MCU Archives - Counterpoint

STMicro Beats Q1 2023 Earnings Expectations Despite Chip Shortages

STMicro expects 2023 revenue of $17.0 billion-$17.8 billion, representing a 5%-10% growth over 2022.
Silicon carbide (SiC) substrate manufacturing facility in Catania will fulfill the continuing demand as Silicon Carbide (SiC) in EVs is growing substantially.
In 2023, revenue from SiC is expected to be around $1.2 billion, with a significant portion of its substrates internally sourced by 2024.

STMicro’s Q1 2023 net revenue rose 19.8% YoY to reach $4.25 billion, primarily driven by strong demand from the automotive and industrial segments and partially offset by lower revenue in personal electronics. Revenue from factory automation, robotics and building control grew while new orders normalized. STMicro will have a significant portion of its substrates internally sourced by 2024 as it continues to ramp up silicon carbide front-end device production in its Singapore facility. The company’s gross margin improved to 300bps YoY and 220 bps QoQ in Q1 2023 driven by favorable pricing and improved product mix, net of hedging, but was partially offset by an increase in manufacturing input costs.

Automotive: The automotive sector has maintained its momentum helped by a surge in EV adoption and semiconductor integration. STMicro has secured multiple design contracts for SiC, silicon MOSFETs, onboard charging MCUs and zonal controller solutions from several electric vehicle manufacturers. STMicro won several design contracts in vehicle dynamics, airbags and anti-theft applications, as well as SPC5 microcontrollers for vehicle body control in the legacy automotive sector. The legacy automotive sector remains dynamic for now, as silicon integration continues to grow.

Industrial: The industrial segment experienced a surge in demand, driven by the digitalization of devices and the need for improved power and energy efficiency. STMicro secured several design contracts in the industrial sector, offering system solutions that consist of power discrete, power management and STM32 microcontrollers for use in renewable energy applications, multi-product solutions for smart meters, smart grid applications, intelligent power switches, motor drivers, industrial sensors and secure solutions for applications such as industrial automation, asset tracking and server power supplies. STMicro has also introduced the MCU Edge-AI Developer Cloud which includes an online benchmarking service for Edge-AI models on STM32 boards.

Personal Electronics: STMicro’s products, such as NFC controllers, secure elements, wireless charging, MEMS sensors and time-of-flight sensors have been chosen by leading smartphone and wearable device manufacturers. In the communications and computer equipment sector, STMicro has secured several design contracts for LEO satellites, as well as for computer peripherals including secure solutions, time-of-flight sensors, microcontrollers and ASICs for communications infrastructure.

Segment Revenue

Automotive and Discrete (ADG): Q1 2023 revenue of $1,807 million, up 43.9% YoY in both automotive and power discrete segments.
Analog, MEMS & Sensors (AMS): Q1 2023 revenue was $1,068 million, with a marginal decrease of 0.9% YoY in analog, MEMS and imaging segments.
Microcontrollers & Digital ICs (MDG): Q1 2023 revenue was $1,368 million, increasing 13.2% year-on-year growth in both microcontrollers and RF communications segments.

Forecast: Net revenue for Q2 2023 is projected to be around $4.28 billion indicating a 0.8% QoQ increase, with a possible deviation of 350 basis points. Moreover, the projected revenue for FY2023 is expected to be $17.0 billion-$17.8 billion, reflecting 5%-10% YoY growth, primarily driven by the automotive and industrial sectors.

Demand and Supply: The high demand for the automotive, industrial power and energy sectors persisted in Q1 2023, propelled by the continued integration of semiconductors and the normalization of orders from the factory and automation sectors. However, at the end of Q1 2023, inventory was at $2.87 billion compared with $2.15 billion in the year-ago quarter. The days of sales in inventory at the end of the quarter were 122, compared with 104 days in Q1 2022. The automotive segment witnessed a surge in demand across all regions, primarily due to the growing use of semiconductors and inventory replenishment. The backlog has now extended to about six quarters at the mid-point of 2023 which is higher than usual but remains consistent with the diverse end-market segments.

Capex and Investment: Capex stood at $1.09 billion in Q1 2023, up from $840 million in the year-ago quarter. The company plans to invest about $4.0 billion with 80% of the investment directed towards the expansion of the 300mm wafer production and the continued ramp up of SiC front-end device manufacturing in Catania and Singapore. The company also intends to increase its back-end manufacturing capacity in Morocco and China.

Conclusion

STMicro is making significant progress by capitalizing on its impressive portfolio and benefiting from the strong demand in the automotive sector despite the supply chain constraints. The partnership between STMicro and Global Foundries is expected to increase the production capacity to 620,000 wafers annually by 2026. Additionally, STMicro has signed a multi-year supply contract with ZF to provide silicon carbide for its modular inverter architecture which is scheduled to commence production in 2025. To further diversify its raw material procurement, STMicro is implementing smart technology to reduce the cost of the solution at the substrate level.

NXP Reports Record Revenue in 2022, Automotive Shines

2022 was a record-breaking year for NXP with solid profit growth and healthy free cash flow generation.
Accelerated growth drivers (except UWB) are on track within the expected revenue growth range (∼25%) to help take NXP’s total revenue to $15 billion by 2024.
For Q1 2023, the company expects revenue of about $3 billion. This would mean a deceleration of 4% YoY with a 9% downside sequentially.

NXP Semiconductors reported record revenues of $13.21 billion in 2022, a yearly growth of 19.4% on account of increased revenues in all end markets, unprecedented design wins across the entire portfolio and higher pricing (due to input cost inflation). Automotive and core IoT markets witnessed robust demand throughout 2022, outstripping the company’s supply capabilities. Consumer IoT and mobile markets experienced softening demand environment in the latter half of the year. In Q4 2022, NXP delivered revenues of $3.31 billion, up 9% YoY and down 4% QoQ. The Q4 revenues were $12 million better than the midpoint of the guidance with all markets performing in line or better than expected except the communication and infrastructure segment. The full-year non-GAAP gross profit was $7.64 billion with non-GAAP gross margin standing at 57.9%, an increase of 180 basis points YoY due to higher internal factory utilization and follow-through on higher revenues.

