October 30, local time, ON Semiconductor announced the third quarter 2023 results. Earnings data show that the quarter, ON Semiconductor achieved revenue of $ 2.18 billion, down 0.54% year-on-year, but higher than analysts' general estimates of $ 2.15 billion; net profit of $ 582.7 million, significantly higher than the same period last year, $ 311.9 million.

In terms of specific businesses, ON Semiconductor's Power Solutions Group (PSG) business revenue was $1.23 billion, up 10% year-on-year and quarter-on-quarter; Advanced Solutions Group (ASG) business revenue was $621 million, down 15% year-on-year; and Intelligent Sensing Group (ISG) business revenue was $328 million, down 4% year-on-year. In the end business, ON Semiconductor's automotive business unit set a new revenue record with third-quarter revenue of $1.2 billion, up 33% year-on-year, while revenue in the industrial sector was $616 million, up slightly year-on-year. If you look at the above figures, ON Semiconductor's third-quarter revenue was not bad, exceeding analysts' general expectations and achieving positive growth in key businesses. However, when looking ahead, ON Semiconductor gave a pessimistic forecast for the company's fourth-quarter revenue, expecting a range of $1.950 billion to $2.050 billion, compared with the market's general expectation of $2.18 billion. The company said it expects to lay off 900 employees.

The news was a flat-out shock, knowing that ON Semiconductor is a top-ranked player in the automotive semiconductor supply chain, and the pessimistic expectations and layoffs started to raise concerns about the future course of automotive semiconductors. ON Semiconductor CEO Hassane El-Khoury (Hassane El-Khoury) is more in the earnings briefing bluntly: "We are starting to see some weakness, European Tier 1 customers are dealing with inventory, and due to high interest rates, the risk of increasing automotive demand."

As we all know, ON Semiconductor is the world's leading supplier of automotive semiconductors, especially in the areas of power power and sense, where the company has a very high market share. The automotive business is also ON Semiconductor's main business, the company realized revenue of $8.3 billion in 2022, of which $4.65 billion in combined revenue from automotive and industrial terminal business. If you look at the automotive business alone, ON achieved automotive revenue of $3.36 billion in 2022, a revenue share of more than 40 percent.

Let's look at the power device sector first. Currently the car is being upgraded electrification, the three power systems have become the new "three big parts", accounting for more than 50% of the cost of the car. Electrification for automotive semiconductor is a great benefit, according to Yole statistics, the overall size of the automotive semiconductor market in 2022 has reached 43.9 billion U.S. dollars. In the electrification scenario, the amount of power devices has increased dramatically. Statistics show that the world's top five high-power semiconductor manufacturers are Infineon, STMicroelectronics, Texas Instruments, ON Semiconductor and Rohm, the market share of 30.2%, 16.3%, 10.3%, 7.1%, 5.9%. If specific to the MOSFET, the market top three are Infineon, ON Semiconductor and STMicroelectronics, market share were 24.4%, 12.4%, 8.8%.

For silicon carbide (SiC) devices, which are widely used in automobiles, ON Semiconductor is also investing heavily.On May 16, ON Semiconductor executives said the company is considering investing $2 billion to increase production of silicon carbide chips. The goal is to capture 40 percent of the silicon carbide automotive chip market in 2027.

Take another look at ON's strong automotive sensor business. Sensors are an important component for automobiles to realize intelligent upgrading, especially in the Smart Driving Scene and Smart Cabin Scene, where environment-aware smart sensors including transducers, millimeter-wave radar and LiDAR are widely used. Industry research organization Yelo's statistics show that in 2022, the global automotive market semiconductor sensor shipments of 5.4 billion units, generating $7.8 billion in revenue. Among them, Bosch, ON Semiconductor, Howell Group, TE and Continentai ranked in the top five, with market shares of 16%, 9%, 6%, 5% and 5% respectively. In the field of automotive sensors, ON Semiconductor has become a company that owns all the sensing technologies in the automotive field through the acquisition of IBM Millimeter Wave Advanced Sensor Design Center, SensL Technologies and other companies.

