Autos are driving in the chip industry's blind spot

For years, technologists have been talking about smarter cars packed with sensors, chips and supercomputers that can replace human drivers.

The interior of the Mercedes ESF 2019 autonomous car. (HT Photo)
The interior of the Mercedes ESF 2019 autonomous car. (HT Photo)

That was enough to get investors excited about the future of automotive semiconductors. An earnings report from NXP Semiconductors NV late Mondayreminds us of one slight flaw in the plan: People need to actually buy cars.

The Dutch company said revenue will drop approximately 20% this quarter to around $1.8 billion. The figure is in line with estimates that analysts slashed by 23% over the past eight weeks.NXP cut its first-quarter revenue estimate at the start of March, only to fall short of that mark. The company forecast a second-quarter operating loss of as much as $237 million, versus an estimated deficit of $169 million.

Also check these Vehicles

Find more Cars
Maruti Suzuki Baleno (HT Auto photo)
1197 cc | Petrol | Manual
₹ 6.50 - 10 Lakhs* *Ex-showroom price
Add to compare
Check latest offers
Porsche Macan (HT Auto photo)
1984 cc | Petrol | Automatic (Dual Clutch) | 12.35 kmpl
₹83.21 Lakhs - 1.36 Cr* Ex-showroom price
Add to compare
Check latest offers
Mercedes Benz Amg Eqs (HT Auto photo)
107.8 kWh | Electric | Automatic | 529 Km
₹ 2.45 Cr* **Ex-showroom price
Add to compare
Check latest offers
Mercedes Benz C-class 2022 (HT Auto photo)
1496 cc | Petrol | Automatic (TC)
₹ 55 - 61 Lakhs* *Ex-showroom price
Add to compare
Check latest offers
Polarity Smart Polarity Smart Sport (HT Auto photo)
₹ 40,000 - 1.10 Lakhs* *Ex-showroom price
Add to compare
Check latest offers
Polarity Smart Executive (HT Auto photo)
₹ 38,000 - 1.05 Lakhs* *Ex-showroom price
Add to compare
Check latest offers

So far this year, much of the attention in semiconductors has been on whether smartphones are a necessity —Xiaomi Corp. thinks so,I disagree —and whether work-from-home and streaming demand will drive server sales enough tomake up for the drop in consumer spending. The outlook from Taiwan Semiconductor Manufacturing Co. suggests otherwise.

NXP, however, is playing in a different arena: Itgot 47% of its revenue from automotive clients last year. The company said Monday that it was “navigating a challenging and very fluid environment."

That’s an understatement. After a 4.5% decline in global automobileshipments in 2018 and a 3.9% drop last year, hopes that the industry might avoid a third year of contraction are out the window as theCovid-19 pandemic hits demand and supply.

NXP isn’t alone. Germany’s Infineon Technologies AG gets 43% of its revenue from the auto sector. This month, the companycompleted its $9.3 billion(1) acquisition of California’s Cypress Semiconductor Corp.You’ll never guess which sector accounts for 39% of that company’s business.

Forgive Infineon shareholders if they start to feel that the 47% premium they paid for Cypress might be a little steep. Ironically, shareholders seem to be forgiving management, with the stock rebounding from a mid-March low to be 30% off its February peak, and back to where it was in early October.

Bloomberg Intelligence senior analyst Anand Srinivasan has been ahead of the curve. He predictedtwo weeks ago that the then-consensus estimate for a 4% decline in NXP revenue this year was conservative, and that 6% might be more realistic.Today, data on the Bloomberg terminal points to a 10% drop, the worst since the financial crisis in 2009.

At Infineon, analysts are looking at a 7% drop in sales for the year ending Sept.30. That may also be conservative.

Xiaomi may believe that smartphones are a must-have, and Apple Inc. certainly hopes that its new iPhone SE will find favoreven among tight-fisted consumers. But with a global recession on the way, you’d have to be Elon Musk to believe that the auto sector, and the chipmakersthat supply them, are going to survive with only minor bruising.

(This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.)

First Published Date: 29 Apr 2020, 09:36 AM IST
Shopping Bag Shop Now
1% OFF
Godrej aer O – Hanging Car Air Freshener | Car Accessories | Cool Aqua (7.5g)
Rs. 98 Rs. 99
70% OFF
VENO Portable High Power 2 in 1 Car Vacuum Cleaner | USB Rechargeable Wireless Handheld Car Vacuum Cleaner Traveling, Camping Reusable and Sustainable (2 in 1 Vacuum Cleaner)
Rs. 899 Rs. 2,999
65% OFF
Ambrane 38W Fast Car Charger with Dual Output, Quick Charge 3.0 and Power Delivery, Type-C & USB Port, Wide Compatibility for Smart Phones (RAAP C38 A, Black)
Rs. 349 Rs. 999
68% OFF
PUNZONE Car Body Scratch Remover - Scratch Repair Polishing Wax Kit Sponge Body Compound Cream Wax, Car Body Compound Scratch Remover
Rs. 289 Rs. 898

Please provide your details to get Personalized Offers on

Choose city
+91 | Choose city
Choose city
Choose city
By clicking "View Offers" you Agree to our Terms and Privacy Policy

Dear Name

Please verify your mobile number.

+91 | Choose city
Couldn't verify the OTP.
It's either expired or it's incorrect.