Automotive

NXP’s automotive business captured 52.1% of the total revenue in 2022, an increase of 2.4% from the previous year. Revenue for the full year stood at $6.88 billion, a yearly growth of 25.2%. This growth was driven by higher pricing, record customer design wins (for xEV solutions – battery management solutions, inverter controls, other xEV control processors, etc.), and strong traction of company-product drivers owing to accelerated content increases within xEVs and premium car models.
Q4 revenues were $1.81 billion, up 17% YoY and flat QoQ, in line with the company’s guidance. Due to supply constraints, NXP couldn’t ship more in Q4.
NXP emphasized on its auto-specific accelerated growth drivers, which will help it with increased yearly revenues in the future. They include 77-gigahertz radar solutions, electrification systems, and the S32 domain and zonal processors. Customer enthusiasm for S32 processors continues to grow, far exceeding expectations. A major automotive OEM has selected the S32 family of automotive processors and microcontrollers for use across its fleet of vehicles beginning next decade.
In Q4, NXP introduced the high-performance S32K39 series MCUs for electrification applications like traction inverter control, BMS and OBC, and announced its collaboration with Delta Electronics in which the latter will utilize NXP’s S32 automotive platform and S32K39 MCUs to develop next-generation EV platforms. At the CES this year, it unveiled the SAF85xx SoC, the industry’s first 28-nanometer RFCMOS radar one-chip IC family for ADAS applications.
For Q1 2023 revenues, the company is estimating this segment to be up in the mid-teens and flattish on a YoY and QoQ basis respectively. Increased global automotive production and growing penetration of xEVs would prove beneficial for future revenue growth.

Industrial & IoT

The industrial and IoT segment’s revenue for 2022 was $2.71 billion, up 13% YoY. The growth can be attributed to higher pricing and demand for its industrial processors, and analog, connectivity, and security solutions. Specifically, its secure connected edge solutions (accelerated growth driver), which include both crossover and i.MX application families of processors, grew nearly 50% YoY in 2022.
Q4 revenues were better than their earlier guidance at $605 million, down 8% YoY and 15% QoQ respectively. Due to lockdowns in China and uncertain macro conditions, consumer-exposed IoT businesses saw a deceleration in revenue.
In Q4, the company launched its new analog front-end (N-AFE) family of devices targeting industrial applications, specifically software-defined factories. It will help with high-precision data acquisition and condition monitoring systems for factory automation. Schneider Electric is incorporating the N-AFE family in its industrial solutions. NXP also launched MCX N series MCUs for secure intelligent edge industrial and IoT applications and expanded its portfolio of end-to-end Matter solutions by announcing the RW612 and K32W148 wireless MCUs. Both are targeted toward smart home applications such as garage doors, thermostats, smart plugs, and smart lighting.
For Q1 2023, the industrial and IoT segment is expected to be in the negative territory in both YoY (low 30% range) and QoQ (low 20% range) terms. The core industrial business remains supply constrained in some areas while consumer IoT is expected to experience cyclical weakness in demand and potential correction of customer inventory.

Mobile

For 2022, Mobile segment revenues stood at $1.61 billion, an increment of 14% YoY due to higher pricing and continued traction of the secure mobile wallet.
In Q4, it reported revenues of $408 million, up 9% YoY and down 0.5% QoQ, and faring better than the company’s guidance. As observed in the previous quarter, weakness in the Android mobile market continued to persist, affecting the largely channel-driven mobile business.
NXP’s mobile segment-specific accelerated growth driver Ultra-Wideband (UWB) was below the expected revenue growth range since NXP’s UWB solutions are aimed at the Android market, which is experiencing softening demand. However, the company is optimistic about this growth driver in the near future as it continues to build out its ecosystem and register more design wins both in the mobile and automotive sectors.
For Q1 2023, NXP is expecting this segment to be down in the mid-40% range both in YoY and QoQ terms. The mobile segment is dependent on a cyclical rebound and is expected to improve performance as and when the Android handset market fares better.

Communication infrastructure and other

The ‘communication infrastructure and other’ segment’s revenue in 2022 was $2 billion, up 15% YoY. This growth was driven by higher pricing and sales of in-demand solutions like network processors, secure transit and access products and RF-powered products for the cellular base station market.
Q4 revenues stood at $494 million, up 8% YoY but down 5% QoQ and below the company’s guidance. Weakness in this quarter had nothing to do with demand but was primarily due to operational issues and supply constraints.
NXP’s accelerated growth driver – RF power amplifiers – was on track as per its expected revenue growth range. The industry transition from LDMOS technology to gallium nitride happened faster than expected and the company’s revenue doubled YoY with respect to gallium nitride-based solutions. However, the demand continues to outstrip even its increasing supply capabilities.
In January 2023, NXP launched a new wideband GaN RF transistor – MMRF5018HS – primarily for aerospace and defense communications.
For Q1 2023, the guidance expects the revenues to be flat both in YoY and QoQ terms. NXP will try to improve its supply capabilities to cater to the pent-up demand in RFID packing solutions, e-government identification, 5G base station market build-out especially in India, and more.

Capex overview and inventory

Cash flow from operations stood at $3.9 billion in 2022. Net capex investments were $1.06 billion or 8% of overall revenue, a 1% jump from the previous year. Due to softening demand in consumer-oriented markets, internal front-end utilization rates have dropped for non-auto industrial products. From running in the high 90s in Q3 to touching 90% in Q4 2022 and in Q1 2023, it is expected to go down to 85%. Despite this, NXP is confident of keeping its gross margin within its long-term range of 55%-58% as it has a disciplined inventory management approach and a better grip on its cost structure, which is more variable in nature now than it was in past.
NXP continues to face shortages in certain nodes and other technologies like 180 nanometers, 9055 gallium nitride and the high-voltage analog mixed-signal (which are proprietary to NXP). This can lead to significant customer escalations which the company hopes will moderate by the end of this year. However, it remains optimistic about its supply capabilities in the future as its ability to cater to risk-adjusted backlog has gone up from 85% in 2022 to 90%-95% in 2023.
DOI has increased to 116 days, a 17-day sequential increment, and distribution channel inventory has been deliberately restricted to 1.6 months as opposed to its long-term target of 2.5 months. China’s market is experiencing weaker sell-through and NXP is being prudent about shipping more in the channel as it might not meet the true end demand and lead to an unnecessary inventory build-up. Since more than 50% of the company’s revenue goes through the channel, it is taking a very vigilant inventory management approach and keeping more than enough products in hand to fill the channel as and when required.

