Automotive Semiconductor Companies Are Benefiting From Chip Shortage

Summary

• Despite a shortage, revenues of IC companies increased in 2H 2020 as average selling prices rose with decreasing supply.
• Total revenues of the top Automotive IC manufacturers increased an average of 9.7% YoY in Q4 2020 and 13.7% H2 2020/H1 2020.
• Top chip companies as a percentage of revenues include Renesas (51%), NXP (47%), Infineon (46%), ON Semiconductor (32%), and STMicroelectronics (30%).
• This idea was discussed in more depth with members of my private investing community, Semiconductor Deep Dive. Get started today »

In my February 15, 2021 Seeking Alpha article entitled “Semiconductor Companies Best Positioned For Automotive Recovery,” I discussed the shortage of semiconductor chips, end users experiencing shortages, and semiconductor companies with the largest exposure to automotive applications.

In this follow-up of that article, I want to show that despite a shortage of chips, ASPs and revenues are rising at the automotive chip companies. This represents a buying opportunity for stocks with my estimate of the greatest exposure to the automotive industry. I present the top 12 companies and their QoQ revenue change.

It is also important to note that the chip shortage is not restricted to just automotive companies, but they have been most affected, resulting in some plant closures.

IC shipments (excluding memory) decreased from 310,446,000,000 in 2018 to 290,189,000,000 units in 2019 (-7.5%) and increased to 306,407,000,000 in 2020 (+5.7%), despite the (1) slowdown from Covid-19 and (2) chip shortage.

Chart 1 shows that as unit shipments dropped, MoM ASPs change increased significantly due to the shortage of ICs.

Chart 1

The automotive industry is not alone facing the chip shortage, but they have been vocal in announcing automobile plant closures because of the shortage. The ever increasing semiconductor content of an automobile is responsible. In 2010, semiconductor content amounted to $294.5 per vehicle. That number increased to $497.3 per vehicle in 2020.

In automotive applications, chips are used for applications including infotainment, cabin/control electronics, safety electronics (e.g. airbags, ABS, LIDAR, back-up and circumferential camera systems, power train/engine management electronics, security electronics. active suspension, and LED lighting for automotive head/tail lights, according to The Information Network’s report entitled “Power Semiconductors: Markets, Materials and Technologies.”

This shortage in ICs and increase in ASPs has been a positive for semiconductor companies with a focus on Automotive ICs.

Table 1 shows quarterly revenues for the top 12 companies. In nearly every case, revenues increased QoQ in CY Q3 followed by a slight pullback in Q4. QoQ sales growth for these companies improved from -6.0% in Q1 to -3.2% in Q2 before the shortage, followed by a significant improvement of +12.6% in Q3 and a slight drop in Q4 but still positive at +8.5%. The last row of Table 1 shows the average revenue change of all 12 companies.

Table 2 shows total revenues and QoQ growth for NXP Semiconductors (NASDAQ:NXPI), which has a 47% of revenues in Automotive ICs. While QoQ growth in Q4 2020 for overall was 10.6% (also shown for the company in Table 1), Automotive IC revenues increased 23.8%, twice the total growth. We also see that in Q3, QoQ Automotive IC growth was 43.0% compared to total growth of 24.8%.

Table 2 also shows that automotive ICs represented 47.7% of total revenues in Q4 2019, but that dropped to just 37.1% of revenues in Q2 2020.

Revenues began dropping in Q2 2020 due to Covid-19 and automakers reduced production and chip purchases. Shipments reached a low in Q2, followed by an increase in Q3 2020, and then a drop in Q4 as the chip shortage took hold (Chart 3) and as the second wave of Covid-19 hit.

Investor Takeaway

As with any change in supply-demand dynamics, prices will increase as demand increases and supply decreases. The causes of the shortage are multifaceted:

• Covid-19 pandemic caused a precipitous drop in vehicle demand in the spring of 2020
• Covid-19 caused and increased demand for consumer electronics and IT chips from stay/work at home orders
• U.S. Government sanctions against Huawei caused Chinese companies to stockpile chips
• U.S. Government sanctions against SMIC (SMIC) prevented the Chinese foundry from making advanced node chips
• Supply disruptions from fab accidents, such as at Japan’s Asahi Kasei Microdevices

Many of the chips used in automobiles are made in foundries on 200mm wafers. That represents several additional problems contributing to the chips shortage.

• There is a shortage is the lack of 200mm capacity as well as a limited availability of 200mm fab equipment. According to The Information Network’s report entitled “Semiconductor Processing Equipment: Markets, Market Shares, Market Forecasts,” 200mm wafers account for just 30% of TSMC’s (TSM) revenues but 46% of UMC’s (UMC).
• Of the Chinese foundries, 200mm wafers account for 99% of Huahong’s, 100% of VSI’s and 75% of SMIC’s revenue. Not only that, but capacity utilization is close to 100% at all 200mm fabs.

Top automotive chip companies include Renesas (OTCPK:RNECY) (51%), NXP (47%), Infineon (OTCQX:IFNNY) (46%), ON Semiconductor (ON) (32%), and STMicroelectronics 30%. A comparison of stock performance of NXP, Infineon, Renesas, and STMicroelectronics is shown in Chart 2. For the past 1 year, stock growth of Infineon is twice that of NXP and STMicroelectronics.

Chart 2

The shortage of ICs presents an opportunity to buy semiconductor companies with exposure to the automotive industry. Revenues have increased on the back of increases in ASPs. Stock's prices, as shown in Chart 2, don't reflect the growth potential. CY Q1 2021 revenues should further reflect the buying potential of these stocks.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[bubbleking]

Nice article. I've been watching UMC's stock price and it seems to never move. Not sure why.

[SelmaPete]

Nice update into the auto chip debacle.
Long STM, NXPI and I'll add QCOM!

[kevn1111]

Seems like there would be more semiconductor of $500/auto based on how auto prices seem to rise.

[Jeffrey888]

Chip shortages suggest additional investment in equipment purchases to increase production and meet demand. Sounds like a typical economic cycle.

[Robert Castellano]

@Jeffrey888 I discussed chip shipments and the cycles in my Semiconductor Deep Dive Marketplace newsletter, and while there is some cyclical nature in this cycle, it is not typical of past cycles.
My purpose in this article is to show investors that although there is a chip shortage, the chip companies are making money and the automotive segments in their business are growing twice as fast.

[VictorN]

@Robert Castellano from your article, it appears that the auto chip suppliers are stuck at 200nm fab to keep margin high. On the other hand, for chip equipment suppliers, the high margin sales are in the latest generation of 300mm tech.

[Robert Castellano]

@VictorN That's correct. Many of the chips used in automotive applications are either very large line widths or on substrates (MEMs, SiC) that aren't on 300mm substrates. So the chip companies are not "stuck" with the 200mm, its the nature of the business.