Analog chips are responsible for processing continuous analog signals and are an integral part of electronic systems. After experiencing sluggish downstream demand and frequent order cuts in 2022, the analog IC sector has gone dormant due to both performance and valuation.

From the perspective of global analog chip manufacturers, due to the early deployment of European and American companies and close cooperation with leading downstream international application manufacturers such as Apple and Intel, the global analog chip market has long been dominated by international giants. In 2022, the revenue scale of China's listed analog chip manufacturers will be 67 billion yuan, which is only 1/11 of the US listed analog chip manufacturers (748.4 billion yuan). Therefore, the recent performance of the global analog chip leader can directly reflect the current development status of the market.

01 Analog giants express concerns

Texas Instruments' 2023 Q3 revenue is US$4.532 billion, a year-on-year decrease of 14%, which falls within the range of TI's previously forecast third-quarter revenue of US$4.36-4.74 billion. Quarterly revenue is flat quarter-on-quarter. In this quarter, the automotive industry continues to Growth remained, but weakness in the industrial sector expanded.

Texas Instruments has a broad customer base in the analog chip industry, and its forecasts have become a bellwether for demand throughout the economy. In the financial report, TI's revenue forecast for Q4 is between US$3.93 billion and US$4.27 billion, a 10% decrease from Q3's expectations, which will break three consecutive years of sales growth. Edward Jones institutional analysts said that TI's forecast reflects a trend of further deterioration in demand in the industrial sector, and that this state is likely to persist at least in the next few quarters.

ADI's revenue this quarter was US$3.076 billion, down 1% year-on-year. In terms of sectors, the industrial sector’s revenue was US$1.629 billion, a year-on-year increase of 4%. Automotive division revenue was US$748 million, a year-on-year increase of 15%. The communications department’s revenue was US$381 million, a year-on-year decrease of 23%. Consumer segment revenue was US$319 million, down 21% year-on-year. In terms of communications business, ADI said that the year-on-year decline in revenue was mainly due to the timing of the infrastructure deployment cycle.

Taking these factors into account, looking ahead to the fourth quarter of fiscal 2023, ADI currently expects revenue of approximately $2.7 billion, plus or minus $100 million. Based on the midpoint of this outlook, the company expects all markets to decline sequentially given broad inventory corrections. Relatively speaking, the automobile and consumer sectors should perform better than the industrial and communications sectors.

STMicroelectronics' net revenue in the third quarter was US$4.43 billion, a year-on-year increase of 2.5%. As expected, continued growth in the automotive business was the main driver of revenue, while declines in personal electronics revenue offset some of the growth. Looking forward, STMicroelectronics expects Q4 revenue to be US$4.30 billion, down 3% from the previous quarter, which is less than the market expectation of US$4.45 billion.

ON Semiconductor's Q3 revenue was US$2.18 billion, a year-on-year decrease of 0.54%, 1.43% higher than analysts' consensus estimate of US$2.15 billion; by business segment, record automotive revenue was US$1.2 billion, a year-on-year increase of 33%; a record Recorded industrial revenue was $616 million, up slightly year over year. Looking ahead, the company expects fourth-quarter revenue of $1.950 billion to $2.050 billion, compared with the consensus estimate of $2.18 billion.

"We're starting to see some softness with European tier one customers dealing with inventory and because of high interest rates," ON Semiconductor CEO Hassane El-Khoury said on a post-earnings conference call. Risks to automotive demand continue to increase." It is understood that more than half of ON Semiconductor's revenue comes from automotive-related chips.

02 Inventory levels remain high

As we all know, analog chip companies have been actively reducing production for many months. However, judging from the current situation, the inventory levels of leading analog chip manufacturers are still growing. According to gurufocus data, Texas Instruments' Q3 inventory turnover days lengthened to 203 days, which is almost the same as the data released by Texas Instruments' financial report. Texas Instruments quarterly report shows that compared with the previous quarter, TI inventory continued to increase by US$179 million to US$3.9 billion, and is expected to continue to grow in Q4; inventory turnover days slightly decreased by 2 days from the previous quarter to 205 days, after the company guided its reasonable inventory If the turnover days are more than 200 days, the current inventory level is considered reasonable.

The inventory turnover days of several other leading analog chip companies also remain high. Although production cuts are still continuing, judging from the current situation, the analog market situation is still not optimistic.

Let's look at China's analog chip market. From 2018 to 2021, the inventory turnover days of domestic analog chip design manufacturers are lower than those of overseas leaders. However, starting from Q4 of 2021, the inventory turnover days of domestic analog chip design manufacturers began to increase quarter by quarter, constantly exceeding the inventory turnover days of overseas leaders, and the expansion rate is also increasing. However, judging from the development status of the domestic market, it seems to be more optimistic than the international situation.

China's analog chip manufacturers include Awinic Electronics, Siruipu, Chipsea Technology, Diao Micro, Jinghua Micro, Xinpeng Micro, Zhuosheng Micro, Lixin Micro, etc.

