Fueled by an AI-driven inventory stocking frenzy across the supply chain, TrendForce reveals that Q2 revenue for the top 10 global IC design powerhouses soared to US $38.1 billion, marking a 12.5% quarterly increase. In this rising tide, NVIDIA seized the crown, officially dethroning Qualcomm as the world’s premier IC design house, while the remainder of the leaderboard remained stable.

AI charges ahead, buoying IC design performance amid a seasonal stocking slump

NVIDIA is reaping the rewards of a global transformation. Bolstered by the global demand from CSPs, internet behemoths, and enterprises diving into generative AI and large language models, NVIDIA’s data center revenue skyrocketed by a whopping 105%. A deluge of shipments, including the likes of their advanced Hopper and Ampere architecture HGX systems and the high-performing InfinBand, played a pivotal role. Beyond that, both gaming and professional visualization sectors thrived under the allure of fresh product launches. Clocking a Q2 revenue of US$11.33 billion (a 68.3% surge), NVIDIA has vaulted over both Qualcomm and Broadcom to seize the IC design throne.

Qualcomm’s Q2 took a hit as the Android smartphone sector grappled with dwindling demand and Apple’s modem pre-purchases resulted in a subdued seasonal rhythm. Consequently, their revenue slid by 9.7%, rounding off at about US$7.17 billion. Broadcom, while benefiting from AI-ignited demand for high-end switches and routers, faced headwinds with revenue drops in server storage, broadband, and wireless. The result was a second-quarter revenue that essentially mirrored the previous quarter at around US$6.9 billion.

AMD’s Q2 performance plateaued at about $5.36 billion, weighed down by a slump in gaming GPU sales and its embedded segment operations. Conversely, MediaTek, after several quarters of inventory recalibration, witnessed a resurgence with components like TV SoCs and Wi-Fi stabilizing. The added impetus of urgent TV orders and escalating shipments for mobile phones, smart platforms, and power management ICs boosted MediaTek’s Q2 to a solid US$3.2 billion.

Marvell, though buoyed by AI deployments in data centers, faced headwinds with a decline in On-Premise Servers (enterprise private clouds). End-user demand remained frail, and with sectors like data centers, telecom infrastructure, and enterprise networking facing revenue drops, Marvell’s Q2 took a 1.4% hit, culminating at roughly $1.33 billion.

Taiwan’s IC design stalwart Novatek flourished as customers replenished TV-related inventories and ushered in novel products such as OLED DDI. Realtek, drawing strength from supply chain restocking of PC/NB-centric ICs, reported quarterly growths of 24.7% and 32.6%, respectively. Yet, without substantial signs of a holistic revival in end-sales and inventory restocking, growth in H2 seems set to face challenges.

Will Semiconductor secured the ninth spot with a Q2 revenue of $528 million, registering a modest decline of about 1.9%. Hot on its heels is the US-based power IC maestro, MPS, with its Q2 revenue tallying up to $441 million—a slip of approximately 2.2%.

Peering into Q3, while inventory levels across companies paint a rosier picture than H1, a pervasive end-user demand slump urges caution. However, a silver lining emerges with CSPs, internet titans, and private firms flocking to generative AI and large language models. As these high-value AI offerings gain traction, TrendForce projects that the top ten global IC design giants will continue their double-digit ascent in Q3, potentially reaching record-breaking figures.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

According to Taiwan’s TechNews, the ongoing soft demand for smartphones, combined with Huawei’s launch of the Mate 60 Pro, has severely impacted Qualcomm. Reports within the Chinese industry suggest that Qualcomm is planning significant layoffs in China, with severance costs estimated to be as high as N+7.

Based on discussions in Chinese forums and media reports, Qualcomm’s Shanghai R&D center is set to undergo substantial layoffs. This center primarily focuses on wireless-related businesses. The severance standards for permanent employees are at least N+4, which means the employee’s tenure plus an additional 4 months are considered for severance pay. As for contract employees, the severance compensation is set at N+7.

In fact, Qualcomm announced its downsizing plan in August, with reports suggesting that Qualcomm Taiwan plans to lay off about 200 employees in October. This will affect personnel in product engineering, testing, and verification fields, comprising 11.8% of the total workforce. The company is also implementing cost-saving measures such as eliminating annual salary adjustments and reducing bonuses to 70%.