Conclusion

Input cost inflation due to supply chain constraints led to higher pricing for NXP solutions in 2022, a trend that will continue this year as well. Dynamic macro trends continue to pose an uncertain general demand environment and a potential rebound in the Chinese market could significantly improve end markets’ revenues, which is why managing internal and channel inventory is an important topic for the company. Overall, NXP is prepared for market uncertainties and will continue to execute diligently on its accelerated growth drivers and be disciplined with its operating expenses while protecting long-term R&D investments.

NXP Q3 2022 Revenues Better Than Expected; Automotive, Mobile Segments Shine

NXP’s Q3 2022 revenues were $20 million more than the midpoint of the company’s previous guidance. The automotive, mobile and communication infrastructure segments performed better than expected. But the consumer-exposed IoT and Android mobile segments experienced weakness.
NCNR order book continued to surpass NXP’s 2023 supply capabilities.
For Q4, the company expects revenue of about $3.3 billion (± $100 million). This would mean an increment of 9% YoY with 4% downside sequentially. Non-GAAP gross margins are expected to be 57.8% (± 50 bp) and operating expenses are expected to be near $720 million (± $10 million).

NXP reported revenues of $3.45 billion in Q3 2022, an increase of 20.4% YoY and 4% QoQ, and $20 million more than the midpoint of the company’s previous guidance. NXP’s automotive, mobile and communication infrastructure segments performed well compared to Q2, while the industrial and IoT segment struggled. Specifically, the consumer-exposed IoT business, accounting for almost 40% of revenue, experienced weaker sell-through in the channel. However, demand from automotive and core industrial customers remained resilient supported by accelerated growth drivers. Due to higher factory utilization and sales volume, the non-GAAP gross profit was almost $2 billion and the margin was 58%, up 150 basis points YoY.

Sources: Company, Counterpoint

Automotive

NXP’s strong suit, the automotive segment accounted for 52.4% of the total revenue in Q3 and stood at $1.8 billion. This was a 24% YoY and 5% QoQ growth. Auto demand for silicon content continues to be robust with rising EV penetration and increased autonomy efforts. Strong growth for advanced analog, automotive processing and radar solutions was visible in Q3. However, due to supply constraints, there was a shortage of microcontrollers and analog products in automotive. The NCNR order book in this segment continued to outstrip the company’s supply capacity, which will remain “sold out” next year too.
The company also announced collaborations and a product launch in the third quarter. NXP’s S32 family of domain and zonal automotive processors is gaining traction among automakers as a preferred scalable platform for software-defined vehicles. A leading global automaker has selected the S32 MCUs/processors for its upcoming fleet of vehicles, starting 2025. NXP released the second-generation RFCMOS radar transceiver, TEF82xx, which supersedes the market-proven TEF810xx. This high-performance, single-chip solution supports short-, medium- and long-range radar applications including cascaded high-resolution imaging radar. Besides, NXP has collaborated with ChargePoint of the US for charging solutions and has also included its proprietary payment solutions to allow a seamless process for the customers.
For Q4 revenues, NXP is estimating this segment to be in the high teens and flattish on a YoY and QoQ basis respectively.

Industrial & IoT

The industrial and IoT segment’s revenue was $713 million, an increase of 17.5% YoY with no QoQ change and $32 million below the company’s guidance. The YoY increase was driven by the demand for crossover processors, 32-bit AMR MCUs, point-of-sale security solutions and more. As mentioned earlier, the consumer-exposed IoT business was much impacted. Since August, there was a global softening visible in the consumer IoT market with China getting affected strongly. Since NXP has a sizeable channel exposure in China and serves thousands of customers via distribution partners, the revenues in that domain took a hit.
Going forward, NXP could ship more into the channel but instead decided to limit channel inventory to 1.6 months (as opposed to the long-term target of 2.5 months) to prevent losses due to uncertain macro conditions. The company will closely gauge and adhere to market requirements depending on the developing demand and, if required, redirect it to other customers. With respect to on-hand inventory, the DIO increased five days sequentially to 99 days with more increments expected in the future.
For Q4, the industrial and IoT segment is expected to be in the negative territory in both YoY (low double-digit) and QoQ (high teens) terms.

Mobile

The mobile segment had revenues of $410 million, up 19% YoY and $30 million more than what was expected. Despite seeing weakness in the Android mobile market, NXP attained better than estimated revenues due to being exposed to the higher-end (which seems to be doing better) rather than the lower-end mobile phone market, increased attach rate for its secure mobile wallet, advanced analog high-speed interfaces, eSIM connectivity and more.
As Ultra-Wideband (UWB) penetration starts picking up in different verticals like mobile, IoT and cars, the company will be able to accrue more revenues in the future, from its UWB technology along with mobile wallet solutions. UWB use cases are already visible in China as UWB functionality in phones (flagship models) such as those from Apple, Samsung and Xiaomi. These smartphone players have collaborated with automakers to implement UWB-based solutions in cars to offer consumers secure car access. NXP expects four Chinese OEMs to offer this technology by the end of this year with a minimum of three more to follow in 2023. Kostal is using NXP’s UWB technology for its digital key system, which is being adopted by local company Nio.
For Q4, the company is expecting this segment to be up in the low single-digit range YoY and down in the upper single-digit range QoQ.

Communication Infrastructure & Other

The communication infrastructure and “other” segment’s revenue was $518 million, slightly above the guidance. Annual and quarterly growth rates were 14% and 4% respectively. The growth can be attributed to the demand for network edge equipment, RFID tagging solutions, cellular base stations and more.
NXP launched its new higher-power BTS7202 RX front-end modules (FEM) and BTS6403/6305 pre-drivers for 5G massive multiple-input multiple-output (MIMO) going up to 20 W per channel. These solutions complement its 32T32R active antenna systems and are developed using the company’s silicon germanium (SiGe) process. As 5G network coverage expands, there is a need for higher-power solutions to ensure consistent network quality along with reduced operational costs for MNOs. The newly announced devices can cater to these requirements with higher power per channel and modest consumption.
For Q4, the guidance seems positive and stands in the low-teens range YoY and flattish QoQ.

