The intensifying competition between the United States and China has prompted countries like Australia to cease the use of Chinese drone products due to national security concerns, significantly impacting the Asia-Pacific drone market.

In 2023, the global drone market is estimated to be valued at $33.4 billion, with a growth rate converging at 9.2%. As drone applications and use cases become more defined, drone manufacturing materials become increasingly transparent, costs and prices are expected to rationalize. The core profitability of drone manufacturers is shifting towards drone equipment, such as cameras and sprinklers.

Current State and Market Analysis of the Drone Industry

The commercialization of drones has accelerated, leading to the integration of autonomous drone docks and DaaS (Drones as a Service) technology. This has prompted drone suppliers like DJI, FOIA, GEOAI, AeroVironment, Skydio, and others to develop their own drone ground control systems, cloud-based control systems, onboard AI control systems, and multi-series autonomous flight systems. Autonomous flying control system enable AI-driven real-time image recognition, visual navigation processing, data capture, and analysis, as well as automated flights, deployments, take-offs, and landings.

Furthermore, the matured technologies of AI and computer vision have led to the diversification of drone products, allowing companies in the media and entertainment sectors to replace traditional aircraft with drones for tasks such as aerial photography, cinematography, and capturing special effects, resulting in cost reduction and increased efficiency. On the other hand, road and railway operators are combining drones with 3D modeling software to assist in structural engineering design. The logistics sector is rapidly advancing smart delivery models. Hence, the global drone market, including platform systems, automation applications, and drone docks, reached $30.6 billion in 2022, reflecting a 15% growth compared to 2021.

Although drones have a wide range of application areas, their technology and critical components are increasingly influenced by geopolitical factors. The ongoing US-China competition and concerns related to national security have led many countries to discontinue the use of Chinese drone products. Consequently, China, in addition to restricting the export of gallium and germanium for chip manufacturing, announced export controls on certain drones and related equipment starting in September 2023. This decision not only impacts China’s drone industry but also affects its vertical integration, including equipment suppliers for batteries, drone engines, motor controllers, ground stations, and anti-drone systems.

With declining drone sales volume, drone manufacturers are forced to reduce production to control operational costs, resulting in a significant decrease in demand for semiconductor components such as MOSFETs, HMIs, PCBs, sensors, microcontrollers, communication chips (Wi-Fi, Bluetooth), and charging ICs. This has significant implications, particularly for DJI, which holds approximately 70% of the global drone market share, and more than half of drones sold in the United States are either manufactured by DJI or supplied with DJI components.

According to a report by Taiwan’s Money DJ, Chinese assembly contractor Luxshare Precision has been actively entering Apple’s supply chain in recent years and has secured contracts to manufacture high-end models of the iPhone 15, no longer exclusively produced by Foxconn. Luxshare Precision’s Chairman, Wang Laichun, revealed in a recent interview that they have secured orders for three iPhone 15 models this year, and this business segment has doubled in performance over the past year.

She also disclosed that they are preparing for the production of Apple’s upcoming head-worn device, the Apple Vision Pro, set to be released early next year.

As reported by The Paper, Wang Laichun pointed out that Luxshare Precision currently provides development and manufacturing services for a range of Apple products, including iPhones, Apple Watch, AirPods, and Apple Vision Pro. They offer an integrated solution, from diverse components and modules to complete system assembly.

Luxshare Precision’s semi-annual report for 2023, released at the end of August, showed that their sales for the first half of the year reached RMB 97.97 billion, with a year-on-year increase of 19.53%. Their net profit was RMB 4.154 billion, marking a year-on-year increase of 22.48%. Not only did they achieve record cash flow, but several financial indicators also improved. Luxshare Precision expects its net profit for the first three quarters of 2023 to reach between RMB 7.040 billion and RMB 7.680 billion, a year-on-year increase of 10% to 20%.

The report noted that Wang Laichun attributes this growth to the company’s process optimization and efficiency improvements, which have led to a significant increase in the number of iPhone production models and quantities in recent years. She also mentioned that the company continues to expand its capacity in China to meet Apple’s demands. Last year, they established a new facility in Kunshan dedicated to iPhone development and production, creating tens of thousands of job opportunities.