This downsizing rumor has also extended to China, with reports at the time suggesting that Qualcomm China might lay off up to 40% of its workforce. The main reasons cited were sluggish demand for smartphones and Huawei’s new Kirin processor.

Analyst Ming-Chi Kuo of TF International Securities stated that Huawei is expected to fully adopt its own designed Kirin processors in its upcoming phones next year. Qualcomm will be the major loser in this scenario, losing Huawei’s orders entirely.

According to Kuo’s data, Huawei purchased 23 to 25 million smartphone SoCs (System on a Chip) from Qualcomm in 2022, but this number increased to 40 to 42 million in 2023. However, starting in 2024, Huawei will use its own chip designs, causing Qualcomm to not only lose orders but also face the risk of declining shipments from other Chinese brand customers due to Huawei’s increased market share.

Kuo also expects that, influenced by Huawei’s actions, Qualcomm’s SoC shipments to Chinese smartphone brands will decrease by 50 to 60 million units next year and continue to decline in the following years.

With a significant potential decline in performance in the Chinese market and increasing price competition towards the end of the year, Qualcomm is expected to carry out more layoffs. As of September last year, Qualcomm had approximately 51,000 employees worldwide. The company’s restructuring costs in the last quarter amounted to $285 million, with most of it being severance pay. In June of this year, the U.S. headquarters also reduced around 415 positions.

According to a report by China’s Jiwei, there have been indications of a positive turnaround in the Chinese MCU market recently. Some components are experiencing inventory replenishment, and certain MCU manufacturers have noted an upward trend in component prices, suggesting a gradual stabilization of prices. Additionally, there is optimism that wafer production costs in the coming year may become more favorable, which could gradually boost profit margins.

It is worth noting that the consumer electronics market has been sluggish for over a year, particularly for consumer-grade general-purpose MCUs, which have seen inventory accumulation. Due to the high inventory levels, many MCU manufacturers have been actively working to reduce their stock levels, leading to intermittent price wars.

Recently, Fudan Micro disclosed research findings indicating that the recovery of the end consumer market is still a gradual process, putting significant pressure on IC design companies. In the consumer market, products such as MCUs and storage solutions have seen some recovery in sales but have not yet shown a noticeable improvement in prices. Additionally, the security and identification product lines face substantial competitive pressure.

Looking at the industry as a whole, the clearance of inventory has not disappeared; it is still expected to return to normal levels by the end of this year or the first half of the next year. For IC design firms, the resolution of high-priced inventory is anticipated to continue impacting profit margins in the latter half of the year.

In the third quarter of 2023, the passive component industry’s inventory has returned to normal levels. However, it continues to deplete due to sluggish end-demand. Nevertheless, downstream customers in the mobile phone and automotive sectors have begun rebuilding their inventories. Ample Electronic Technology, a major manufacturer of conductive paste and thick-film conductor materials, has already seen a recovery in its August 2023 revenue, indicating that the inventory adjustment process in the passive component industry, which began in the fourth quarter of 2021, has gradually bottomed out over nearly two years.

TrendForce Insights:

• Upstream operations in the passive component industry are rebounding, but true demand recovery awaits.

In the second quarter of 2023, the passive component industry’s inventory approached normal levels. However, due to weak end-demand, Chinese smartphone and PC manufacturers significantly reduced their component inventories in the second quarter of 2023, leading to continued poor performance for passive component manufacturers. It is expected that after hitting the bottom in the third quarter of 2023, operations will gradually improve. However, the timing of true demand recovery may need to wait until 2024, given the persistently sluggish consumer electronics market.

• AI servers are on the rise, and inductive components are in demand.

General-purpose servers primarily use molding power inductors, with quantities ranging from 20 to 30, an ASP of approximately $0.07 to $0.1 per unit, and a current rating of only 30 to 40A. In contrast, AI servers have power consumption levels generally exceeding 1000W. To improve transient response performance, each AI server requires an additional 10 TLVR (Trans Inductor Voltage Regulator) inductors, with an ASP of around $0.3 per unit. This significantly increases the revenue of inductance components for AI servers compared to general-purpose servers.

