Behind the large-scale cutting orders, where will mobile phone semiconductor companies go?

I have to admit that the golden age of smartphones that has lasted for more than a decade has come to an end.

Earlier this year, Qualcomm CEO Cristiano Amon said in an interview with The Verge that the golden age of smartphones is over and we will enter the post-smartphone era.

According to IDC, global smartphone shipments have continued to decline from 2018 to 2020 and to 1.292 billion units in 2020, according to IDC. By 2021, global smartphone shipments reached 1.355 billion units, a slight increase year-on-year. This makes the industry think that it is a signal that the smartphone market is beginning to pick up, but the data this year has once again beaten the smartphone industry back to its original shape.

According to the global mobile phone market report released by data agency Canalys in the first quarter of 2022, global smartphone shipments fell by 11% year-on-year in the first quarter of this year, while the sales performance of the domestic smartphone industry was even worse.

This also brings a direct consequence, the rapid development of the smart phone industry chain in the past in recent years the performance of continuous pressure, have begun to lay out new areas, even the industry's most valuable area - smart phone semiconductors can not be an exception.

After the popularity of smartphones began, they quickly became an important force leading the global semiconductor industry. Smartphone demand for high-performance SoCs, memory chips, RF chips, power management, and CMOS chips has dominated the pace of expansion in the global semiconductor industry.

According to Silvertronic statistics, the end market with the largest demand for 12-inch wafer area in 2020 is the smartphone market, accounting for up to 25%. According to SUMCO's forecast, smartphones will still account for the largest proportion of terminal applications in demand for 12-inch wafers in 2021.

In China, the smart phone semiconductor industry chain has also ushered in a golden decade. China's huge consumer group and its position as the world's factory have led to the rapid rise of a large number of high-quality domestic smartphone semiconductor companies. Typical representatives include Huawei HiSilicon in the field of smartphone SoC, and CMOS chip manufacturers Weier and GekeWei, which have developed rapidly with the improvement of mobile phone camera functions in recent years.

However, with the decline in demand for smart phones, the development of the smart phone semiconductor industry has been blocked by the undoubted result. Although under the fluctuation of the industrial chain brought about by the epidemic in 2020, the smartphone semiconductor industry has ushered in a development dividend period in 2021. However, this development dividend period is too short, into 2022, the first thing that smart phone semiconductor companies usher in is not the recovery of demand, but the increasing scale of downstream customers.

Smartphone semiconductor companies need to rethink the future direction of development.

/ 01 /

From shortages to cutting orders, what happened to smartphone semiconductors?

After the release of the 2021 annual financial report the day before, the shares of 100 billion semiconductors fell to a stop during the intraday on April 19, and the market value evaporated by about 155 yuan compared with the previous trading day.

Weier co., Ltd. is a global smartphone image sensor (CIS) market giant, and is also an outstanding representative of domestic smart phone semiconductor companies. According to the market report released by Strategy Analytics, in 2021, Howey Technology, a subsidiary of Weir Shares, will reach 11% of the global smartphone CIS market share, ranking third in the world, after the two major international giants sony and Samsung.

This 2021 performance is the trigger for the decline in the stock price of Weir shares. In this annual report, Weier co., Ltd. achieved operating income of 24.104 billion yuan in 2021, an increase of 21.59% year-on-year. At the same time, the net profit of Weier shares increased by 65.41% to 4.476 billion yuan.

From the numerical point of view, the performance of Weier shares can not be described as excellent. But for investors, the performance of Weier shares did not meet expectations, so the market directly fell to stop and express its position.

From the quarterly data, Weier shares in the fourth quarter of 2021 revenue of 5.789 billion yuan, not much difference from the previous three quarters, but the net profit is only 958 million yuan, far lower than the second and third quarters. This means that Vail shares saw a significant decline in profit margins in the fourth quarter.

The performance of Weir shares verifies a long-rumored speculation in the market: mobile phone semiconductor companies are encountering an unprecedented "slash" from smartphone customers.

In fact, since 2022, news about smartphone customers cutting orders has been widely circulated. Recently, Loop Capital analyst John Donovan said in a research note that the annual production target of the iPhone has fallen by another 9 million units to 254 million units. Tianfeng International analyst Guo Mingxi broke the news that China's major Android mobile phone brands have cut about 170 million orders this year, accounting for 20% of the original 2022 shipment plan.

The large-scale cutting of orders by smartphone brand customers has directly affected the market's expectations for the smartphone semiconductor industry. In 2021, the shortage of supply has brought about a large increase in performance, under this high base, smart phone semiconductor companies have encountered large-scale customer orders, which will inevitably usher in a decline in performance growth, and will also usher in the market's valuation adjustment. Because of this, Weier shares with a market value of 100 billion yuan fell directly after the release of the results.

This situation has to be surprising. You know, in the first quarter of last year, mobile phone chips are still in a state of extreme shortage, Xiaomi China president, Redmi brand general manager Lu Weibing once posted on Weibo, "This year's chip is too lacking, not lacking, is extremely lacking." "The same goes for other brands. But just a year later, there was suddenly no shortage of mobile phone semiconductors, and even a huge scale of cutting orders, what happened to this?

/ 02 /

This is not just a short-term imbalance under the fluctuation of supply and demand

Mobile phone semiconductors in a year from shortage to "cut orders", but also from 2020.

In 2020, the global outbreak of the new crown epidemic, home office and online learning detonated the demand for PC and tablet markets, driving the transfer of global chip manufacturing capacity to consumer electronics, disrupting the production rhythm of the chip industry chain, coupled with the unstable supply chain and other reasons, the global semiconductor industry is still in an imbalanced state.

