High Auto Chip Inventory: NXP and Others Cutting Shipments

The current landscape in the automotive industry underscores a significant demand for semiconductor chips, presenting both an opportunity and a challenge for chip manufacturers. Reports from international sources reveal that, while the automotive sector's appetite for chips remains robust, chip manufacturers are actively managing production to avoid oversupply issues and inventory accumulation.

The global semiconductor industry has been mired in a year-long downturn. Data from the Semiconductor Industry Association (SIA) indicates that chip sales worldwide experienced a year-on-year decline of 4.5% in September 2023. This marks the 14th consecutive month of such decline, an unprecedented situation in over a decade. This downturn is primarily attributed to sluggish sales in personal computers, smartphones, other consumer goods, and commercial electronic products.

However, the automotive industry stands out as an exception. The past COVID-19 pandemic led to severe chip shortages, prompting automotive manufacturers to opt for maintaining substantial chip inventories rather than curtailing their orders. The heightened demand for chips in areas such as autonomous driving, in-car entertainment systems, and electric vehicles has contributed to a 16% growth in semiconductor sales for the automotive industry in 2022.

Nonetheless, industry experts urge vigilance, as perpetual stockpiling of chips by automotive manufacturers is not a sustainable strategy. Even within segments that have previously experienced rapid growth, such as the electric vehicle sector, demand is now showing signs of moderation. This underscores the need for automotive manufacturers and suppliers to closely scrutinize their financial statements. NXP, a major chip supplier to the automotive industry, derives 50% of its revenue from this sector. In Q3, their automotive business grew by less than 5% year-on-year, marking the slowest growth in three years, with expectations of only marginal growth in Q4. Following a remarkable 25% increase in 2022, NXP's revenue growth for 2023 is projected to slow to 9%.

During a recent earnings conference call, Kurt Sievers, the CEO of NXP, announced that the company is intentionally reducing the shipment of automotive products to mitigate the risk of excessive inventory. NXP is actively collaborating with its customers to help them manage and reduce their chip inventories, rather than relying solely on long-term supply agreements. He also anticipates that the automotive industry will conclude the process of inventory digestion in the latter half of 2024. In addition, stock prices of companies like TI, Infineon, STM, and Analog Devices, which previously witnessed significant growth trends, are now stabilizing or experiencing modest declines.

At present, chip inventory levels in the automotive industry are notably high, and experts project that it may take an extended period for the inventory digestion process to reach completion.