By LIN Teng, ZHANG Xilong
China's biggest MCU (Microcontroller Unit) chip companies are de-stocking fast. In Q3 and Q4, the recovery of consumer electronics including phones, e-cigarettes and small home appliances, has set inventories falling and prices rising again. Automotive-grade chips are in especially high demand.
Jiemian News reporters visited Cmsemicon, Nations Technologies, and Chipsea Tech, all listed MCU chip companies in Shenzhen. All three told of recent double-digit growth and new optimism.
"Customers who haven’t talked to us for months have started placing orders," said one sales manager.
Changes in the weather
An MCU is a chip designed for specific applications such as control, and similar to a small CPU. It is widely used in small devices like toys and kitchen appliances with automotive electronics offering unprecedented opportunities. They are also widely employed in production lines, warehousing and drones.
In the past two years, the industry has been through the mill. In 2021, with the pandemic and rising raw material prices, the chip supply almost dried up, and prices shot up. They began investing in actual chips as pure speculation - hoarding - hoping to obtain huge profits by further constricting supply.
However, last year, due to the lack of demand for consumer electronics and "irrevocable orders" between chip makers and wafer makers, inventory piled up. Snowdrifts of MCUs piled up in warehouses, bringing an avalanche of prices.
Spring comes, but only for some
Then, in July this year, the weather changed again. The sun came out, with Huawei and Apple releasing new sensations, boosted by global shopping-day frenzies. Consumer electronics are coming back to life and demand has rarely been better.
Cmsemicon shipments in Q3 exceeded 470 million chips, with 1.2 billion MCUs sold already this year, more than last year. Nations Technologies' inventory of 800 million yuan is 13.1 percent less than at the beginning of the year. Chipsea Tech reported a 31.2 percent quarter-on-quarter increase in revenue in Q3.
An MCU dealer in Shenzhen’s Huaqiangbei told Jiemian News: "This round of recovery in consumer electronics mainly benefits large companies with customer resources. Smaller companies are still in price wars and inventory quagmires. A reshuffle is on the horizon."
Smoke without fire
This round of consumer electronics recovery has been led in many ways buy the growth in electronic cigarettes.
For emerging Chinese e-cigarette brand Sikary, revenue exceeded 1.4 billion yuan in the first half of the year, 15 times more than a year ago. Sikary is currently the second-largest e-cigarette brand in the UK.
Cmsemicon confirmed that the demand for e-cigarettes was the most vigorous. Short supply has seen some e-cigarettes out of stock.
Demand for consumer electronics is growing mostly at the bottom end. A senior executive of a Shenzhen MCU company said: "Cheaper consumer electronics sell better, so terminal manufacturers care more about cost-effectiveness. Domestic MCUs have cost advantages over foreign products."
Free ride on EV success
The most important growth market for domestic MCUs—automotive-grade MCUs—also increased its orders in the year's second half. Shenzhen has been investing in automotive-grade products for two years. MCUs are now firmly embedded in the EV supply chain.
Cmsemicon's automotive-grade MCUs are mainly supplied to companies such as Changan, Dongfeng and Seres. They are used in sensors, switches, headlights, and sunroofs.
There has been a noticeable upward trend since November this year, and the supply of automotive-grade products is estimated to double next year.