Capex Overview and Inventory

Cash flow generation continues to be excellent according to the company. In Q3, cash flow from operations stood at $1.14 billion compared to $819 in Q2. Net capex accounted for 8.2% of the revenue or $281 million. Due to supply constraints and strong demand (especially in the auto sector), internal utilization remained in the high 90s. More than 65% of the capacity was focused on IP proprietary mixed-signal, auto-centric capacity internally.
Capex for this year has decreased from 10% to 8% due to delays in equipment deliveries. For 2023, it will range between 6% and 8%.
From the demand perspective, there is weakness in the consumer IoT and Android mobile market, whereas the automotive and core industrial markets are witnessing resilient demand. On the supply side, the situation is reversed with the latter markets facing supply crunches and not being able to cater to the true demand. On the other hand, in the former markets, excessive shipping in channels is being prevented because of uncertain macro conditions.

Conclusion

NXP’s supply capabilities have improved over time but major end markets like auto and core industrial continue to face shortages. Prevalent weak macro conditions and extended China lockdowns will cause further hindrances to the revenue recovery of consumer-oriented markets. However, the company is being cautious and trying to mitigate costs by reducing its discretionary spending, lowering incentive compensations, and focusing on a strict approach to managing distribution channel inventory.

Automotive, Industrial Segments Drive NXP’s Strong Q2 Numbers

Second quarter revenues for NXP were $37 million more than the midpoint of the company’s previous guidance with the automotive and industrial segments performing well while the mobile and communication infrastructure segments were in line with its expectations.
Amid the ongoing macroeconomic and supply chain turmoil, the company is banking on its NCNR orders to provide its customers with supply assurances. For 2023, NCNR orders are already more than what the company can supply. Therefore, NXP is focused on de-risking its existing backlog for potential double/stale orders and improving supply capabilities.
For the third quarter, the target is to achieve 20% YoY growth at $3.425 billion. The automotive and industrial segments will take the center stage again to provide a safe landing going forward with respect to demand.

Despite macroeconomic headwinds and supply chain constraints, NXP reported healthy Q2 2022 revenues at $3.31 billion, an increase of 27.6% YoY and 5.6% QoQ. Major revenue drivers for this quarter were the automotive and industrial segments, accounting for almost three-fourths of the total revenue. Strong customer demand within these segments is outstripping the company’s improving supply capabilities.

Sources: Company, Counterpoint

Automotive

NXP’s automotive segment captured almost 52% of the total revenue and stood at $1.7 billion, rising 35.7% YoY and 10% QoQ respectively. From the supply point of view, the automobile industry is still feeling the effects of factors like COVID-19 lockdowns in China, Ukraine-Russia war and semiconductor shortages, resulting in fewer cars being produced. On the demand side, consumer sentiment is muted due to macroeconomic factors affecting purchasing power. However, despite the production being down, the content within cars is increasing due to increased digitization and the growing penetration of xEVs in the market, which is where NXP benefits a lot.

Products in demand include battery management systems, inverter control, MCU/MPU, Goldbox (service-oriented gateway) and more. The automotive industry is pivoting towards software-defined vehicles, which will be complemented by two parallel architectural evolutions, namely zonal and domain. To support these vehicular functions and accelerate integration, NXP introduced two new processor families, S32Z & S32E, to extend the benefits of its innovative S32 automotive platform. Additionally, the company also announced that it would be working with Hon Hai Technology Group (or Foxconn) to jointly develop platforms for a new generation of connected cars. This collaboration will enable solutions focused on architectural innovation and platforms for electrification, connectivity, and safe automated driving.

Industrial & IoT

The industrial and IoT segment grew by 25% YoY and 4.5% QoQ to reach $713 million. The segment contributed 21.5% to the total revenue. Use cases for smart and connected applications, like within homes or factories, are evolving and leveraging the potential of IoT. NXP is serving the needs of its customers through secure connected edge solutions in the form of advanced analog solutions, general purpose MCUs and application processors. Its broad portfolio includes scalable compute platforms along with collaborations with multiple cloud players like AWS, Azure, and Baidu, which allows for differentiated software enablement and services. In June, NXP announced the new Arm Cortex-M core-based MCX portfolio (MCX N/A/W/L series) of microcontrollers which are scalable, flexible enough to simplify migration and allow developers to maximize software reuse across the portfolio to minimize total system cost. These MCUs are suitable for smart homes, smart factories, smart cities and across many emerging industrial and IoT edge applications.

The supply chain constraints are evident based on NXP’s channel inventory. Its industrial business, especially in China, is dominated by the distribution channel and is sitting on a channel inventory of 1.6 months, which is still a month below its target of 2.5. However, the Chinese government’s stimulus programs are providing respite for the company’s industrial and automotive market operations. According to NXP, since June, the effects of the stimulus have been significant and would prove to be beneficial for the second half of the year as well.

Communication Infrastructure & Others

The segment saw a flat sequential growth but an almost 20% YoY increase to reach revenues of $498 million. This capex-driven wireless infrastructure segment accounted for 15% of the revenues. NXP’s increased value proposition stems from its technological leadership (in wireless solutions and RF components & processors catering to applications like enterprise networking, wired/wireless network infrastructure and data center), system expertise and manufacturing scale. Its leadership in accelerated growth driver RF power systems for cellular base stations is witnessing robust demand. Furthermore, as 5G deployments continue to expand globally and carriers optimize power consumption for sustainable 5G networks, NXP is in place to serve all 5G configurations and systems ranging from 5G Macro and 5G mMIMO to 5G mmWave.

NXP has expanded its massive multiple input, multiple output (mMIMO) product portfolio by launching a new series of RF power discrete solutions for 32T32R active antenna systems, employing its proprietary Gallium Nitride technology (GaN). This new series complements its existing portfolio of discrete GaN power amplifiers for 64T64R radios. These 5G mMIMO systems were produced in NXP’s own advanced GaN manufacturing facility and it now has the largest offerings for the RF GaN portfolio for massive MIMO 5G radios. For 5G rollouts in densely populated areas, 64T64R solutions are appropriate and for less dense urban/suburban areas, 32T32R solutions are suited best.

