by a low single digit, the consumer electronics market rose by a single digit, the communications equipment market declined by 50% year-on-year, and the enterprise system revenue declined by a mid-teens.

Texas Instruments said that the consumer electronics market was the first to enter adjustment. The recovery performance of the industrial market segments was not synchronized. Some investment areas with shorter cycles started earlier, while some investment areas with longer cycles started to recover later in the past few quarters. The inventory correction of some industrial customers is nearing the end.

Looking ahead, Texas Instruments expects second-quarter revenue of $3.65 billion to $3.95 billion, with the midpoint higher than market expectations.

NXP

NXP's revenue in the first quarter of 2024 increased slightly by 0.2% year-on-year to US$3.126 billion, slightly lower than analysts' expectations of US$3.13 billion. The slowdown in revenue growth was mainly due to a 1% year-on-year and 5% month-on-month decline in the automotive electronics business, which accounted for 58%. However, the rebound in industrial and Internet of Things and mobile communications offset part of the decline.

Specifically, the industrial and Internet of Things and mobile communications sectors increased by 13.9% and 34.2% respectively; other network infrastructure sectors fell by 24.6%.

In terms of inventory, NXP's inventory level was 144 days in the first quarter, higher than 132 days in the previous quarter, once again setting a new high for inventory after the epidemic, and far higher than the company's average forecast for 2021-2024 (95 days) by about 52%, which means that NXP is facing more difficult inventory clearance challenges.

Looking ahead to the second quarter, NXP estimates revenue of US$3.025 billion to US$3.225 billion, roughly in line with the market consensus of US$3.12 billion; gross profit margin is expected to rebound, estimated to be 58% to 59%.

Renesas Electronics

Renesas Electronics' net sales in the first quarter fell 2.2% year-on-year to 351.8 billion yen, operating profit fell to 113.5 billion yen, and operating profit margin fell 2.4 percentage points year-on-year to 32.3%. Sales were lower than the same period last year, but exceeded expectations by 2%.

Looking ahead to the recovery of operating performance, Renesas Electronics President and CEO Hidetoshi Shibata said that the automotive sector is expected to have a moderate growth throughout the year, rather than surprisingly strong growth; the data center and infrastructure sectors will grow steadily throughout the year; the industrial and mobile sectors will remain weak for the time being, especially Japanese customers will need some time to digest inventory.

"Overall, the fact that Q1 was the bottom has not changed. However, the outlook at this stage is a mixed picture, with some segments gradually growing, other markets growing strongly, and some markets still weak," said Hidetoshi Shibata.

ON Semiconductor

According to the financial report, ON Semiconductor's revenue in the first quarter was US$1.86 billion, down 5% from US$1.96 billion in the same period last year, but higher than the market expectation of US$1.85 billion. Net profit attributable to the parent company was US$460 million, down 12% year-on-year.

By business division, the Power Solutions Group (PSG) had revenue of $870 million, up 2% year-on-year; the Advanced Solutions Group (AMG) had revenue of $700 million, down 6% year-on-year; and the Intelligent Sensing Group (ISG) had revenue of $290 million, down 18% year-on-year.

Looking ahead, ON Semiconductor expects second-quarter revenue of $1.68 billion to $1.78 billion, below market expectations of $1.82 billion.

Regarding inventory, ON Semiconductor President and CEO Hassan El-Khoury believes that (inventory stabilization) in the automotive sector is not yet complete. "We saw weakness in the first quarter and we also saw it in the outlook for the second quarter, but I do think there will be further stabilization in the second half of the year."

02. Why is the recovery not as expected?

Market demand slows down

From the perspective of application terminals, the sales of electric vehicles directly affect the sales of automotive chips . As European and American automakers have lowered their sales expectations for new energy vehicles, and the decline in subsidies in various countries has reduced the attractiveness of electric vehicles to consumers, the global electric vehicle market is currently showing a trend of slowing growth.

According to TrendForce, global sales of new energy vehicles (NEVs) will reach 13.03 million units in 2023, a year-on-year increase of 29.8%. Although sales are still growing, the growth rate has slowed significantly compared with 54.2% in 2022.

Under this influence, the demand for automotive chips naturally slowed down.

Supply and demand mismatch

Domestic and foreign automakers have vivid memories of the pain of chip shortage in the past two years: data from AFS, an automotive industry data forecasting company, show that due to chip shortages, the global automobile market will reduce production by approximately 4.38 million and 10.56 million vehicles in 2021 and 2022, respectively.

The more painful the chip shortage is, the deeper the sense of crisis of automakers is, and the more crazy the subsequent stockpiling is. These actions further stimulated the upstream automotive chip manufacturers to expand production and invest in factory construction.

The industry believes that under normal circumstances, it takes an average of 1.5 to 2 years for automotive chips to go from new production capacity to formal production. At present, the existing global automotive chip production capacity includes both previous production capacity and new and expanded production capacity that began to invest after the "chip shortage" reached its peak in 2020. According to time calculations, these capacities will basically reach full capacity from the end of 2022 to the beginning of 2023. This time point intersects with the time when the growth rate of the automotive industry slows down, forming a hedge, and the supply and demand relationship of automotive chips gradually begins to show signs of imbalance.

Increase in market competitors

When there is a shortage of automotive chips, the huge market opportunities have also attracted many competitors. In recent years, many international chip giants have entered the Chinese market. At the same time, the domestic automotive chip industry is also developing rapidly. There are also many automakers who have personally started to make chips. The increase in competitors has further pushed up the supply.

How to view competitors from the Chinese market is a topic that automotive chip manufacturers are frequently asked at performance briefings. Renesas Electronics said that in the IGBT field, Chinese manufacturers have undergone great changes compared to one and a half or two years ago.

Xinshiye has previously sorted out that in terms of automotive chips, domestic chip manufacturers are mainly focusing on the following four directions: