By Greg Gao

(JW Insights) May 31 -- Chinese local analog chip companies face looming pressure as US semiconductor giant Texas Instruments(TI) implements an aggressive price reduction strategy recently to gain shares in the Chinese analog chip market after two consecutive quarters of decline in revenue and net profit, JW Insights said in a report.

In the first quarter of this year, TI registered a revenue of $4.379 billion, representing an 11% year-on-year decline. Its analog chip business, which contributes over 75% of its total revenue, reported $3.289 billion in revenue, a 14% decrease, while the embedded processor business contributed $832 million, representing a 6% year-on-year growth. 

It is evident that addressing the challenges in the analog chip business is the top priority for TI, and recapturing the lost ground in the Chinese analog chip market may be the most effective strategy, said an analyst from JW Insights.

Over the past five years, driven by geopolitical frictions and China’s push for domestic substitution in the semiconductor industry, Chinese local analog chip companies have made significant strides, gradually eroding the market share of overseas giants like TI. However, when Texas Instruments, known for its “better-performing” analog chips, begins to reduce prices, it becomes challenging for downstream customers to resist its sincerity.

“Chinese domestic players that directly compete with TI’s analog chips will face broader impacts. TI’s price reduction this time has no fixed range. It aligns with the prices of domestic chips, aiming to strike a blow against competitors,” a senior executive from an analog chip manufacturer told JW Insights. 

The impact of TI’s price reduction is more significant on general-purpose analog chips, especially in the areas of power management. Many industry insiders believe that power management chips are the primary target of TI’s price slashing, as several Chinese companies have already gained a considerable share of the high-end market.

Several listed companies, including SG Micro Corp(圣邦股份), Shanghai Bright Power Semiconductor(晶丰明源), and Awinic Technology(艾为电子), are the leading suppliers of power management chips in China. These companies derive a significant portion of their revenue from the power management chip business.

In the field of specific analog chips, different impacts are observed depending on the industry, including industrial, automotive, telecommunications, and consumer electronics. Due to the long verification cycles and diverse categories in the industrial and automotive sectors, TI’s price reduction only has a temporary and limited impact. However, in other sectors like telecommunications and consumer electronics, China’s local analog chip companies are facing market pressure.

A source familiar with TI mentioned that the success of their price reduction strategy in the Chinese market relies not only on their product and technological superiority but also on their many years of deep-rooted presence in China.

The company has been operating in China for 37 years. It has an integrated production and manufacturing base in Chengdu, southwestern China’s Sichuan Province, which is one of the few factories worldwide that combine wafer manufacturing, packaging, testing, and bumping. 

As an IDM enterprise with a stable factory yield of over 98%, TI can still generate considerable profits even after price reductions. Additionally, the company is strengthening its layout in 12-inch wafer factories to further improve production efficiency, reduce costs, and foster profitability, said an industry insider.

China’s local chip firms should strive to elevate their products to a “superior” level and try to reduce costs to address the threat posed by TI’s price reduction strategy, a JW Insights analyst concluded.