(Photo credit: Apple)

Source to China Times, the International Semiconductor Industry Association (SEMI) forecasts that from 2023 to 2026, the global semiconductor industry will add 12 new 8-inch wafer fabs, with 8-inch fab monthly production capacity increasing by 14% to a historic high of 7.7 million wafers. In response, UMC stated that from a supply and demand perspective, capacity growth still lags behind demand growth. UMC emphasized that it remains optimistic about the future of the 8-inch wafer market, thanks to ongoing advancements in special processes and differentiation.

SEMI notes that the continuous rise in the penetration rate of electric vehicles (EVs) worldwide is driving substantial growth in the demand for inverters and charging stations. The future mass adoption of EVs is the primary driver for increased investments in 8-inch fabs and the continued expansion of global 8-inch fab capacity.

Examining the situation of new 8-inch fabs in various countries, Southeast Asia will see the largest capacity increase, with a growth rate of approximately 32%. SEMI predicts that China’s 8-inch fab capacity will follow, with an increase of about 22%, reaching a monthly production capacity of 1.7 million wafers. The United States, Europe, the Middle East, and Taiwan are expected to have growth rates of approximately 14%, 11%, and 7%, respectively.

SEMI reports that by 2023, China’s 8-inch fab capacity will account for approximately 22% of the global total, with Japan at around 16%, Taiwan at around 15%, and Europe, the Middle East, and the United States each at about 14%. Furthermore, to meet future market demand, suppliers such as Bosch, Infineon, Mitsubishi, Onsemi, and STMicroelectronics are accelerating their 8-inch fab capacity expansion. It is estimated that from 2023 to 2026, the 8-inch fab capacity for automotive and power semiconductors will increase by 34%.

Concerns have been raised about potential oversupply as global 8-inch fabs expand, but UMC, a major semiconductor foundry, states that given the current rate of 8-inch fab expansion worldwide, the increase in capacity is relatively modest compared to demand. From a supply and demand perspective, it is certain that capacity growth will not keep pace with the growing global demand for 8-inch wafers.

UMC further notes that while 8-inch fabs are increasing, demand is unlikely to remain stagnant. Currently, the majority of semiconductor fabs being built worldwide are 12-inch fabs, making the expansion of 8-inch fabs relatively limited, and the supply-demand balance has not worsened.

(Source: https://www.chinatimes.com/newspapers/20230922000218-260204?chdtv)

Source to media China Times, after an extensive promotional campaign, Huawei’s Mate 60 smartphone, which has regained attention in mainland China’s media and online platforms, has finally secured the second position in the Chinese domestic smartphone market for the 36th week (4^th~10^th, Sep.), with a 17% market share. It is just a 0.2% difference from the top-ranked Honor smartphone. Supply chain sources estimate that by the 37th week (11^th~17^th, Sep.), Huawei could potentially claim the top spot in market share.

According to reports from “Mydrivers,” Huawei’s smartphone sales have been improving lately, thanks to media and online promotion of the Mate 60. Data from authoritative market research organizations in the supply chain indicates that in week 36 (4^th~10^th, Sep.), Huawei achieved a 17% market share in smartphone sales, securing the second position in the Chinese smartphone market.

The report notes that although Huawei is ranked second, this achievement in market share comes amidst “well-known significant pressures.” Moreover, it trails only 0.2% behind the top-ranked Honor (17.2%). Supply chain insiders anticipate that by week 37 (11^th~17^th, Sep.), Huawei is poised to claim the top spot in market share, a remarkable feat considering the significant pressures facing the company.

The report highlights that Huawei’s current sales situation is characterized by a shortage of the entire Mate 60 lineup. Supply chain sources reveal that orders for the Mate 60 Pro have increased to 15-17 million units. Information from distributors indicates that Huawei began comprehensive sales of the Mate 60 Pro in physical stores starting from September 10th.