It is not difficult to see through these data, ON Semiconductor is well aware of the water temperature of the automotive industry, and the company's performance by the automotive industry a great deal of influence, then ON Semiconductor's pessimistic expectations have to pay attention to. Of course, ON Semiconductor products in the industrial sector is also very widely used, so some analysts pointed out that the agency's research and ON Semiconductor's expectations tend to converge, the subsequent demand for industrial areas of the market will also be very bad.

In terms of layoffs, according to statistics, so far ON Semiconductor has laid off 1,360 people this year. Separately, Hassan El-Koury noted that the announced layoffs are part of a larger strategic shift by the company to help produce more profitable chips in-house in response to slowing demand growth for electric vehicles.

Tracking back in time to 2022, Minsheng Securities' research report showed that the company has been affected by a weak macro-economy, sluggish demand, and inventory buildup. Although 2022 January-July global semiconductor sales still maintain the year-on-year growth trend, but has slowed down the growth rate month by month. 2022 September sales turn the corner, down 3.04% year-on-year. At that time, the industry's hopes were pinned on automotive semiconductors.

Currently, new energy vehicles have become the mainstream of the development of the automotive industry, and the penetration rate is rapidly increasing. Among them, the Chinese market is growing at the most significant rate. According to the statistics of the passenger association, in 2022, the cumulative retail sales of domestic narrow sense passenger cars totaled 20.543 million units, of which the cumulative retail sales of new energy vehicles totaled 5.674 million units, an 89.83% year-on-year increase from the previous year, and the penetration rate of the domestic market for new energy vehicles reached 27.62%.

The rapid growth of new energy vehicles has brought about a surge in demand for automotive chips. Industry chain data show that the traditional high-performance fuel car single car probably used 500-600 chips, a high-performance new energy vehicles may need to use about 2,000 chips, of which the MCU, power semiconductors, sensors and various types of analog devices to increase the amount of the most obvious. Statistics show that in 2022, China's automotive semiconductor market size of 15.8 billion U.S. dollars, an increase of 10.49%.

Entering 2023, in fact, new energy vehicles are still developing rapidly, the data forecast of the passenger association said that in 2023 China's new energy passenger car sales of 8.5 million units, the penetration rate of up to 36%. From this dimension, the automotive industry for chip demand is still very large, at least not less than before. So why is ON Semiconductor so pessimistic?

The answer is that supply and demand in the automotive chip market has changed. The automotive chip shortage over the past two years has hit the car market hard, with many car makers experiencing high prices for chips. And, the bright future of the automotive chip market is obvious, as the statistics say, by 2030 the global automotive chip market will double, the overall size of more than 600 billion dollars. Large market capacity and strong demand, resulting in the next period of time, almost all chip companies are planning their own products over the car regulations, while the global ranking of the head of the manufacturers will also tilt production capacity to the automotive business. Therefore, the automotive chip overcapacity is actually a predestined result.

From the data above, we can also easily see that, unless there is a shortage of high premium drive, in fact, in the regular time, new energy vehicles on the chip sales drive is not as rapid as the vehicle itself sales growth year-on-year. In terms of the Chinese market, 10.49% year-on-year growth can not be said to be not high, but too many people to share the food, everyone gets limited. At this point, we'll be able to understand Hassan El-Koury's words very well, as well as ON Semiconductor's move to lay off employees to create a bigger profit margin for its products.

So it's not that the automotive chip market is not working, but supply and demand is now reversed, due to the automotive chip overcapacity, and gradually enter the buyer's market.

When all enterprises will be the car chip as the last straw, then the straw will be difficult to bear such a weight, all the people have to float in the water, can't get to shore. At present, the automotive chip just supply and demand just changed, if the situation continues to deteriorate, the buyer is bound to be more powerful, by then the automotive chip market and related enterprises can not keep the amount of revenue is a problem. Because, if the supply and demand is too much imbalance, the price war is inevitable.