Automotive-grade MCU "lane-changing" competition

The automotive chip, especially the MCU market is entering a turning point.

This week, Kurt Sievers, president and CEO of Netherlands-based automotive chipmaker NXP Semiconductors, told investors on the company's second-quarter earnings call that the company is working to reduce inventory levels as auto demand stagnates.

Data shows that NXP's automotive business revenue will account for the largest share of overall revenue in 2023, but it hit a "trough" in the second quarter of this year, causing overall revenue to fall 5% year-on-year. The company expects that inventory digestion by automotive customers will continue into the second half of the year and will take longer than expected.

According to the company's second-quarter financial report, due to macroeconomic uncertainty, customers in the automotive terminal market have significantly controlled spending, resulting in the company's automotive division's sales falling 7% year-on-year to US$1.73 billion, the largest quarterly revenue drop in more than three years.

At the same time, coupled with the fact that Chinese local MCU suppliers began to ship large quantities of mid- and low-end products, intensified market competition further caused NXP's performance pressure in the Chinese market; data showed that the Chinese market was the company's largest contributor to revenue in 2023, accounting for approximately 33% of the annual total revenue.

For example, as one of the representative manufacturers of Chinese automotive-grade MCUs, Xinwangwei was not immune to the industry's downward cycle, and its revenue and net profit increased significantly from 2020 to 2022. However, starting from the first half of 2023, the revenue of automotive/industrial-grade MCUs fell across the board.

In fact, it is not just Xinwangwei, the operating conditions of several local automotive-grade MCU manufacturers are also quite worrying. For example, AMEC believes that the gross profit margin in the automotive electronics field will be the highest, and the company's automotive-grade MCU growth will increase this year, and the growth rate will be relatively fast, but the overall volume is still limited.

According to the 2023 annual report of Guoxin Technology (688262), the company achieved operating income of 449 million yuan, a year-on-year decline of 9.65%; the net profit attributable to shareholders of the listed company was a loss of -169 million yuan, turning from profit to loss. One of the reasons is that the industry's chip destocking and market competition have led to a decline in chip product prices.

Among them, the revenue from automotive electronics and industrial control was 73.9609 million yuan, a decrease of 60.74% from the same period last year; in comparison, the company's revenue from automotive electronics and industrial control in 2022 reached 189 million yuan, an increase of 127.51% from the same period last year.

Take Guoxin Technology as an example. The company's current automotive-grade MCU revenue mainly comes from traditional body control and powertrain applications, while its expansion into areas such as wire-controlled chassis, domain control, airbags, and Internet of Vehicles information security has obviously not been smooth.

Similar problems also occurred to Infineon, another automotive-grade MCU giant. Public data shows that Infineon achieved revenue of 3.632 billion euros in the second fiscal quarter of 2024 (first quarter), a 2% decrease from the previous month and a 12% decrease from the previous year. At the same time, profits decreased by 15% from the previous month and a sharp decline of 40% from the previous year, and the profit margin also fell to 19.5%.

In this regard, the company's CEO Jochen Hanebeck predicted that he would remain cautious about the market outlook for the third quarter of this year and lowered the full-year revenue growth forecast. The reason is that the growth of the automotive industry is slowing down significantly. At the same time, customers and distributors are reducing inventory, further increasing the subsequent market growth pressure.

At the same time, several institutions tracking the automotive semiconductor market said that the automotive chip market has been in a downturn recently, and major IDM and Fabless companies in Europe and the United States are pessimistic about the prospects for the third quarter of this year. "We don't see any signs of recovery."

Data disclosed by ST (STMicroelectronics), another major global automotive MCU supplier, showed that its revenue in the second quarter of this year was US$3.232 billion, down 25.3% from the same period last year; its net income was US$353 million, down 64% from the same period last year, and a quarter-on-quarter decrease of more than 30%.

