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Insights Tag： Renesas

Renesas Acquires Sequans: A Strategic Move into Cellular IoT

  • Renesas acquires Sequans Communications for $249 million, expanding into the cellular IoT market.
  • The acquisition provides Renesas access to Sequans’ expertise, customer base, and partnerships in the 5G/4G cellular IoT sector.
  • With cellular IoT module shipments expected to exceed 1.2 billion units by 2030, this strategic move aligns with Renesas’ expansion plans and reflects a broader trend of consolidation in the IoT market.

Japanese semiconductor manufacturer Renesas Electronics has acquired France-based Sequans Communications, a pioneer in 5G/4G cellular IoT chips and modules. The acquisition will enable Renesas to expand its portfolio and expertise in the rapidly growing cellular IoT market. Although Renesas is a prominent name in the world of microcontroller units, the company has not historically specialized in connectivity.

According to the deal, Renesas will purchase all outstanding common shares of Sequans, including American Depositary Shares (ADS), for $3.03 per ADS in cash. This values Sequans at around $249 million, considering net debt. The transaction is expected to close by Q1 of calendar year 2024, subject to regulatory approvals.

Here are some analysis of the deal between Renesas and Sequans:

  • Renesas acquires Sequans to bolster its cellular IoT capabilities and tap into the expanding market. With this acquisition Renesas gains access to Sequans’ US and European customer base, enhancing global reach and market growth.
  • The partnership between Renesas and Sequans, which began in 2020, has already resulted in successful collaborations to develop modules that combine embedded processors and analog front-end products with wireless chipsets for IoT applications. Sequans has the broadest product portfolio of its non-Chinese competitors except Qualcomm which is why Renesas acquired Sequans.
  • The Renesas-Sequans collaboration is primed to meet the rising demand for smart solutions. The merger offers diverse choices for customers seeking to reduce dependence on the Chinese ecosystem and gain valuable expertise from a single source.
  • Renesas plans to integrate Sequans’ connectivity products, aiming to strengthen its presence in the Wide Area Network (WAN) market. They will collaborate on 5G and high-performance 4G modules based on Sequans’ Taurus 5G modem and Renesas’ analog front-end tech.

Renesas’ Acquisitions Over Time

Renesas' Acquisitions Over Time
Source: Counterpoint Research

Conclusion

According to Counterpoint’s report on IoT trends, the IoT market is highly fragmented, with over 4,000 players in IoT value chain competing for a share. This fragmentation has led to low margins and has made it difficult for companies to grow and expand. Consequently, there has been a wave of consolidation in the market, with companies merging or being acquired by larger players, a trend that is expected to continue as the market matures. In 2022, there were significant acquisitions within the IoT module industry, such as Telit’s acquisition of Thales and Mobilogix’s cellular IoT divisions, Semtech’s acquisition of Sierra Wireless, and Aeris Communications’ acquisition of Ericsson’s IoT accelerator and connected vehicle cloud business. As the cellular IoT module market continues to mature, we expect more consolidations aimed at providing improved solutions and maintaining competitiveness. Non-Chinese brands are now following the trend of becoming integrated players in the IoT value chain like Chinese module vendors, and it seems like Renesas is also following suit. For Renesas to compete with Chinese module giants like Quectel and Fibocom, it is crucial for them to develop a strong and effective business strategy specific to each international market they want to operate in.

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A Promising Yet Challenging Market for Self-driving SoCs

  • ADAS penetration in global car shipments will reach 78.7% by 2024 as new players help drive the ADAS chip market.
  • Level 2 category will have a revenue market share of 44.4% in 2022 and 60% in 2024 due to higher safety criteria and lower component prices.
  • The share of Level 4 SoCs in revenue will reach 24% in 2030. These SoCs will be used in luxury automobiles and robotaxis since they have a higher entrance barrier and cost more than Level 3 SoCs.

Semiconductors are becoming more important for automobiles as electrification and intelligence continue to advance. Among these, the level of intelligence has emerged as an essential factor that customers consider when buying a vehicle. The accuracy and efficiency of autonomous driving are determined by the computational capabilities and manufacturing process of the chip. Therefore, the increase in demand for autonomous driving is pushing the demand for advanced processes and will significantly increase the market size of advanced driver assistance systems (ADAS)/Autonomous driving (AD) chips. The computational capability of ADAS/AD processors must meet the requirements of the corresponding autonomous driving level. The Society of Automotive Engineers (SAE) defines the various levels of autonomous driving as follows:

The TOPS (trillion operations per second) of Level 2 ADAS/AD chips is typically between 10 and 100, but the TOPS of Level 3 is between 150 and 200 and the TOPS of Level 4/Level 5 is more than 400 and will reach 1000+. Each level is divided further based on functionality. Basic Level 2 features include only adaptive cruise control (ACC) and lane-keeping system (LKS), and can be achieved by an SoC with only 10 TOPS. However, advanced Level 2 may require up to 75 TOPS to achieve advanced ACC, which can maintain the lane center and pre-control the speed at upcoming curves.