In the first three quarters of this year, Awinic Electronics' inventory turnover days were 297.22 days, 168.76 days, and 113.1 days respectively; Seripu's inventory turnover days were 221.59 days, 217.42 days, and 360.06 days respectively; Chipsea Technology's inventory turnover days were respectively are 464.85 days, 312.76 days, and 225.84 days; Diao Micro’s inventory turnover days are 259.52 days, 213.72 days, and 191.60 days respectively; Jinghua Micro’s inventory turnover days are 893.08 days, 555.95 days, and 624.07 days respectively; Xinpeng Micro’s The inventory turnover days are 240.69 days, 211.3 days, and 184.54 days respectively.

It’s not just the shortening of inventory turnover days. Recently, Awinic Electronics, Zhuosheng Micro, Lixin Micro, Jinghua Micro, etc. submitted outstanding third quarter reports. Awinic Electronics Q3 achieved operating income of approximately 774 million yuan, a year-on-year increase of 108.57%; Lixin Micro Q3 achieved operating income of 262 million yuan, a year-on-year increase of 82.99%; Zhuosheng Micro Q3 achieved operating income of 1.409 billion yuan, a year-on-year increase of 80.22%; Jinghua Micro's operating income was 28.6887 million yuan, a year-on-year increase of 61.76%.

Although in the short term, domestic analog chip manufacturers have achieved significant inventory reduction results, leading to a slight increase in performance, the overall industry inventory level is still at a relatively high level. As for the overall analog chip market, uncertainty is still large. In consumer electronics Before a complete recovery, analog chip manufacturers still need to face greater pressure.

03 IPO "Origei"

In 2023, both the number and transaction value of semiconductor investment transactions will decline significantly compared with the same period last year.

Amid the cold market and financing difficulties, the living space of small and medium-sized analog IC manufacturers has been further squeezed. Since the beginning of this year, several analog IC manufacturers, including Silicon Power, Yutai Technology, Xinlong Technology, Weiyuan Technology, and Zhonggan Micro, have voluntarily withdrawn their IPO applications.

The Silicon Power Science and Technology Innovation Board was originally scheduled to be launched on June 5 this year, but its issuance and listing application was suddenly withdrawn on the 2nd, and the Shanghai Stock Exchange also terminated its issuance and listing review. As the meeting approaches, it is rare for companies to voluntarily withdraw their IPO applications. Silicon Power was established in May 2003. Its main business is the design, development and sales of fast charging chips. The company's main products are AC-DC chips and DC-DC chips, of which AC-DC chips are the core products of Silicon Power. From the perspective of terminal applications, consumer electronics is the largest application field of silicon power chips, and the prosperity of the consumer industry also directly affects the performance of silicon power.

On February 17, an announcement published on the official website of the Shanghai Stock Exchange showed that the exchange terminated the review of the initial public offering of shares and listing of Yutai Semiconductor Co., Ltd. on the Science and Technology Innovation Board. After half a year, in September this year, Yutai Semiconductor restarted its IPO listing work. It is worth noting that the market pressure on the analog chips, which are part of the power management chips that are Yutai’s core products this year, is far from easing. On the one hand, Texas Instruments, the overseas giant of analog chips, has proactively cut prices since the beginning of the year, resulting in a "fight" with domestic chip companies; on the other hand, the recovery pace of market demand has been slower than expected. Yutai Semiconductor is still facing pressure from declining product demand and falling prices.

On June 30, the Shanghai Stock Exchange disclosed its decision to terminate the review of Shenzhen Weiyuan Semiconductor Co., Ltd.'s initial public offering and listing on the Science and Technology Innovation Board. Weiyuan Technology is an integrated circuit design company focusing on the research, development, design and sales of high-performance analog chip products. On January 16, the official website of the Shenzhen Stock Exchange showed that the IPO of Xinlong Technology GEM was terminated and the company withdrew the order. In addition to terminating IPOs, many start-up analog IC manufacturers have been acquired by larger manufacturers one after another.

In January 2023, Navitas Semiconductor acquired the remaining minority stake in its joint venture from HaloUS, a secondary subsidiary of HaloUS, for US$20 million. The joint venture is mainly engaged in the research, development and sales of consumer AC/DC power management chips.

In June 2023, Serip announced the acquisition of 95.6587% of Chuangxin Micro shares and raised supporting funds. Chuangxin Micro is an integrated circuit design company focusing on the development and sales of high-precision, low-power battery management and high-efficiency, high-density power management chips.

In fact, mergers and acquisitions will occur frequently in 2022.

In March 2022, Shanghai Belling announced that it planned to acquire 100% of the equity of Silita Technology with its own funds of 360 million yuan, and at the same time acquire the remaining 30% equity of Shanghai Ridgecore held by Shanghai Yixin for 50.05 million yuan. Silita Technology is mainly engaged in the design of analog-digital hybrid ICs for motor drives and motor control chips.