Mobile

This is the only segment that saw its revenues going down QoQ (-3.2%). But they grew 11.8% on a yearly basis. Revenues reached $388 million, a decline of $13 million from the previous quarter. The segment witnessed a QoQ decline due to macroeconomic weakness in China where the company is exposed to low-end Android players. NXP has faced supply issues in this segment in the past quarters as well, hence it has been very careful to not grow any inventory down the chain. Furthermore, it is shifting its supply from mobile to other segments like auto and IoT as the demand in these segments is more robust and consistent. However, its strong hold in the secure mobile wallet (which includes technologies like NFC, eUICC and MIFARE 2GO), embedded power solutions, and UWB ecosystem solutions (accelerated growth driver) has experienced continued strong adoption. UWB technology is gaining traction and seeing an increased installed base across different verticals like IoT, cars and mobile, and NXP is well-positioned to drive this ecosystem.

NXP has collaborated with ING and Samsung for innovations in payment services by bringing forth the industry’s first UWB-enabled peer-to-peer payment application. Project NEAR will leverage UWB-based Samsung Galaxy smartphones with an ING bank application to allow consumers to send money directly to peers when two Galaxy phones are in proximity. Instead of inputting bank details, the sender can simply be in close range of the recipient and a swift transaction can happen, made possible via NXP’s Trimension SR100T UWB chips. Further, the company’s SN110 convergence eSIM solution (which integrates eSIM, NFC and secure element) is used in Xiaomi’s Redmi Note 10T and HONOR’s Magic4 Pro models for remote SIM provisioning with multiple MNO subscriptions, along with advanced features like smart access, payment, and secure mobile transit.

Future Guidance and Capex Overview

For the upcoming quarter, the company expects to attain $3.425 billion in revenue, plus or minus about $75 million at the midpoint. This is up 20% YoY and about 3% QoQ. The non-GAAP gross margin is expected to be about 57.8%, plus or minus 50 basis points. NXP has attempted to de-risk its Q3 outlook keeping in mind the macroeconomic conditions that are already affecting its mobile and consumer end markets. But the auto and IoT segments will continue to perform well due to strong customer demand. Both auto and IoT segments are expected to be in the low 20% range YoY and in the mid-single digit range QoQ.

The capex for Q2 was $268 million, a decline of $11 million from the previous quarter. The company is focused on improving its supply capabilities by employing a hybrid manufacturing model and making sure no excess inventory is being built down the chain in any of its major end markets. NXP is remodeling its factories (all are 200 millimeter) to focus on manufacturing proprietary specialty processes unique to the company. Furthermore, it is transferring more of the CMOs to its foundry partners to create more internal space for its facilities, allowing it to work on advanced products catering to the ever-growing needs of different industries. Currently, 60% of the wafer supply is coming from the foundry process, most of which is turned into CMOs logic processes (especially for the ones below 90 nanometers and pertaining to 300 millimeter).

Conclusion

The automotive and industrial segments continue to be NXP’s strong suit where most of the recurring revenue is generated. The company remains bullish on these segments for the second half as well. This is evident as the company is already sold out for the rest of the year with respect to these segments and there are ever-growing content increases in these underlying sectors. The automotive sector will see more xEVs produced in the second half and by the end of the year, the share of green vehicles will be 26% of the global car production. Higher EV penetration means more semiconductor content (higher ASP for silicon content as well) and ultimately more revenue growth for the company.

Going forward, NXP is aiming to improve inventories and supplies for its major end markets because for the foreseeable period, it estimates its supply capabilities to cover 80% of the underlying demand. Based on its aforementioned new product launches, design win commitments and healthy NCNR order book, NXP is confident that its future growth and investments are well-aligned with the long-term market requirements.

Connected Vehicle 2022 Summit: From ADAS to Autonomous Mobility, Here are Some Key Takeaways

India’s Connected Vehicle event is back offline after two years. Held in Bengaluru from May 4 to May 6, the event saw attendance from the chipset, NAD module, telematics, cybersecurity and mapping domains, besides regulatory bodies and communication service providers within the connected and autonomous vehicles ecosystem. Analysts from Counterpoint Research were also present. Here are their key takeaways from the sessions held at the event.

Connected, Autonomous, Shared, Electric and Smart Mobility

India is lagging in connected car penetration (17%) compared to the global market (43%). However, the country is also preparing for a shift towards smart electric mobility and focussing on local manufacturing. Such events will help Indian ecosystem players to remain updated on the latest in the field around the world and prepare themselves for the coming transformation.

5G Automotive Association, Tata Elxsi, Dell and what3words participated in this session and discussed the need for C-V2X technology for better communication, opportunities for ecosystem players from connected mobility, a paradigm shift from hardware to software-centric approach and a unique mapping solution that uses three keywords.

Source: Counterpoint Research Smart Automotive Services, 2022

Shifting Future of Automotive Industry to Top Gear with Connected Mobility

The rising demand for safety and comfort features is helping to increase connected car penetration. We expect more than 70% of cars will be connected by 2025 in the global market and one in four cars will have 5G connectivity. However, connectivity penetration will be lower than 40% in India by 2025.

This session mainly focussed on safety during driving, challenges in handling data generated from vehicles, creating actionable insights from telemetry data, and collaborative effort among OEMs and Tier-1 suppliers to make this transition smooth. Intel, Zeliot, VE Commercial Vehicles and Danlaw shared their understanding of this transition.

Driving Towards Connected, Secure, Autonomous & Electric Mobility

In the future, cars will be driven by software. We have already witnessed smartphone players such as Foxconn and Xiaomi entering this market. Data will be the new fuel and nearly 30% of the automotive market value will come from software and services. Moreover, electronic content in a car will rise with increasing smart electric mobility penetration.

According to Counterpoint’s latest research, India’s automotive electronics market will triple by 2027, driven by rising income levels and increasing customer preference for in-vehicle digital experience.

