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The sluggish trend in the automotive chip market continues to bring performance pressure to leading companies.

Recently, international leading chip manufacturers Texas Instruments (TI), STMicroelectronics (ST), and NXP have successively released their financial reports. The automotive business occupies a relatively important position in the three companies, but in the performance exchanges, the executives of these manufacturers mentioned that the revenue performance of some automotive businesses has declined both year-on-year and month-on-month, showing a performance that is not as good as expected.

However, the industry benchmark TSMC's automotive revenue increased in the second quarter compared with the previous quarter, indicating that even though the global automotive market is facing growth pressure, there are also structural differences.

Tao Yang, an analyst at Sigmaintell's semiconductor division, told 21st Century Business Herald that although the automotive industry still has strong demand for certain types of chips, automotive chips as a whole are facing pressure to destock, resulting in insufficient demand.

Of course, some manufacturers have mentioned that the trend is expected to be reversed in the future, but this may still take some time.

Continued pressure

Since the second half of 2023, the weaker-than-expected demand in the automotive chip market has been gradually transmitted to the performance of some automotive chip manufacturers, but its duration seems to be longer than expected.

NXP's automotive business accounts for more than 50% of its revenue. The second quarter financial report shows that the company achieved revenue of US$3.13 billion, a year-on-year decline of 5.21% and a month-on-month increase of 0.03%. Among them, the automotive business achieved revenue of US$1.728 billion, a year-on-year decline of 7% and a month-on-month decline of 4%. It is the only business type among its four major terminal businesses that has declined both year-on-year and month-on-month.

However, NXP President and CEO Kurt Sievers said that the third-quarter performance guidance shows that the company has successfully emerged from the "cyclical trough" of its business. It is expected that the automotive, core industrial markets, and communications infrastructure businesses will resume growth.

Texas Instruments' financial report shows that its revenue in the second quarter was US$3.82 billion, a year-on-year decrease of 16% and a month-on-month increase of 4%; its net profit was US$1.127 billion, a year-on-year decrease of 35%.

Haviv Ilan, president and CEO of Texas Instruments, pointed out that from the perspective of terminal markets, the industrial and automotive markets continued to decline by single-digit percentages month-on-month; other terminal markets all grew, such as personal electronics products growing by double-digit percentages and communications equipment growing by single-digit percentages.

STMicroelectronics' financial report shows that it achieved revenue of US$3.23 billion in the second quarter, a year-on-year decrease of 25.3% and a month-on-month decrease of 6.7%. Jean-Marc Chery, president and CEO of ST, said that net revenue in the second quarter was higher than the median of the company's previous business expectations. Although personal electronics revenue increased, automotive product revenue was lower than expected, offsetting some of the growth space. The gross profit margin was 40.1%, in line with expectations. "This quarter was contrary to our previous expectations. Industrial customer orders did not pick up, and demand for automotive products also declined."

Looking ahead to the full year 2024, Jean-Marc Chery pointed out that overall, customer order bookings in the second quarter did not materialize as expected. Therefore, the recovery in the industrial sector is expected to be delayed, and revenue growth in the automotive sector in the second half of the year will be lower than expected.

Tao Yang analyzed to the 21st Century Business Herald reporter that the main reasons for the decline in the automotive chip market are overcapacity and weak downstream demand. "In the past two years, with the rapid growth of the electric vehicle market, the demand for automotive chips has also soared. In response to the global shortage of automotive chips, many automotive chip companies have built factories and expanded. However, due to the poor global economic situation, the growth of the terminal market has slowed down. The continuous rapid expansion has led to an overcapacity of global automotive chips, resulting in a situation of oversupply in the automotive chip market. Although the automotive industry still has a strong demand for certain types of chips, overall automotive chips are under pressure to destock, resulting in insufficient demand."

He further pointed out that the types of chips currently facing certain inventory pressures mainly include two categories: general-purpose chips, such as some standard microcontroller MCU chips, may face inventory pressure due to declining demand; chips used in non-safety-critical systems may be more affected, such as memory chips, smart cockpit chips, etc. "For example, in the production process, OEM manufacturers reduce configuration in order to reduce costs and increase efficiency. Then chips used in non-core components such as infotainment systems may be in excess, leading to inventory pressure."

When to reverse

The above three companies have a wider range of business deployments in the automotive market, and their performance is more representative of the current general situation of the automotive chip market. However, TSMC's performance shows the opposite sign.

In the first quarter of this year, TSMC's automotive electronics terminal business revenue did not increase or decrease compared with the previous quarter, but increased by 5% in the second quarter. Although the executives did not focus on the automotive market in the new quarter's performance communication, they said in the first quarter communication that the automotive market is expected to decline this year.