The global ADAS/AD SoC market is expected to reach $30 billion by 2030 with a CAGR of 26.3% between 2022 and 2027. SoCs in the Level 2 category will have a revenue market share of 44.4% in 2022, which will reach a record high of 60% in 2024 due to an increase in safety requirements and a decrease in component prices. Level 3 AD systems will take a few years to gain the public’s trust, but by 2027, they will replace Level 2 as the standard. Compared to Level 3 SoCs, Level 4 SoCs have greater computational capability and bandwidth to process more high-resolution images and make a quick response. As a result, the entry barrier and cost of Level 4 SoCs are much higher than those of Level 3 SoCs, hence they will mostly be utilized in luxury vehicles and robotaxis.

The entry barrier to Level 1 and Level 2 ADAS SoC is low. Therefore, ADAS penetration can increase significantly when the cost of ADAS sensors, such as cameras and radars, continues to decline. Counterpoint expects that the global penetration of ADAS in car shipments will reach 78.7% by 2024. At the same time, multiple new players will enter the ADAS chip market. These startups are capable of AI chip design and mass production, and their solutions can swiftly fulfill localized requirements, such as local language and localization algorithms, at competitive prices. Therefore, emerging car OEMs will favor these new solutions. However, traditional automotive chips, such as Renesas and NXP, are also providing solutions. Level 3 employs more sensors and more efficient computing units than Level 2. The most significant difference between Level 3 and Level 4 is the improvement in artificial intelligence, as Level 4 autonomous vehicles must be able to take rapid decisions.

On the other hand, the development of autonomous driving (AD) chips is primarily driven by established consumer electronics giants such as NVIDIA and Intel (Mobileye). The R&D expenditures and entry barriers for AD chips are significantly greater than those for ADAS. In addition to the core AI chip, AD solutions should also incorporate connectivity, sensing systems, image training models, ADAS map development, route planning, vehicle control, driver monitoring systems (DMS), natural language processing (NLP) and intelligent cockpit solutions. Moreover, the AD chip must be able to deliver tailored and region-specific algorithms. This must be accomplished through the collaboration of automotive OEMs and AD chip companies. All of these factors make it challenging to create a good AD chip and the payback time is also lengthy.

Advantages, Disadvantages Faced by 3 Primary ADAS/AD Chip Vendors

In the past, there used to be a distinct division of labor between car OEMs, Tier 1 suppliers and chip vendors (Tier 2). The chip vendors might be either fabless firms or IDMs, and both would place orders to the foundry. Since the demand for semiconductors in the automotive industry was modest and all semiconductors used in automobiles were manufactured with mature processes, the foundry was less important. However, the performance and features in future automotive processors will play a crucial role in migrating to autonomous driving and electrification. Consequently, the ecosystem of collaboration between OEMs, Tier 1 suppliers and chip manufacturers is beginning to shift. Chip providers which were once Tier 2 are beginning to collaborate directly with OEMs. In addition, these three types of companies may engage directly with foundries to secure chip sources.

Competitor landscape

Mobileye is the leading Level 1 and 2 supplier due to its early entry. However, because of a lack of flexibility and superior alternatives, Chinese automakers want to replace Mobileye with NVIDIA or Horizon robots. Additionally, its solution has less computational power than those of its competitors. To keep up with other companies, Mobileye also introduced at CES 2022 its EyeQUltra, EyeQ6 Light and EyeQ6 High SoCs for L4, L2 and L1/L autonomous driving, respectively.

NVIDIA has aggressively entered the automobile autonomous driving market with its expertise in GPUs for the AI business. The benefits of NVIDIA’s AD processors include high computational power, extensive software tools and a complete environment allowing clients to create their own algorithms. In terms of clientele, NVIDIA works with the majority of automakers and Tier 1 suppliers worldwide. Atlan, the most recent AD chip from NVIDIA, has been released in 2022 with 1000 TOPS of computational capacity and is expected to enter mass production by 2025, aiming at L4/L5 autonomous driving solutions.

Qualcomm is a pioneer in smart cockpits but a follower in autonomous driving technology. Qualcomm’s Snapdragon Ride, a high-performance, low-power autonomous driving solution that supports L1-L5 degrees of autonomy, is aimed at the mid-to-high-end autonomous driving market.

Horizon Robotics, one of the few autonomous driving chip solution vendors in China, will likely supply to Chinese automakers in the coming years. Horizon has positioned itself as a competitor to Mobileye and NVIDIA. A new participant in the industry, it has introduced many products that correspond to Mobileye’s solution. In contrast to NVIDIA’s general-purpose processors, Horizon’s AD SoCs are ASICs, which consume less power and are more efficient than general-purpose CPUs. However, they are less flexible and may experience the same difficulty when moving to Level 3 and beyond.

Related Posts and Reports

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

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

  1. 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.
  2. 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

  1. Automotive semiconductor production will increase to meet the growing market, either by expanding or migrating from the 8-inch to 12-inch fabs.
  2. 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.

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