JW Insights: Chinese power semiconductor suppliers face sharp competition from international giants
Chinese article by 李沛
English Editor 张未名
10-08 17:39

By Li Panpan

Chinese power semiconductor manufacturers will face intense competition with international giants, given global supply and demand changes. They need to improve their strength to enter the high-end markets such as automotive, said a recent JW Insights report.

The 14 listed power semiconductor companies on the Shanghai and Shenzhen Stock Exchange tracked by JW Insights, including CR Micro(华润微) and Silan Micro(士兰微), have an average year-on-year growth rate of 18.05% in revenue in the second quarter of this year. This is a drop from the average level of 30.12% in the first quarter and an average of 52.13% for the whole of 2021, with a more obvious gap in growth rate.

Infineon, On Semi, ST, Mitsubishi Electric, and FUJI Electric - the top five overseas power semiconductor manufacturers - had an average year-on-year growth rate of 21.67% in the second quarter, up from 19.14% in the first quarter.

The average growth rate indicates the consolidation of the dominant position of overseas giants. The Chinese manufacturers have faced a headwind in their rapid development since 2020 due to global chip shortage and local consumer electronics OEMs switching to local chip suppliers in large quantities.

The power semiconductor market has greatly benefited from the green and low-carbon agenda sweeping the world. The profound transformation of energy production and consumption structure, photovoltaic and wind power connecting to the grid, and the popularity of electric vehicles have brought huge incremental demand for power semiconductor chips.

Of all single-vehicle semiconductors in traditional fuel passenger cars, power semiconductors have only a value of around $100, according to the statistics by Infineon. But in pure electric and plug-in new energy vehicles, their values rise to about $1,000, with the switching and rectifying semiconductors taking up essential functions.

They have opened up unprecedented market space for Chinese suppliers. In the last couple of years, power semiconductors have been an easy sale. Capacity determined their revenue and market share. Those Chinese suppliers with more production lines and expanded capacity were winners.

Their growth also resulted from the shrinking of overseas giants to ensure the delivery of their high-margin products with centralized production capacity. However, since the beginning of 2022, things have changed.

From the demand side, the global sales of smartphones, PCs, and household appliances weakened in the first half of this year. Manufacturers all face the issue of reducing inventory for cash flow. Reducing or even suspending the procurement of materials such as semiconductors has become a common practice.

From the supply side, overseas power semiconductor giants have been expanding production capacity, driving a surge in spending on power-related semiconductor equipment. According to SEMI statistics, spending on such equipment increased by more than 200% in 2021, and it is expected to maintain double-digit growth in 2022 and 2023.

The changes in supply and demand have been reflected in the market conditions of some categories, such as power diodes and medium and low-voltage MOSFETs.

Infineon said that in the second quarter of 2022, it obtained €1.031 billion($985.72 million) in revenue from the Chinese mainland and Hong Kong markets, a year-on-year increase of 39.1%, and a month-on-month increase of 14.9%, both higher than leading Chinese players CR Micro(华润微) and Silan Micro(士兰微).

Zhao Yi, research director of JW Insights, predicts that the supply tension of power semiconductors will not be fully relieved until at least the second half of 2023.

Chinese power semiconductor manufacturers are actively adjusting their business strategies, competing to enter popular markets such as new energy vehicles and photovoltaic inverters.

Because of more barriers in technology, standards, and business practices, these categories of chips are still in a severe supply shortage.

Local companies will encounter a long certification cycle to enter high-end markets such as automobiles. Zhao said it takes about two years to introduce power semiconductors from product sample delivery to completion of verification by vehicle manufacturers. During this period, automotive-grade products will be required for ISO-26262 functional safety and AEC-Q100 product reliability certification; Their fabs need to pass the IATF16949 automotive quality management system certification.

Chinese power semiconductor suppliers also need to improve their abilities in technology research and development, quality management, and market operation to compete in the market.

In the meantime, they are favored with a particular advantage in the Chinese market: the unique industrial agglomeration - massed Chinese automakers with their vast market scale.

In the automotive semiconductor market, the influence of OEMs is growing. An analyst at a well-known overseas research institution told JW Insights that, in the future, 70-100 ECUs on cars would be replaced by three to four CPUs, and vehicle manufacturers can only define the overall system architecture. Although they lack this expertise, they are working more closely with Tier 1 and more upstream chip suppliers to sort out specific design and system architecture specifications.

Since last year, Chinese OEMs such as Great Wall and Li Auto have announced they will set up joint ventures with local power semiconductor manufacturers to produce automotive-grade power chips. The vertical integration is more decisive and faster than overseas car makers. It has also spawned a brand-new business model, showing the advantages of China's industrial agglomeration, which is close to local downstream system manufacturers and can flexibly and efficiently carry out R&D collaboration and business model innovation. It has been repeatedly proved successful in different fields since the rise of "Made in China."

“One trend I see in power semiconductors is the rise of Chinese suppliers, who are very focused on IGBTs and SiC/GaN materials, especially in electric vehicles,” said the analyst mentioned above.

Zhao Yi also said that the cooperation between car companies and chip suppliers would help improve performance verification of China’s automotive-grade power products and stabilize chip manufacturers’ market share. Chinese manufacturers need to stay innovative and adaptable in the competition.

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