Collaborative efforts of all ecosystem players, whether OEMs, Tier-1 suppliers, regulatory bodies, system integrators or service providers, are important for a successful transition. The Indian government is also working to come up with AIS189 and AIS190 standards for connected vehicle security. Continental and Bosch share the same view on this topic and think a collaborative effort will be the key to connected mobility success in India. Secure Things highlighted how our vehicles are becoming more prone to safety issues and hacking. Both hardware and software level security will be required as preventive measures.

Emerging Technologies – Riding the Next Wave of Connected & Autonomous Mobility

Connected mobility is undergoing dramatic changes. Earlier, we used to connect smartphones to a car via Bluetooth or cable. Today, most cars come with embedded connectivity. In the future, cars will be able to communicate with other vehicles, pedestrians, networks, infrastructure, grid and home.

The upcoming connected and autonomous era will induce a huge influx of data for which substantial storage will be required. We expect Level 4 cars will require more than 1TB of data storage by 2025. Moreover, 30% of cars sold globally will support Level 2 or above. Western Digital is working on automotive storage products. It believes that one day storage will be a key feature at the time of selecting a vehicle. During this session, Bosch introduced Mobility Cloud Platform and Mobility Marketplace. This platform can support other IoT applications such as industrial and enterprise.

Download the full analysis from event sessions below:

ADAS – A Game Changer for Safe and Autonomous Driving

MG Motors introduced ADAS in India for the first time back in 2019 through its L1 SUV Hector. Even as ADAS technology is rapidly gaining acceptance in the global market, India is not that far behind. Currently, L2+ autonomy is being offered in most premium vehicles. With the changing landscape of vehicle architecture, the incorporation of ADAS will be easier and more cost-effective.

Windriver and Hexagon showed how the changing vehicle architecture will benefit system integration and deployment of autonomy. While Windriver has expertise in test and analysis of vehicle architecture and software and ADAS system, Hexagon helps deploy autonomy across sectors and platforms by blending the digital and physical worlds. Hexagon uses ML algorithms to create a simulation through well-captured surround photos. The simulation helps understand how a situation will look with automation, and also increases the accuracy of the automated process.

Shaping the Future of Mobility with IoT, Connectivity & Sustainability

The mobility roadmap is hugely dependent on connectivity. OEMs are constantly innovating to make the journey more pleasurable with better IVI system, better navigation, CV2X and ultimately autonomy, which will not be possible if a proper vehicular connection is not established. According to our research, global cellular IoT module shipments are expected to cross 1.2 billion units by 2030 with a CAGR of 12%. 5G will be the fastest-growing (60%) technology, followed by 4G Cat 1 bis, during 2022-2030. Among cellular IoT modules, global NAD module shipments are expected to reach 80 million by 2025, growing at 14% CAGR from 2021, with one out of every five connected cars projected to have embedded 5G connectivity by then.

Leading frontline companies like Cavli Wireless and MediaTek have shared some details about how they plan to increase connectivity across the automotive industry. As the future bets on autonomy, connectivity benefits are not just limited to in-vehicle internet browsing and autonomy but also extend to vehicle accident prevention, better navigation, precise tracking and more. In short, increased connectivity will enable a sustainable digital ecosystem that, if used properly, holds immense development potential.

Intelligent Transportation System to Promote Safety & Improve Mobility

Increased vehicle connectivity has made transportation safer, more reliable and timelier. Along with changing architecture and increased integration of improved software, the addition of newer technologies is becoming easier.

Intellicar, Skoda, and IBM took the stage to showcase how intelligent transport solutions could tackle some of the general and critical issues of the industry. Intellicar has a solution line from hardware and firmware customization to a low-latency data directory. Skoda showed how intelligent systems can reduce road accidents. IBM provided a global overview and discussed its strength as a software developer and system integrator.

Protecting Software-defined Vehicles with Cybersecurity Solutions

With the increased use of software and internet, present-day cars are no less than a computer and like every other computer, cars are also exposed to cyber threats like malware. If the system used in vehicles is not properly protected, a lot of damage can happen, including loss of life. Therefore, strong and effective anti-virus protection with an improved firewall is much required.

Escrypt, a cyber threat protection company, was of the view that vehicle data safety could be ensured through blockchain-based communication systems, smart gateways, cyber digital twin, AI-based detectors and other encryption systems.

Charting the Future of Connected Mobility with Automotive Telematics

The growing automotive sector holds a lot of potential for the development of new and smart technologies. The transition from conventional vehicles to EVs is also paving the road toward a sustainable connected future. Technologies that were limited to certain fields earlier are finding their way into the expanding automotive space. The use of security systems, blockchain, data tokenization and other platform-based and protocol-based technologies and services is penetrating the automotive space, making the sector more flexible, versatile and user-friendly.

Source: Counterpoint Research Smart Automotive Services, 2022

Market Outlook

Emerging technologies such as ADAS/AD, in-vehicle connectivity, upgraded cybersecurity for the software-defined vehicles, electric vehicles and connected vehicles are taking centre stage as the automotive industry undergoes a paradigm shift. The automotive supply chain is dynamically changing as well, with OEMs making huge investments and starting to adopt digital services to remain future-proof and not cede revenue monetizing opportunities to technology companies. Apart from traditional auto OEMs, the involvement of non-automotive tech companies has been increasing in this space. The future of the automotive sector will be heavily dependent on digital technology. Due to traditional auto OEMs’ lack of expertise in digitalization, non-automotive companies are partnering with them to secure a market share in this growing space.

Related Reports:

NXP Sees Record Revenues in 2021; Automotive Segment Leads the Way

NXP’s automotive segment crossed $5.4 billion in revenues in 2021, surpassing the previous high of $4.5 billion in 2018. The segment will continue to gain traction as “chips per vehicle” increase along with electrification. NXP’s leadership in products related to sensing and processing applications will enable it to witness continuous momentum.
The semiconductor shortages are expected to ease from 2023 onwards, hence supply-demand mismatch will remain for the rest of this year. But NXP has taken steps to ensure additional capacity expansion is in place to future-proof its supply capabilities. Furthermore, the non-cancelable, non-returnable (NCNR) concept is proving to be helpful on this front. The capex will reach $1.03 billion to account for 8.3% of total revenues in 2022.
For 2022, the company is aiming for 12.7% YoY revenue growth to cross $12.4 billion. For the first quarter, the target is 21% YoY growth at $3.1 billion.

