Infineon Technologies is under pressure due to turbulent auto market

Changes in the automotive market are having a negative impact on some core companies in the supply chain. Many factors, including uncertainty in end-market demand, cost reduction by automakers, and intensified competition in the supply chain, continue to ferment.

This week, Infineon again lowered its revenue forecast for 2024 from 16 billion euros to 15.1 billion euros, the second time the company has lowered its full-year revenue forecast this year due to continued weak demand in most industries.

Data shows that in the first quarter of this year, Infineon's overall revenue fell 12% year-on-year to 3.632 billion euros. Among them, the automotive business (ATV) revenue remained basically stable at 2.078 billion euros, compared with 2.085 billion euros in the previous quarter. However, the company still emphasized that the growth of the automotive industry has slowed down significantly.

In fact, in order to cope with new changes in various industries, Infineon announced an important sales and marketing organization restructuring plan at the beginning of this year, focusing on three customer-centric business areas, namely "Automotive Business", "Industrial and Infrastructure Business" and "Consumer, Computing and Communications Business".

Among them, based on the fourth quarter revenue of last year, Infineon's automotive business revenue accounted for more than 50%, and its product lines mainly cover power devices, MCUs and sensor solutions. Based on the 2023 annual revenue, Infineon's automotive chip business market share ranks first in the industry, about 3 percentage points higher than NXP.

Especially with the "chip shortage" problem encountered by the automotive industry in the past few years, coupled with the continued accelerated growth of the new energy market, traditional automotive chip giants represented by Infineon have enjoyed industry dividends of continued revenue and profit growth.

However, as the shortage last year continued to ease, the inventory turnover days of chip manufacturers continued to rise. Taking Infineon as an example, the company's inventory turnover days in December 2023 were about 108 days, which has been extended for five consecutive quarters since the end of September 2022.

This is also reflected in the financial statements of downstream Tier 1. Taking Desay SV as an example, the public data disclosed by the company showed that the inventory of automotive electronic products in 2023 was 4.0684 million sets, a significant increase of 52.03% year-on-year, and the growth rate was higher than the production and sales volume of that year.

At the same time, the company's asset impairment loss in 2023 reached 220 million yuan, mainly from the provision of inventory depreciation (of which chip inventory is one of the main factors). In the first quarter of this year, asset impairment was still close to 30 million, compared with an asset appreciation of 448,100 yuan in the same period last year.

From the perspective of the overall market of the automotive industry, the data performance is also lower than the industry's expectations. For example, global automobile production in the first quarter of 2024 declined slightly, down about 1% year-on-year. Among them, the European market fell by 3% year-on-year. Fortunately, the North American and Chinese markets have stabilized, with a slight increase of 1% and 4% year-on-year.

However, compared with the high growth dividends of the previous few years, the power semiconductor (IGBT, SiC) product line, one of Infineon's main automotive businesses, has also been impacted by the slowdown in the growth of the new energy market segment. At the same time, oversupply in the market and fierce competition among peers have further exacerbated market fluctuations.

Official data show that in the first quarter of this year, the production and sales of new energy vehicles in the Chinese market totaled 2.115 million and 2.09 million units, up 28.2% and 31.8% year-on-year respectively; in comparison, the production and sales of new energy vehicles in 2023 increased by 35.8% and 37.9% year-on-year respectively.

Among them, taking BYD, one of Infineon's major Chinese automobile customers, as an example, in the first quarter of this year, BYD's sales of new energy vehicles totaled 626,300 units, a year-on-year increase of 13.44%; while the growth rate in the same period last year was as high as 92.81%.

In addition, another leading Chinese power semiconductor supplier, Star Semiconductor, achieved a year-on-year revenue growth of 35.39% in 2023, of which the automotive business achieved a year-on-year growth of 48.09%; while in the first quarter of this year, the year-on-year revenue growth rate dropped sharply to 3.17%. At the same time, the gross profit margin fell due to changes in supply and demand in the industry, bringing profit pressure.