In addition, Texas Instruments' revenue in the second quarter of this year also fell 16% from the same period last year due to declining demand in the industrial and automotive sectors; some institutions said that after two consecutive years of strong growth, market demand is slowing down significantly.

In fact, the slowdown in growth is only in the traditional mid- and low-end MCU market. These applications are mainly concentrated in scenarios such as non-intelligent cockpits, low-level intelligent driving, and distributed vehicle control, which are themselves in a trend of continuous shrinkage.

For automotive chip manufacturers, whether it is the computing power SoC that is in the limelight or the MCU that is in the iteration and upgrade cycle, the fierce market competition has also brought a considerable impact. As the options for car companies increase, the competition is also escalating.

For example, NXP, which seized the first wave of market dividends of central computing + regional control, is also being chased and blocked by competitors with its S32 series products (almost the standard configuration of global HPC projects before 2024). For example, Infineon's next-generation AURIX™ TC4x will be mass-produced in the second half of this year.

According to the forecast given by Infineon, by 2025, the compound annual growth rate of demand for high-end MCUs that meet domain and regional E/E architectures will reach more than 60%. At the same time, domain and regional E/E architectures will become a new frontier in the smart car market in the next few years.

Interestingly, Continental, which previously used NXP's S32G series to build a central computing platform (which has been mass-produced and delivered to many automakers), also announced last year that it would use Infineon's AURIX TC4 microcontroller to build the next-generation ZCU platform. Public data shows that in 2023, Infineon and NXP ranked first and second in the global automotive chip market share, and MCU is one of the main products of the two companies.

Also targeting HPC, ZCU and other products, AURIX TC4x focuses more on radar, chassis and safety, and powertrain/electrification. In comparison, the S32G series focuses mainly on gateway integration and emphasizes data communication.

However, the AURIX TC4x series also has a built-in network accelerator to meet the high-speed, high-bandwidth communication support required for a large number of vehicle-side Ethernet, CAN communications, as well as 5 Gbit/sETH, PCIe, 10 Base-T1-S and CAN-XL.

As the electronic architecture of the whole vehicle becomes more centralized, the above-mentioned product solutions have also become a must-win for traditional automotive MCU manufacturers. In June this year, Renesas announced the launch of the software-defined vehicle (SDV) development platform - R-Car Open Access (RoX), among which the upcoming hardware products include the R-Car Gen 5 MCU product family, which meets the comprehensive needs from regional ECUs to high-end central computing and service-oriented gateways.

According to the official introduction, the R-Car Gen 5 MCU is built based on the computing engine of the Arm core, including a 32-bit crossover MCU and a 16-bit MCU with better performance than similar products. It can achieve vertical and horizontal expansion in all vehicle models, performance levels and applications, and pays great attention to the reusability of software during design, supporting compatibility across multiple types and generations of automotive products.

Among them, the 32-bit crossover MCU has GHz-level real-time throughput, fast startup performance, and embedded non-volatile memory, which can manage electronic control modules for domain and regional control applications. At the same time, based on IP standardization, it narrows the performance gap between traditional low-performance MCUs and high-performance R-Car SoCs, greatly improves software availability, and reduces customer development costs.

This is a cross-generational upgrade based on Renesas' traditional RH850 products, and is almost comparable to the incremental upgrade market demand of NXP S32 series and Infineon TC4x series. This means that the market competition among MCU manufacturers has shifted from the past single control MCU (low price and large volume per vehicle) to the higher value multi-domain control and HPC+ZCU market (high price, small volume per vehicle, and higher integration).

In the Chinese market, the breakthrough of local players has intensified the competition in the new generation of MCUs.

For example, Xinchi continues to lead the local high-end automotive MCU track with its E3 series products, and has been widely implemented in core application areas such as intelligent driving, body domain control, electric drive, BMS battery management, and intelligent chassis. It was the first to complete shipments of more than 2 million pieces and has been mass-produced on nearly 20 mainstream models of automakers such as Ideal, Chery, Geely, and Changan.