JW Insights: Severe MCU inventory backlog forebodes a further price drop and destocking in the industry in the second half of 2022
Chinese article by 李杭森
English Editor 张未名
07-07 18:33

By Miranda Li

The Chinese mainland MCU suppliers are suffering from pressures of accumulated inventories and ongoing rising costs caused by sluggish market demands. Some of the new players are hit hard with weak market acception and more inventories in distributors’ warehouses, according to a recent JW Insights article.

China’s consumer electronics market started to decline in the second half of last year, with a sharp drop in the market for intelligent mobile devices, personal computers, tablets, TV sets, and wearables. It results in an oversupply of MCU, especially of 8-bit.

The MCU market went through a roller coaster last year. At the beginning of 2021, the MCUs were out of stock in the market across the board. No matter it is 8-bit or 32-bit for automotive-grade or industrial-grade, all are in short supply. In Q1 2021, TSMC even auctioned its “excess capacity” at a final transaction price, 15%-20% higher than usual. Chinese mainland MCU design companies actively participated in the auction. Some companies secured the production capacity at higher prices. 

But the market demand has not kept up, resulting in a considerable inventory accumulation. Many design companies made prepayments to TSMC and other foundries to reserve production capacity for them. 

Market orders for the TWS headset collapsed in 2021. It had a considerable impact on the supply of many electronic components such as MCU, the Bluetooth SoC, flash, power management chips, TVS diodes, and resistance-capacitance sensors. Those makers who bet on the TWS market suffered heavily.

There are also severe backlogs of 32-bit MCUs. In the second quarter of 2022, some brand manufacturers started the price discount to destock with very aggressive sales strategies. Industry insiders predict that it will be common to see price discounts in the third and fourth quarters.

Meanwhile, foundries are still in a boom cycle. Leading players such as TSMC, HuaHong Group, and SMIC still raise prices. In their view, despite declining consumer electronics demands and corresponding order withdrawals, there are still companies keenly seeking production capacity support, especially startups and companies planning IPO. They need to maintain good production and operations for their financing based on their performance. So such customers are willing to pay even facing price hikes. 

As a short-term solution to deal with the problem, some MCU companies store their semi-finished products in the warehouses of the packaging and testing companies and have them packaged when there are orders. 

Some other listed MCU companies still complete the packaging and testing and ship out the finished products under their own performance pressure.

The foundries have far more bargaining power than IC design companies. Those MCU makers won’t reduce orders for their future development in the long run, despite a severe inventory backlog in the overall consumer MCU market, slowed sales, and a price war. Therefore, the MCU inventory will stay for the time being.  

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