Analyzing the market trend from the Q1 financial reports of the top ten analog chip makers

June 26, 2023

Economic uncertainty and the normalization of the supply chain are still continuing, coupled with the lack of improvement in the consumer business climate, the world's top ten analog chip makers in the first quarter of this year continued the trend of divergent performance in the previous quarter.

Among the top ten analog chip makers, half of the companies(TI,NXP,Skyworks,Qorvo,Onsemi)performed poorly in Q1 2023,with year-on-year declines in revenue and operating incomes. The remaining half of the companies(ADI,Infineon,ST,Microchip),supported by the automotive and industrial sectors, continued to achieve growth in Q1 2023.

The majority experienced a slowdown in revenue growth during Q1 2023 compared to the previous quarter.

For example, ST saw a decrease in year-on-year revenue growth from 24% in 2022Q4 to 20% in 2023Q1. ADI experienced a decline in year-on-year revenue growth from 21% in 2022Q4 to 10% in 2023Q1. Renesas witnessed a drop in year-on-year revenue growth from 24% in 2022Q4 to 4% in 2023Q1. Onsemi' year-on-year revenue growth declined from 14% to 1% in 2023Q1. Microchip's revenue growth decreased from 23% in 2022Q4 to 21% in 2023Q1. TI, went from a year-on-year revenue growth of -3% in 2022Q4 to -11% in 2023Q1.

Inventory remains backlogged, but a turning point may occur in the second half of the year.

As the supply chain continues to normalize, inventory adjustments are ongoing at end-customers and channels. Anolog chip makers are facing inventory backlogs, and several companies saw an increase in inventory days in Q1 2023.

Taking TI as an example, the company experienced a 38-day increase in inventory days to 195 days, and the inventory Value increased by $531 million to $3.3 billion in Q1 2023 compared to the previous quarter. The company stated that the progress in destocking is influenced by end-customer demand, and it expects the adjustment of customer-side inventory to continue in the second quarter, leading to a further increase in inventory turnover days. TI anticipates that inventory turnover days will surpass 200 days to meet customer demand and maintain stable delivery times.

Infineon experienced a slight increase in inventory in Q1 2023, with inventory days rising by 3 days to 143 days compared to the previous quarter. Infineon stated that the server market remains weak, and channel inventory is at a high level. The smartphone market continues to be sluggish, but there is hope for a turnaround in the second half of the year based on improving macroeconomic conditions. Demand for renewable energy, electric vehicles, and electric vehicle charging is expected to further accelerate. Given the increase in business volume, inventory is also expected to grow further.

In the first quater of 2023, Renesas saw an increase in inventory days to 107 days, surpassing the target inventory level. Specifically, in the industrial,infrastructure,Internet of Things (IoT) sector, the inventory value and WOI increased in Q1 2023. It is expected that this portion of inventory will be raised to meet the demand in the second half of the year. In the automotive sector, the inventory value and WOI also grew compared to the previous quarter in Q1 2023, mainly due to inventory replenishment. It is anticipated that a similar increase in inventory value and WOI will occur in Q2.

The inventory days of ADI increased to 168 days in 2023Q1, while the channel inventory weeks remained largely unchanged. ADI expects the inventory value to decline in the second half of the year. Additionally, ADI issued a warning that the higher interest rate environment is impacting its main product business in the industrial sector.

According to the latest supply chain report from market research firm S&P Global, terminal companies in the industry such as Apple have provided forward-looking comments. These industry leaders believe that the current semiconductor demand is still declining and performance improvement is difficult in the short term. However, some companies are optimistic that the situation may improve by the third quarter or the end of the year.

If there is a noticeable recovery in demand in downstream markets such as consumer goods and telecommunications in the second half of the year, and if the automotive and industrial markets can maintain their strong momentum, it is expected that the inflection point for inventory in the analog chip industry may occur in the second half of the year. At that time, the industry will transition from passive inventory replenishment to passive destocking, leading to a continuous reduction in chip inventory and stabilizing prices.

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