The automotive chip market is crossing the winter

On December 4th, World Advanced and NXP Semiconductors held a groundbreaking ceremony for the 12-inch (300mm) wafer fab of their joint venture VSMC, established in September 2024, in Tampines, Singapore. During the ceremony, NXP Executive Vice President Andy Micallef revealed plans to establish a chip supply chain in China for customers.

Micallef stated that China has the largest electric vehicle and telecommunications markets in the world, and NXP is trying to find a way to serve international customers who need Chinese production capacity. Public information shows that NXP has a world-class packaging and testing factory in Tianjin, China, but it does not yet have front-end manufacturing operations in the country.

"We will build a Chinese supply chain with our partners. We have the capability to serve customers who want Chinese supply chain services."

From the recent performance of major analog chip manufacturers such as Infineon, NXP, STMicroelectronics, Texas Instruments, Renesas Electronics, ON Semiconductor, Bosch, and ADI, it can be seen that the performance of related companies is still hovering at a low point due to the underwhelming production and sales of new energy vehicles, and the automotive chip market remains weak.

However, there has been a new turning point in the automotive market, as some leading companies have shown a trend of easing in performance over the past two quarters, and there has been progress in reducing automotive chip inventory. Overall, the new energy vehicle industry is developing rapidly, and after overcoming this low point, it will usher in a broader development market.

NXP Semiconductors

For NXP, the automotive chip division reported revenue of $1.829 billion in the third quarter, a year-on-year decrease of 3% but a quarter-on-quarter increase of 6%. NXP CEO Kurt Sievers stated that weak industry demand and cautious customer behavior may spread to the Western automotive industry, due to profit warnings from automakers and first-tier suppliers trying to further reduce inventory.

However, Sievers also emphasized that based on the performance from the second and third quarters, NXP has successfully navigated the cyclical low point of its business, and the company expects to resume continuous growth.

Regarding the growth prospects of electric vehicles in China, NXP Executive Vice President and Chief Sales Officer Ron Martino stated that electric vehicles remain the fastest-growing segment, both in China and globally, and NXP will continue to invest in innovative technologies for traditional fuel vehicles and various types of electric vehicles in the future.

NXP is confident in the Chinese market. Sun Hang, Senior Market Director for Industrial and IoT in Greater China, previously pointed out that 2024 marks the 38th year of NXP's entry into the Chinese market. In recent years, NXP has been optimistic about and continuously expanding its business cooperation in China.

In 2023, NXP invested in building its first global artificial intelligence application innovation center in Tianjin, and the NXP Qiangxin (Tianjin) Integrated Circuit Design Co., Ltd., established in cooperation with the Tianjin Economic and Technological Development Zone, has also officially renewed its contract for ten years.

Infineon

Infineon's overall revenue declined in the third quarter, but its automotive business showed strong resilience. Infineon's revenue for the third quarter was €3.702 billion, a quarter-on-quarter increase of 2% but a year-on-year decrease of 9%, falling short of the previously expected €3.8 billion; The gross margin was 40.2%, compared to 38.6% in the previous quarter; the adjusted gross margin increased to 42.2%.

From Infineon's earnings call, we learned that the automotive division achieved revenue of €2.112 billion in the quarter, slightly up from the previous quarter; additionally, the company's automotive silicon carbide business continues to maintain good momentum, with a revenue growth target of approximately 20% for fiscal year 2024, reaching about €600 million (approximately 4.68 billion RMB).

Looking at Infineon's overall performance for 2024, the total revenue for fiscal year 2024 is projected to be €14.955 billion, a year-on-year decline of 8%. This decline is primarily due to the global economic downturn and lower-than-expected demand in the industrial application sector. The only division that achieved growth was the Automotive Electronics Division (ATV), where Infineon's electric vehicle (xEV) and autonomous driving (ADAS) sectors are developing rapidly.

Infineon CEO Jochen Hanebeck stated that the growth in the automotive market is attributed to its increased market share in the MCU market and success in China. In fiscal year 2024, its revenue in the Chinese market saw significant growth again, and it received more orders. Currently, the share of the Chinese market in Infineon's total revenue has increased from 25% in fiscal year 2023 to 27% in fiscal year 2024.

STMicroelectronics (ST)

For STMicroelectronics, its third-quarter revenue was $3.25 billion, a year-on-year decline of 26.6%, with a gross margin of 37.8%, down 9.8% year-on-year. The company forecasts total revenue for the fourth quarter of this year to be $3.32 billion, a quarter-on-quarter increase of 2.2%, but a year-on-year decline of 22.4%. This will bring ST's total revenue for 2024 to $13.27 billion, a year-on-year decline of 23.2%, further down from previous expectations.

The weak forecast is due to anticipated revenue declines in the automotive and industrial sectors, although increased revenue from personal electronics partially offsets this impact. In terms of inventory, ST's inventory stands at $2.88 billion, roughly flat compared to last year, but the inventory turnover days have increased to 130 days, indicating a slowdown in inventory reduction.

The automotive market is an important revenue source for ST, but this quarter, the sector saw an 18% year-on-year decline. STMicroelectronics CEO Chery mentioned in the earnings call that customers further reduced orders in the third quarter, and automakers adjusted production plans due to inventory pressure and weak demand.

Additionally, consumer demand for electric vehicles has slowed, with more shifting towards hybrid models, especially in the North American and European markets. Although the short-term growth rate of the automotive market is slowing, the long-term trends of electric vehicles and automotive digitalization will continue, with a gradual recovery expected in the second half of 2025.