• Promising prospects in the automotive market, but validation takes time.

Conventional internal combustion engine vehicles require approximately 300 to 500 MLCCs (Multilayer Ceramic Capacitors), while Battery Electric Vehicles (BEVs) require between 2,000 and 2,500 MLCCs. Self-driving systems will also drive MLCC demand. For instance, in the case of automotive camera modules, the quantity increases from 2 to 10 to 15. From a holistic perspective, non-self-driving internal combustion engine vehicles require around 3,000 MLCCs, Hybrid Electric Vehicles (HEVs) with Level 2 autonomy need over 6,000 MLCCs, and Level 3 Electric Vehicles (EVs) require more than 10,000 MLCCs. This leads to a significant increase in the revenue of automotive MLCCs.

However, entering the automotive sector is challenging and requires at least 1 to 2 years for certification. Nevertheless, once established, it can secure long-term agreements for at least 5 years. Additionally, compared to the slowing growth of the consumer electronics market, the automotive sector offers substantial opportunities and provides a buffer against the cyclicality of passive component industries.

Report to Voice, After the release of the Huawei Mate 60 Pro, various components have begun to experience the long-lost sensation of surging demand, replenishment, and stockpiling. With the launch of the Apple iPhone 15, the once sluggish global consumer electronics market has suddenly come back to life. The current mindset among storage manufacturers is clear: regardless of whether there is a real or perceived shortage, the goal before the year-end is to raise prices until they are no longer incurring losses.

Leading storage giants have gone through a series of price drops, losses, and production reductions, and are now officially entering the “price hike” phase. Samsung, SK Hynix, Micron, and others have already expressed their intention to raise NAND Flash contract prices.

According to TrendForce latest price projection on NAND Flash, in response to persistent softening in demand, Samsung has taken a decisive step: a sweeping 50% production cut from September, with the focus mainly on processes under 128 layers. Other suppliers are also expected to follow suit and increase their production cutbacks in the fourth quarter to accelerate inventory reduction. With this maneuver in play, Q4 NAND Flash average prices are projected to either hold firm or witness a mild surge, possibly in the ballpark of 0~5%.

YMTC now is facing surging demand from both smartphone and module manufacturers. It is reported that the production capacity for the period up to 1H24 has already been fully booked, with PC and server manufacturers sharing the capacity, while module manufacturers may receive a smaller share.

The current NAND Flash market situation is such that trying to negotiate increased supply with NAND Flash manufacturers like Samsung, Micron, and YMTC may yield little new capacity, and accepting higher prices may be inevitable.

The sudden pre-sale launch of the Huawei Mate 60 Pro has undoubtedly acted as a major catalyst for the current smartphone market. Without it, many smartphone supply chain companies believed that the smartphone market wouldn’t recover until the second half of 2024, and the most pessimistic among them even doubted if it would improve by 2024. The release of the Huawei Mate 60 Pro and the Apple iPhone 15 has injected a long-awaited warmth into the global smartphone market, reinvigorating the entire smartphone component supply chain.

In recent times, the top-tier iPhone 15 Pro Max from Apple’s iPhone 15 series is expected to be available only in November, which some interpret as a sign of strong demand. However, it is more likely due to production bottlenecks, particularly related to technologies like CIS, which have resulted in limited shipments of the iPhone 15 Pro Max. Overall, the estimated shipment volume for the iPhone 15 series may still reach up to 80 million units.

Is this resurgence in smartphone demand a lasting trend with increased consumer willingness to upgrade, or is it a temporary phenomenon? Optimists and conservatives hold differing views, but what is certain is that the global smartphone shipment volume has entered a mature phase, with limited room for significant growth driven solely by new features. However, the storage capacity in each smartphone continues to increase, providing substantial opportunities for existing supply chain manufacturers.

While new opportunities like automotive and AI have emerged, there is still no demand in any new field that can entirely replace the massive smartphone market. Therefore, the consensus within the global tech industry is that for the economy to rebound, the consumer electronics sector, particularly smartphones, is indispensable at this stage. AI and electric vehicles alone cannot take the place of smartphones. (Image credit: YMTC)

(Source: https://mp.weixin.qq.com/s/cb0kRUpWU6MElLNh9CR9eA)