Analysts had previously expressed optimism about Huawei’s return to the high-end smartphone market in mainland China. The previous Mate50 series achieved sales of approximately 5 million units, and it is expected that the Mate 60 series could surpass 6 million units.

According to TrendForce research on the ranking of 2Q23 smartphone production, in China, Transsion (including TECNO, Infinix, and itel) eclipsed Vivo to secure the fifth spot for the first time ever. TrendFroce reveals that Transsion’s high production output benefited from a trifecta of inventory replenishment, new product launches, and its entry into mid-to-high-end markets. Demonstrating robust production performance since March, the company’s growth trajectory is poised to extend its momentum into Q3. Meanwhile, Vivo (including Vivo and iQoo) is treading cautiously amid a sluggish global economy, which is evident in its conservative production plan: Vivo churned out 23 million units in Q2—a modest quarterly increase of 15%—and as a result, slipped to sixth place in global rankings.

Xiaomi (including Xiaomi, Redmi, and POCO) is reveling in a bountiful Q2, posting production numbers of around 35 million units—a staggering seasonal uptick of 32.1%. This boom can be attributed to a strategic depletion of channel inventory coupled with the allure of new product launches. However, Xiaomi’s channel inventory still runs high, setting the stage for a Q3 that is likely to mirror its Q2 performance. On the other side of the spectrum, Oppo (including Oppo, Real, and OnePlus) also had a fruitful Q2. The brand primarily rode the wave of rebounding demand in Southeast Asia and other regions, amassing approximately 33.6 million units and marking a seasonal leap of 25.4%. With seasonal demands on the horizon, Oppo’s Q3 production is poised for an estimated growth of 10~15%, primarily targeting markets in China, South Asia, Southeast Asia, and Latin America, hot on Xiaomi’s heels.

Currently, the top-ranking Honor smartphone is also a Chinese smartphone manufacturer. Originally launched as a sub-brand under Huawei’s product line series in September 2011, it began independent operations on December 16, 2013. Towards the end of 2020, Honor separated from Huawei, and there were multiple rumors about Honor’s independent listing preparations, which the company denied. (Image credit: Huawei)

(Source: https://www.chinatimes.com/realtimenews/20230921005374-260409?chdtv)

• The competitive advantage of automotive GaN components is becoming increasingly prominent.

Leveraging their exceptional material characteristics, SiC components are rapidly making inroads into sectors such as automotive, renewable energy, and power PFC. Similarly, GaN components are excelling in the field of rapid charging for terminal devices. Additionally, GaN components are gaining greater visibility in the automotive and networking sectors.

In traction inverters and onboard chargers for electric vehicles, SiC components have already become the mainstream alternative to Si components. Furthermore, the demand for SiC components in automotive DC/DC converters continues to rise. As for GaN components, their potential remains significant in onboard chargers for electric vehicles, and their competitive edge is increasingly evident in automotive electronic components, LiDAR, wireless communication modules, and audio systems. It is estimated that by 2025, in the GaN component application market share, the new energy vehicle sector will account for 21%, representing an approximately 9% growth from 2023.

• China’s Semiconductor Self-Sufficiency offer it’s domestic supply chain a chance to seize opportunities.

Considering China’s position as the world’s largest automobile market, domestic automakers in China are highly enthusiastic about adopting innovative technologies and applications. It is anticipated that the Chinese market will be a major driver of demand for automotive GaN components. On the other hand, in the context of ongoing tensions between China and the United States, semiconductor self-sufficiency has become China’s primary policy for breaking through technological barriers and sustaining technological development momentum. Compound semiconductor is a project actively promoted by both the Chinese government and private sector, making China’s GaN component supply chain even more worthy of attention.

Currently, China’s domestic major GaN substrate and epitaxy suppliers include Sino Nitride Group and Nanowin. Companies specializing in GaN epitaxy include SinoGaN, Enkris Semiconductor, Genettice, and Best Compound Semiconductor. IDM manufacturers in this field include Sanan Optoelectronics, Silan, Runxin, CorEnergy, Innoscience, and SMEI. As the demand for automotive GaN components in China continues to rise, these aforementioned companies may seize the opportunity.