NXP, a leading player in secure connectivity solutions for embedded applications, had a stellar performance in 2021. The company’s revenues increased 28.5% YoY to reach a record $11.06 billion. This was possible due to strong customer demand and significant design wins across its end markets despite supply chain challenges. In particular, NXP’s automotive segment did well by catering to solutions revolving around in-vehicle networking, advanced driver assistance systems (ADAS), and battery management in EVs. Gross profit for 2021 stood at $6.06 billion, an increase of 37% YoY.

Note: As of January 1, 2019, revenues and costs associated with Manufacturing Service Agreements were consolidated under “Other Income & Expense” and not reported as revenue.

Automotive

NXP’s automotive segment revenue stood at $5.4 billion in 2021 with 43.6% YoY growth. It managed to capture 50% of the total revenue of the company, an increase of 5% share from the previous year. Products centered around the evolving needs of the automotive industry, such as domain and zonal processors, electrification, and radar systems are helping the company increase revenue and industry-wide collaborations. As the automotive segment is moving towards xEVs, electric and hybrid electric vehicles, the semiconductor content in cars is increasing. In addition to this, the Level 2 and Level 3 autonomy efforts are getting more traction. This will help NXP position itself in the radar and related networking processors space and drive long-term growth. For example, Ford will use NXP’s i.MX 8 series processors and S32G2 vehicle networking processors across its fleet globally to support new vehicle architecture and deliver upgraded services, experiences, and new data monetization avenues. Denso will use NXP’s 5^thGeneration Radar 1-Chip SoC which employs leading-edge technology nodes and state-of-the-art 77GHz RFCMOS performance.

Industrial & IoT

The industrial and IoT segment is NXP’s second-largest revenue generator after automotive, accounting for 21.8% of the 2021 revenue. The segment grew 31.3% YoY to $2.4 billion in 2021. NXP is focused on solutions related to fast-growing segments such as smart homes and wearables within the IoT segment and factory automation, building and energy, and healthcare within the industrial segment.

Its leadership in longtail and large OEM partnerships along with a broad connectivity portfolio (MCU and application processors, BLE, Zigbee, Wi-Fi, etc.) for the intelligent edge is helping the company with client stickiness. Some customer examples include Schneider Electric in factory automation and ChargePoint in electric vehicle charging. Further, in Q4 2021, the company released its i.MX 93 applications processor and i.MX 8XLite SoC to cover a range of applications, including industrial and IoT.

Communication Infrastructure & Other

The third highest revenue-generating segment accounted for a 15.8% share. It witnessed an increase of just 2.6% YoY to reach $1.7 billion. As the telecom industry embraces the 5G supercycle, NXP’s antenna-to-processor portfolio is in place to address its 5G configuration and infrastructure needs.

NXP’s infrastructure-focused portfolio includes the Layerscape Access family of software-defined baseband processors for applications operating in mmWave and sub-6GHz frequencies, AirFast family of RF power solutions/multi-chip modules for 5G cellular base stations, and the Layerscape scalable series of 64-bit ARM-based SoCs for FWA, small cells, premises, etc. These products, which are future-proof and scalable, help customers with fast time-to-market and optimized solutions.

Mobile

NXP’s mobile segment, which holds the smallest revenue share at 12.8%, posted a YoY growth of 13.1% to cross $1.4 billion in revenues. The Q4 revenue, however, declined 8.6% YoY to reach $374 million. Specific areas where NXP has the expertise and industry-wide technical collaborations are mobile NFC Wallet, UWB technology, and ready-to-use systems solutions (i.e. end-to-end security and software).

UWB secure access solutions are gaining traction in smartphones, IoT devices, and automobiles. NXP is aiming to increase the UWB market share through its leadership in mobile wallet/car access and ecosystem knowledge.

CAPEX Overview and Expansion

The capex stood at 4.6% ($392 million) and 6.9% ($762 million) of 2020 and 2021 revenues respectively. Given the strong underlying demand, this share will increase in 2022. It is estimated to be at the higher end of NXP’s target of 6-8%, with the company planning to expand its internal back-end capacity and run its front-end fabs to the maximum to clear the order backlog and prepare for future orders. Furthermore, it is expanding its testing and packaging operations. It has also invested $4 billion in advance payments to ensure a steady production supply from foundries in the long term.

Future Guidance

Against the backdrop of strong customer demand, NXP, in 2022, aims to achieve a higher yearly revenue growth than its long-term target of 8-12%. It has also indicated strong guidance for the first quarter — 21% YoY growth at $3.1-billion revenue. However, the sequential growth will remain flat at around 2%. The automotive segment will lead with the highest growth in the mid-20s range YoY. This segment’s product demand is bolstered by the growing digitization and electrification of cars and is primarily driven by OEMs and Tier 1s that are focused on strengthening their supply chains and rebuilding inventory.

As the market reels under a supply-demand mismatch and inventory is lean across all end markets for NXP, the company is focused on minimizing the supply chain constraints by increasing capex and building more supply capabilities. Another concept that is proving helpful for the company by providing transparency and stability is the non-cancelable, non-returnable (NCNR) orders, especially relevant for the automotive segment. Having a direct and close relationship with OEMs provides a clear view of what products/equipment to focus on and prioritize in the short to medium term.

Future growth enablers which will lead to accelerated revenue growth for NXP include:

Proliferation of xEVs (BEVs/PHEVs) and higher-level autonomous cars (L2+)/radar systems, which require more semiconductor content per car.
UWB secure access solutions.
RF Power for 5G infrastructure.
Secure connected edge solutions.