Tao Yang told reporters that TSMC's performance is mainly due to its leading position in advanced process technology, as well as its diversified customer base, partnerships, and innovation capabilities. "Especially in electric vehicles and autonomous driving technology, there is a greater need for high-performance chips with advanced processes. Although the overall automotive market is not as expected, the growth of electric vehicles and autonomous driving technology has created new demand for automotive chips, which provides TSMC with a support point for performance growth."

This also shows that the automotive chip market is not without growth points, but its structural characteristics are relatively obvious.

"Currently, the supply and demand in the automotive chip market is polarized. Most general-purpose automotive chips are no longer in short supply and are even in excess demand after upstream manufacturers completed production expansion and capacity transfer. However, the demand for power chips, high-end memory chips, etc. is still relatively tight. With the continuous advancement of the intelligence of new energy vehicles, the demand for high-end chips may increase further, which provides impetus for the market to bottom out and rebound." Tao Yang analyzed.

Looking to the future market, the news released by different manufacturers varies, but the overall automotive chip market may still be under pressure in the short term.

NXP pointed out that the automotive business will turn from a mid-single-digit decline to a mid-single-digit growth in the third quarter, and different customers of the company have different situations in digesting inventory. However, the company's chipsets in the radar-related market will become one of the subsequent growth drivers.

In his summary of STMicroelectronics' business, Jean-Marc Chery analyzed that after experiencing an unprecedented chip shortage, the current semiconductor cycle is affected by multiple factors: different terminal markets are not synchronized in demand changes and inventory adjustments; available production capacity has shifted from tight to surplus; the structural trend towards sustainable development in areas such as renewable energy, electrification and second-hand equipment has accelerated nonlinearly.

“This backdrop clearly impacts the automotive and industrial end markets. Both markets are undergoing profound transformation, which is also driven by multiple macro trends. In the short to medium term, we are working hard to adapt our operating plans to this complex situation,” he further pointed out.

In general, Tao Yang believes that at present, the inventory backlog in the automotive chip market has continued since the second half of 2023, but the market has shown signs of bottoming out. "With the gradual recovery of the new energy vehicle market and the release of chip production capacity, the balance between supply and demand is expected to improve. This process may take some time, but it can be foreseen that with the gradual adjustment and recovery of the market, the automotive chip market is expected to achieve supply and demand balance and stable development in the future."

New Opportunities

The current fierce competition in the new energy vehicle market may also pose new challenges to the automotive chip market.

Tao Yang analyzed to the reporter of 21st Century Business Herald that industry changes will bring significant changes to competition in the automotive chip market, including changes in demand structure, increased price pressure, intensified technological innovation and differentiated competition, and deepening of supply chain integration and cooperative relationships.

"For example, in terms of demand structure, vehicle manufacturers may be more stringent in cost control, which may lead to an increase in demand for chips with higher cost performance and moderate functions." He continued, "Automotive chip manufacturers can adopt certain strategies to deal with it: first, strengthen technological innovation and R&D investment to enhance product competitiveness; second, optimize supply chain management, reduce costs and improve efficiency; third, strengthen cooperation with vehicle manufacturers to jointly respond to market changes; fourth, expand new application areas and markets to achieve diversified development."

The new opportunity comes from the further commercialization of autonomous driving technology represented by Robotaxi, which may bring new highlights to the automotive chip market.

Tao Yang analyzed to reporters that the commercial operation of Robotaxi will prompt more car companies to increase their R&D investment in the field of autonomous driving, which will in turn drive the demand for high-performance automotive chips. In addition, the intelligent trend of the automotive industry will be irreversible, and the penetration of autonomous driving technology will continue to increase the requirements for chip processing capabilities, power consumption, safety, etc., which will bring new technological development opportunities to the automotive chip market.

"Autonomous driving technology requires powerful computing power to support complex algorithms and real-time data processing. Therefore, high-end chips such as AI accelerators and high-performance GPUs will become the new favorites of the market. These chips not only have higher computing power, but also meet the requirements of autonomous driving systems for low power consumption and high safety. In addition, the demand for customized chips will also increase. Through customized design, chips can better match the hardware and software architecture of autonomous driving systems and improve overall performance and efficiency." He further stated.

From the perspective of market competition, Tao Yang believes that chip suppliers will establish close cooperative relationships with car companies, autonomous driving solution providers, etc. to jointly promote the commercialization of autonomous driving technology. Therefore, an ecosystem around autonomous driving technology is gradually taking shape. Chip suppliers will play an important role in this. "In addition, the competitive landscape of the automotive chip market will undergo profound changes. Traditional chip suppliers will face challenges from emerging companies, while companies with strong technical strength and innovation capabilities will be expected to stand out and become market leaders."