In June 2022, Nanjing Yingruichuang Electronic Technology Co., Ltd. (Pinjie Electronics) announced the completion of the acquisition of 76.90% equity in Juxun Semiconductor. Juxun Semiconductor's main products are power chips and signal chain chips.

In August 2022, Yachuang Electronics acquired 60% of Ou Chuangxin's equity through equity transfer for RMB 240 million. Oltronix is mainly engaged in analog IC design business. After the completion of the transaction, Oltronix became a holding subsidiary of Yachuang Electronics.

04 How to bet?

According to WSTS forecast data, the analog chip market is expected to continue to grow against the trend in 2023, with global market sales expected to increase by 1.56% to US$90.952 billion, while global integrated circuit sales are expected to decrease by 5.61% to US$453.041 billion during the same period.

As the market continues to decline, how should analog chip manufacturers anchor the way forward?

Betting on the car market

In recent years, the sales of new energy vehicles have grown rapidly, supporting the steady increase in demand for automotive chips, including automotive analog chips.

Let's look at the automobile market first. Information released by the China Electric Vehicle 100 Forum shows that the value of global bicycle analog chips will be approximately US$150 in 2020. By 2027, the value of bicycle analog chips will reach US$300, with a compound annual growth rate (CAGR) of more than 10%. The development of electrification and intelligence has made automobiles the second largest downstream application of analog chips.

For many major analog chip manufacturers, the importance of the automotive terminal market has become more prominent year by year, and it will play a major role in driving revenue growth in 2023.

According to official data from Texas Instruments, the contribution of the automotive business to corporate revenue has continued to increase in the past 10 years. From 2013 to 2022, the proportion of automotive business has increased from 12% to 25%, while the revenue of the industrial field has increased from 30% to 40%, the revenue of personal electronic products has dropped from 32% to 20%, and the proportion of communication products has increased from 15% to 20%. % dropped to 7%, while the proportion of enterprise system products remained at 6%.

This year's Q1 NXP automotive chips accounted for 58.6% of the company’s total revenue, and Q2 automotive chips accounted for 56.6% of the company's total revenue. It is worth noting that Q2 automotive chip revenue increased by 9% year-on-year and 2% month-on-month to US$1.866 billion, which was better than analysts' expectations of US$1.85 billion.

For Infineon, Q1 automotive product revenue increased by 11% to 2.08 billion euros, and the automotive business accounted for 45% of Infineon's revenue. Q2 automotive business revenue was 2.08 billion euros, a year-on-year increase of 40% and a quarter-on-quarter growth of 11%, exceeding the quarterly turnover of 2 billion euros for the first time. Q3 automotive business revenue increased to 2.129 billion euros quarter-on-quarter, accounting for 52% of total revenue.

In terms of STMicroelectronics, Q1 automotive products and discrete device products segment revenue increased by 43.9%, Q2 quarter revenue increased by 34% to $1.96 billion, while analysts’ average expectation was $1.87 billion; Q3 automotive products and discrete device products Department revenue was US$2.025 billion, a year-on-year increase of 29.6%.

Although the analog market continues to be sluggish, many major analog chip manufacturers are still continuing to build production capacity. These analog giants said they will continue to push up investment in 2023.

At the same time, when ChatGPT is booming, although the computing chip market led by NVIDIA is the first to benefit at the order level, there is also a certain demand for the analog chip market. ChatGPT is mainly based on Transformer technology and performs large model algorithm iterations. The demand for computing power is very large, which will promote the growth of analog chips, such as power management chips. With the support of two strong tracks, analog chips are indeed expected to become the first market to rise in this round of downturn.

Consumer electronics enters preliminary recovery cycle

As the consumer electronics market encounters a "cold winter", analog chips that rely heavily on the consumer market are also severely affected. However, now, in different end markets, the consumer electronics market has shown varying degrees of recovery.

IDC's latest forecast shows that China's smartphone market shipments are expected to reach an inflection point in the fourth quarter of 2023, achieving the first rebound in nearly 10 quarters. Also holding an optimistic attitude is Lu Weibing, partner and president of Xiaomi Group. At the Qualcomm Snapdragon Summit held not long ago, Lu Weibing talked about his judgment on the future mobile phone market. He said that the global mobile phone market has reached a trough and is expected to achieve 5% growth by 2024. As for the domestic market, he believes that China’s mobile phone sales are expected to be about 268 million units in 2023, and he expects China's mobile phone market sales to increase to more than 280 million next year.

In addition, the decline in notebook shipments has also slowed down. According to the latest data from TechInsights, global laptop shipments in Q3 2023 totaled 51.2 million units, a year-on-year decrease of 7%. This is the first time that the market decline has slowed to single digits since Q1 2022. TechInsights analysis said that although the laptop market demand is still sluggish, especially in the business market, the slowdown in decline indicates that the market has passed the worst period. The laptop market is slowly recovering, with Windows 10 support ending in 2025 and the refresh cycle arriving, pushing the market into growth in 2024.

However, for the future, many domestic analog manufacturers predict that it will take some time for the consumer sector to grow.

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