At the same time, in 2020, the United States imposed the second and third rounds of sanctions on Huawei, and Huawei mobile phones will have no core to sell. Before the ban was implemented, Huawei frantically swept up goods, hoarding as many chips as possible, and the short-term production capacity of smart phone chips was swept away, which aggravated the fluctuations in the smartphone semiconductor industry chain.

Entering 2021, the shortage of smartphone semiconductors has become more serious, and other smartphone brands have begun to panic stockpiling in response to the chip shortage problem, resulting in a lot of inventory pressure at present, so new production orders have begun to decrease.

More importantly, since the New Year, the market demand for smartphones has begun to weaken. According to the global mobile phone market report released by data agency Canalys for the first quarter of 2022, global smartphone shipments fell by 11% year-on-year in the first quarter of this year. In China, according to CINNO Research, smartphone sales in February this year were about 23.48 million units, down 20.5% year-on-year. The agency predicts that the year-on-year decline in domestic mobile phone sales in March this year will be higher than 30%.

The decline in smartphone sales is partly due to the fact that smartphone performance has begun to be excessive in recent years, so the user replacement cycle has been prolonged. At the same time, there are fewer and fewer innovations in smartphone products, and in the face of cookie-cutter smartphone products, consumer demand for machine replacement continues to shrink. This has also brought another phenomenon, consumers in the pursuit of differentiation when changing machines, leading to the outbreak of the folding screen market segment.

On the other hand, since February this year, the conflict between Russia and Ukraine has intensified rapidly, which has greatly affected the demand for consumer electronics in the European market, and electronic product industries such as LCD TVs, smartphones, and PCs have been slashed. Prior to this, the markets of European countries such as Russia and Ukraine have always been important emerging markets that domestic smartphone brands are trying to compete for, and the conflict between Russia and Ukraine has a particularly huge impact on the sales of domestic smartphone brands.

For smart phone brands, on the one hand, affected by the inventory pressure brought about by last year's panic stockpiling, on the other hand, they encountered the impact of the black swan event and the peak of the industry's development space, so they have cut production orders in 2022, and the smart phone semiconductor industry has begun to be cut on a large scale.

It can be seen that the smartphone semiconductor industry has been slashed on a large scale, which is more the result of the imbalance between supply and demand in the short term of downstream customers. But given the increasingly obvious peaking trend of the smartphone industry, where will smartphone semiconductor companies go?

/ 03 /

In the post-smartphone era, where do semiconductor companies go?

Inevitably, the smartphone semiconductor industry and even the global semiconductor industry will usher in the "post-smart phone era". While there is still no conclusive decision on what constitutes the next generation of Internet mobile platforms, it is certain that the golden age of smartphones is over, and smartphone semiconductor companies must look for a new blue ocean market.

According to the strategic layout of enterprises, it can be seen that automobiles have become the key areas of the layout of smart phone semiconductor companies. Also taking Vail shares as an example, it relies on the most competitive CIS business to prepare to seize the 100 billion market of intelligent car image sensors.

A significant trend is that the wave of automotive intelligence is unstoppable, the number of cameras on the car will continue to increase with the improvement of the level of automatic driving, and more importantly, with the popularity of smart cars, the automotive CIS market will further expand.

Haowei Technology began mass production of ciS for vehicles in 2008 and has now ranked among the world's TOP2 suppliers. The data shows that in the global automotive CIS market in 2019, ON Semiconductor's market share reached 62%, followed by Howey, taking 29% of the market share.

At present, the car has not become a huge market for CIS like smartphones. According to Counterpoint Research, the global image sensor market revenue will reach $21.9 billion in 2022, of which smartphones still account for 71.4%, while the automotive market is only 8.6%, and the market space is less than one-eighth of smartphones.

According to the earnings report, Weier's total revenue in the automotive electronics field in 2021 is $361 million, accounting for less than 10% of the company's total revenue. It can be seen that in the short term, Weier shares will still focus on the smart phone CIS business.

However, the layout of the automotive market by smartphone semiconductor companies has become a major trend. Smartphone SoC leaders Huawei HiSilicon and Qualcomm have entered the automotive market in recent years, and Huawei has deeply integrated the automotive industry chain; Unigroup Zhanrui, which is also the leader of domestic SoC, has previously focused on consumer electronics such as mobile phones and tablets, and has recently begun to plan to enter the field of vehicle-grade chips. Smartphone CMOS company GekeWei and Stewe, which will soon land on the science and technology innovation board, have also launched the in-vehicle CIS market.

In addition to semiconductors, there are not a few smart phone industry chain companies that choose to enter the automotive industry, such as The smart phone camera industry leader Sunny Optics, after the smart phone lens business is under pressure, it has entered the car lens market and achieved eye-catching results; the mobile phone acoustics company AAC Technology has also begun to actively explore the non-mobile phone field, and the automotive acoustics will be mass-produced at the end of 2022; the smart phone foundry giant Luxun Precision has invested in Chery New Energy to comprehensively lay out the automotive business.

It is not difficult to find that with the end of the golden period of smart phone development, smart phone industry chain companies have begun to switch tracks. As the industry with the strongest performance support in the smart phone industry chain, smart phone semiconductors have also had to start rethinking their own development direction.

For smart phone semiconductor companies, entering the post-smart phone era, this cut is just the beginning. If the future direction of development cannot be re-selected, the cruel inner volume under the squeeze of the industry ceiling will be inevitable.