To address the trend of electrification in the automotive industry, ST is actively promoting its fourth-generation silicon carbide (SiC) MOSFET technology to enhance the performance of electric vehicles in terms of energy efficiency, power density, and durability. Currently, the company has secured multiple customer orders for traction inverters and onboard chargers

Texas Instruments

Texas Instruments achieved revenue of $4.151 billion in the third quarter, a year-on-year decrease of 8.4% and a quarter-on-quarter increase of 8.6%. Net profit was $1.362 billion, down 20.3% year-on-year but up 20.9% quarter-on-quarter. The inventory turnover days were 231 days, an increase of two days from the previous quarter. In terms of end-market performance, the industrial sector saw a low single-digit decline quarter-on-quarter as customers continued to reduce inventory levels, while the automotive market experienced a high single-digit growth quarter-on-quarter, mainly due to strong performance in the Chinese market.

Texas Instruments CEO Haviv Ilan stated in the earnings call at the end of October that the company's third-quarter profits exceeded expectations due to a rebound in orders for analog chips across various departments and increased demand in the Chinese automotive market. Reports indicated that the sales of Texas Instruments (TI) semiconductor products were boosted by increased orders from smartphone and personal computer suppliers, as well as a rebound in end-market demand, with revenue from the automotive market also growing in the single digits quarter-on-quarter.

Ilan stated, "The development momentum of the Chinese electric vehicle market is strong, and our products are continuously growing in the Chinese market, which is the real reason driving the growth in the third quarter." However, he noted that the rest of the automotive market is expected to remain weak.

Renesas

Renesas Electronics released its financial report for the third quarter of 2024. The report showed that the company's revenue decreased by 9.0% year-on-year and 3.8% quarter-on-quarter, with profit indicators generally under pressure. The automotive business continued to grow, but the industrial/infrastructure/IoT segment performed weakly, dragging down overall performance. By business segment, automotive sales were 185.5 billion yen, an increase of 10.3% year-on-year but a decrease of 2.6% quarter-on-quarter.

Regarding inventory, Renesas candidly stated that the inventory levels in the sales channels increased compared to the previous quarter. Although there was a decrease in industrial/infrastructure/IoT applications, automotive applications increased. In the fourth quarter, the company aims to reduce the delivery volume in automotive sales channels and accelerate inventory usage.

The inventory for industrial/infrastructure/IoT is expected to remain stable. Renesas Electronics President and CEO Hidetoshi Shibata commented on the company's performance, stating that end demand was weaker than expected, and sales channel inventory increased. In the fourth quarter, we will continue to reduce sales channel inventory.

ON Semiconductor

ON Semiconductor reported revenue of $1.76 billion in the third quarter, down from the same period last year. Revenue from the automotive end market decreased by 17.8% year-on-year.

ON Semiconductor President and CEO Hassane El-Khoury stated in an earlier earnings call that the demand environment remains sluggish, inventory digestion is ongoing, and end demand is slowing. Due to uncertainties among our customers, the outlook for all markets remains unchanged. The automotive industry continues to be weak, and electric vehicle sales are slowing.

Bosch

From 2021 to 2023, Bosch's overall performance steadily increased, but it began to decline entering 2024. In 2021, Bosch's revenue was 78.7 billion euros, an increase of 10.1% year-on-year, with profits reaching 3.2 billion euros, an increase of over 50%, and an operating profit margin of 4%; In 2022, Bosch's five indicators were €88.2 billion, 12%, €3.8 billion, 18%, and 4.3%, respectively.

In 2023, Bosch's revenue reached €91.6 billion, with a profit margin of 5%. However, this year, Bosch expects the profit margin to be only 4%, a decline compared to last year.

Bosch Group CEO Stefan Hartung pointed out that due to the weak global economy and the slow start of the electric vehicle market in Europe, Bosch is facing a shortage of orders, and its performance is not ideal. Bosch expects that the company's EBIT margin will only be 4% in 2024, lower than the 5% in 2023, and further away from the 7% target for 2026.

Currently, Bosch is reducing losses through layoffs and mergers and acquisitions. Bosch is advancing its largest acquisition deal in history, planning to spend $8 billion to acquire Johnson Controls' global residential and light commercial HVAC business. Its mainland China group is promoting the split plan of its automotive sub-group, hoping to make it an independent publicly listed company.

ADI

ADI also announced its third-quarter financial report for fiscal year 2024, ending August 3, with revenue of $2.312 billion, a year-on-year decrease of 25%. Gross profit was $1.311 billion, with a gross margin of 56.7%, down 7.1% year-on-year. Revenue from the automotive sector was $670 million, accounting for 29%, a year-on-year decline of 8%; revenue from the industrial sector was $1.06 billion, accounting for 46% of total revenue, a year-on-year decline of 37%.

Chief Financial Officer Richard Puccio stated, after a brief decline in overall order volume in the third quarter, order volume steadily rebounded in the fourth quarter, especially in the automotive end market. Although macro uncertainty continues to limit our recovery pace, we remain cautiously optimistic about strong growth in fiscal year 2025.

Microchip

Microchip predicts that third-quarter revenue and profit will be below expectations, indicating weak demand from automotive customers due to economic uncertainty. Microchip CEO Ganesh Moorthy stated that the company's performance in September was in line with expectations, as customers continued to clear inventory amid economic weakness, and the impact on European industrial and automotive customers exacerbated this situation.

Moorthy emphasized that although inventory has been significantly reduced, we still face macro uncertainty, which is our historically weakest seasonal quarter.

This article was written by Zhuzi, sourced from Global Semiconductor Observation, original title: "The Automotive Chip Market is Crossing the Winter"

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