As a major global automotive power semiconductor supplier, ON Semiconductor announced in the fourth quarter of last year that it had decided to lay off about 900 employees due to changes in the automotive market and future performance expectations. "The company still expects demand for electric vehicles to grow, but at a slower pace." This judgment has almost become a consensus in the industry.

In addition, in the MCU track, as the trend of vehicle electronic architecture centralization accelerates, the market is also showing new changes. On the one hand, under the influence of the chip shortage in the past few years, Chinese local suppliers of traditional low-end and mid-end node control ECUs have accelerated their market share.

Take Xinwangwei as an example. It started the technology and product research and development of automotive-grade MCUs in 2015. In March this year, the company announced that the cumulative shipments of its KungFu core automotive-grade MCUs exceeded 100 million, making it the first local company to reach this milestone.

However, affected by factors such as price competition in the mid- and low-end markets and increased inventory pressure, in the first half of 2023, Xinwangwei's revenue fell 23.57% year-on-year, among which the sales revenue of automotive-grade MCUs also declined compared with the same period last year.

At the same time, a large number of new players entering the automotive-grade MCU market are also facing a "de-capacity" cycle of market structural adjustment. In addition, the electronic architecture of the entire vehicle is further tending towards a central computing + regional control architecture, which has aggravated the potential impact.

According to a major international MCU manufacturer, in the past, every application in a car may have required at least one MCU with functional safety; now, these applications are integrated together by domain control, and only one high-performance MCU with functional safety is needed.

As for Infineon, its strong share in the intelligent market in the past few years has also been constantly challenged. As we all know, whether it is ADAS all-in-one or intelligent driving domain controller, Infineon AURIX™ series can be seen almost everywhere.

However, with the emergence of solutions such as TDA4VM/VH and C1200 series, the demand for truly cost-effective, single-chip solutions is gradually being released by directly integrating high-performance MCU cores through SoC.

For example, Heizhima Intelligent launched the Wudang C1236, the first local single-chip NOA-supporting chip, which has a built-in high-computing power real-time processing MCU of up to 32KDIPMS. It helps car companies achieve real cost reduction and efficiency improvement without adding an external MCU.

In addition, the Renesas R-Car V4H solution selected by Zhixing Technology's iDC High domain controller (expected to be mass-produced in the second half of this year) also has three built-in lock-step 1.4Ghz Arm® Cortex®-R52 cores, providing 9KDMIPS computing power without the need for external MCU support.

At the same time, in the field of cabin-driver integration and central computing (HPC) + zone control (ZCU), NXP, a strong competitor of Infineon, has achieved mass production of the S32G series earlier, which has almost become the standard in the original equipment market in recent years. At present, in the Chinese market, car companies including Ideal, GAC, Zhiji, and Leapmotor have already installed them on a large scale.

For example, Leapmotor's "Four-Leaf Clover" central integrated electronic and electrical architecture integrates four domains (body, cockpit, intelligent driving, and power) with two chips, SoC+MCU, including three solutions: 8155+S32G, 8295+S32G, and 8295+S32G+OrinX.

In addition, GAC Aion, Xiaomi and other car companies also use NXP S32G in the HPC+ZCU architecture. In comparison, Infineon's TC4x series will start mass production and delivery in the second half of this year at the earliest. From the performance comparison, the former has obvious advantages in multiple A53 cores (4-8) and Ethernet packet accelerators.

As for Infineon, its true performance in the Chinese market can also be seen from another company.

Founded in 2001, Intron Technologies is one of Infineon Technologies' largest distributors and partners in the automotive sector in Greater China, providing key automotive electronic component solutions for new energy, body control, safety and powertrain systems.

Data shows that in 2021, the company achieved revenue of 3.176 billion yuan, a year-on-year increase of 59%; net profit of 200 million yuan, a year-on-year increase of 112%. In 2022, it continued to rise, with revenue of 4.830 billion yuan, a year-on-year increase of 52%; net profit of 411 million yuan, a year-on-year increase of 105%.

Among them, new energy vehicle solutions business continued to be the company's main growth driver in 2022, with revenue increasing significantly by 91% year-on-year to 2.067 billion yuan, accounting for 43% of total revenue.