Conclusion

Capitalizing on the aforementioned growth drivers will be the company’s focus in the near future. Specifically, the automotive segment will benefit the most as the industry moves towards software-oriented vehicles with OEMs adopting next-generation network architectures. This transformation within vehicles will help NXP with continuous orders for its flagship product, the S32G2 gateway chip, which the company is ramping up as well. Furthermore, continuous innovations in its portfolio, along with increased collaboration with auto players, will enable it to capture a larger share of the automotive semiconductor market. Another application that has the potential to see immense growth is Ultra-wideband technology. UWB is seeing increased use cases in mobiles, cars, IoT devices, and more, and the company is at the forefront to capitalize on that with its expertise in mobile NFC wallet and car access applications. NXP is bullish on revenues from the UWB segment, expecting ~80% CAGR during 2021-2024 and overall revenues of $15 billion, growing at a CAGR of 8-12% for the same period.

Semiconductor Component Shortage Hits Automobile Industry

The impact of COVID-19 on the semiconductor supply chain has extended from consumer to automotive electronics. Since Q2 2020, many automotive electronics suppliers, such as NXP, Renesas and Microchip, have announced price increases for some key components. Some automakers in China even slowed down their car sales due to insufficient supply of these components in Q4 2020.

COVID-19 reduced automobile sales in H1 2020. The demand started recovering in H2 2020 in many regions but here, too, the pandemic proved to be a spoiler by impacting automotive electronic manufacturing. Furthermore, the limited capacity expansion of 8-inch semiconductor production in the past few years has intensified the shortage. In the short term, this has led to price increases. In the long term, this will transform the global automotive electronics ecosystem.

Automotive electronics’ quality requirement may be rigid and qualification process complicated, but the profit margins are stable and high. Besides, since its product lifecycle is long, it is always the target market for most semiconductor suppliers.

Outsourcing of production to foundry partners

The investment required for setting up an in-house advanced semiconductor manufacturing facility is not only huge but also risky. Further, the reliability testing, verification and qualification of automotive semiconductors may take a long time, affecting the short-term and long-term utilization rates of production plants. Also, both frontend and backend processes need to be optimally synchronized to develop competitive and high-quality products.

As a result, most automotive IDMs (Integrated Device Manufactures) have not set up any new fabs in the past three years and continue to increase the proportion of outsourced manufacturing to reduce production risk. For example, Infineon has decided to increase the foundry service percentage to 70% and 25% for logic and power components, respectively. Renesas has been reducing its fab capacity since 2011 and adding orders to TSMC to become a fab-lite IDM.

The top five automotive electronics companies – NXP, Infineon, Renesas, Texas Instruments and STMicroelectronics – were all affected by COVID-19 in H1 2020. The most affected semiconductor components were microcontrollers (MCUs) and power semiconductors.

Exhibit 1 Automotive Semiconductor Supply Chain

MCU

The major suppliers of automotive MCUs include Infineon, STMicro and NXP. Due to the impact of COVID-19 in Europe, the capacity utilization of these IDMs has not recovered. For example, STM’s capacity utilization is only 70%-80%. The most significant impact of the MCU shortage is on the Electronic Stability Program (ESP), also known as Electronic Stability Control (ESC), which is an essential part of the vehicle computer. In the fourth quarter, MCU delivery time for ESP products has been extended and prices increased.

In response to the growing demand for wireless connectivity, smart and electric vehicles, most of these companies outsource their MCU production to other foundries using 28nm and below technologies. NXP’s technology in its fab is only 90nm, so it has to outsource most of its high-end production MCUs. NXP has also established a factory in Singapore with TSMC. However, TSMC and UMC are currently running at full capacity in almost all production lines. UMC has announced that it would increase the prices for its 8-inch products. Therefore, the MCU prices will continue to increase while the delivery time will get extended.

Power semiconductors

The demand for power semiconductors in the automotive industry continues to rise with the soaring electronic content in vehicles. The market for power semiconductors is expected to grow even further as ADAS (Advanced Driver Assistance Systems), electric and hybrid cars become more prevalent.

Power semiconductor devices are the core devices for power conversion, accounting for about 50% of the automotive semiconductor market. Their primary applications include inverters, voltage converters and gate drivers used to supply and regulate power systems.

IDMs’ in-house production facilities still dominate today’s power semiconductor production. However, outsourcing is increasing, especially for regular products. For example, Infineon is building a 12-inch power semiconductor factory while increasing outsourcing, which is expected to reach 15% in the next four years.

Short-term trends

Automotive semiconductor shortages may decrease automobile production in Q1 2021, especially in major car producing countries such as China and India, as the main supply of their automotive semiconductors comes from Europe, North America and South Asia, where production has slowed down due to COVID-19. At present, 88.5% of China’s automotive semiconductor MCUs are from other countries, and this number is even higher for India.
Usually, car manufacturing follows the JIT (just in time) inventory management system that allows the carmakers to keep low inventory. However, in an uncertain situation, every stakeholder in the ecosystem will try to increase inventory, thus worsening the component shortage.

Long-term trends

Automotive semiconductor production will increase to meet the growing market, either by expanding or migrating from the 8-inch to 12-inch fabs.
The increasing electronic content in vehicles will motivate major auto-producing countries to increase local production.

Conclusion

In the short term, the supply shortage of automotive semiconductors will continue till Q3 2021, but the price increase will continue till 2022.

Top

Insights Tag： MCU

STMicro Beats Q1 2023 Earnings Expectations Despite Chip Shortages

Related Posts

NXP Reports Record Revenue in 2022, Automotive Shines

Automotive

Industrial & IoT

Mobile

Communication infrastructure and other

Capex overview and inventory

Conclusion

Related Posts

NXP Q3 2022 Revenues Better Than Expected; Automotive, Mobile Segments Shine

Automotive, Industrial Segments Drive NXP’s Strong Q2 Numbers

Connected Vehicle 2022 Summit: From ADAS to Autonomous Mobility, Here are Some Key Takeaways

Connected, Autonomous, Shared, Electric and Smart Mobility

Shifting Future of Automotive Industry to Top Gear with Connected Mobility

Driving Towards Connected, Secure, Autonomous & Electric Mobility

Emerging Technologies – Riding the Next Wave of Connected & Autonomous Mobility

Download the full analysis from event sessions below:

ADAS – A Game Changer for Safe and Autonomous Driving

Shaping the Future of Mobility with IoT, Connectivity & Sustainability

Intelligent Transportation System to Promote Safety & Improve Mobility

Protecting Software-defined Vehicles with Cybersecurity Solutions