Some auto chip dealers have been investigated by the State Administration for Market Regulation for price gouging. Against the backdrop of regulatory crackdowns, chip stocks fell sharply. On August 3, chip stocks fell by 5.09%, the largest single-day decline this year. Among them, National Technology fell by 14.70%, and Changchuan Technology, China Micro, Beijing Junzheng, and Fumman Electronics also fell by more than 10%. In addition, leading stocks such as GigaDevice, Northern Huachuang, and Shanghai Xinyang also suffered limit drops.

Industry insiders predict that the "chip shortage" is the general background for price chaos, and regulatory rectification may help to straighten out the automotive chip price system. There are some differences in the relief time for shortages in different fields. On the other hand, rising prices due to core shortages is a "double-edged sword" for middlemen.

Regulatory authorities point their fingers at
Automotive chip dealer

On August 3, the State Administration for Market Regulation issued an announcement stating that in response to prominent issues such as hype and high prices in the automotive chip market, the State Administration for Market Regulation has recently launched an investigation into automotive chip distribution companies suspected of driving up prices based on price monitoring and reporting clues. In the next step, the State Administration for Market Regulation will continue to pay attention to the market price order of important commodities such as chips, further strengthen supervision and law enforcement, and severely investigate and punish illegal activities such as hoarding, price gouging, and collusion in price increases.

"It is true that car chip dealers are driving up prices. In the face of a shortage of chips, some car companies have begun to stock up at high prices. Some of them obtain goods from chip factories through first-tier suppliers such as Bosch and Continental. Car companies with large demand and abundant funds will even buy chips directly. When dealers are profitable, they will cooperate with high-priced shipments, and even hoard and speculate on prices." Zhang Xiang, an automobile analyst, told reporters.

Zhang Xiang believes that this investigation by the State Administration for Market Regulation is good news for the entire industry, which will help standardize the price system of automotive chips and reduce the procurement costs of downstream parts manufacturers and OEMs. "Taking advantage of the heat of the 'chip shortage', some small electronic chip vendors will even sell off old chips as inferior ones by refurbishing them. This phenomenon needs to be severely cracked down on."

Price increases due to core shortage
Become a "double-edged sword"

Judging from the announcement issued by the State Administration for Market Regulation, this time the target is pointed at the intermediate circulation link of chips. In this area, conflicts have been high this year. Not only are small and medium-sized manufacturers suffering from core shortages and price increases, calling for resistance to malicious price increases, there are also leading companies resorting to judicial means to seek solutions.

Public litigation information of the Hong Kong High Court: Nexperia, a subsidiary of Wingtech Technology, filed a lawsuit on June 21 this year, suing its distributor Zhou Ligong Electronics to the Hong Kong High Court for violating the contract pricing plan and adjustment policy. The total amount of the lawsuit was as high as more than 37 million US dollars. This is the second lawsuit initiated by Nexperia against an agent after suing China Electronic Equipment International Co., Ltd.

According to sources close to the company, the case is currently awaiting trial.

Regarding the issue of dealers and other intermediary links participating in "speculation", the secretary-general of the board of directors of a leading listed company in IC distribution pointed out to reporters that this kind of short-term speculation is difficult to last; because once chip prices return to normal in the future, downstream customers will immediately replace the agents who once stocked up for speculation; at least in the distribution link, "even if we are out of stock now, our inventory will only be controlled at a level of 1 to 2 months."

Overall, "core shortage and price increase" is a "double-edged sword" for distributors: on the one hand, under the background of shortage, downstream customers rely more on distributors to obtain stronger supply chain support; on the other hand, due to shortage, downstream demand is suppressed, resulting in distributors being in a situation of "no goods to sell".

"If the supply of chips is sufficient, the sales will double." Yang Lin, chairman of Xianghai Electronics, a subsidiary of Shenzhen Huaqiang, said that the hardest hit area of ​​this round of shortages is in the field of Internet of Things; and judging from the long-term trend of the industry, shortages will be a long-term problem.

Judging from the performance of listed companies, the performance of A-share chip distributors is generally good. As a leading company, Shenzhen Huaqiang predicts that factors such as the accelerated popularization of 5G and Internet of Things technologies, as well as the deepening process of domestic substitution, will drive the prosperity of the electronics industry to continue to rise. The competitive advantages of the company's various businesses will be further reflected and strengthened. The company's profit in the first half of the year will be nearly 400 million to 500 million yuan, a year-on-year increase of 40% to 80%.

As a distributor of passive components, Shangluo Electronics also said that driven by factors such as the accelerating domestic substitution process and the rising prosperity of the electronics industry, the company's net profit in the first half of the year will reach 123 million yuan to 135 million yuan, a year-on-year increase of 44.55% to 58.65%.

In addition, Liyuan Information achieved a net profit of 181 million yuan in the first half of the year, an increase of nearly 70% year-on-year; Runxin Technology achieved a net profit of 2.13 million yuan in the first half of the year, an increase of 60% year-on-year.

"Chip shortage" speeds up localization

The soil for dealers to raise prices lies in the "chip shortage", which has spread across the world and has spread from automobiles to consumer electronics, medical equipment and other industries.

Specific to the automotive field, the reason for the "chip shortage" is that car companies misjudged sales trends. At the beginning of 2020, domestic car sales dropped significantly due to the epidemic. Accordingly, most car companies maintained conservative expectations for future sales, thereby compressing parts supply demand. However, the domestic auto market rebounded unexpectedly and rapidly in the second half of 2020, and by this time chip production capacity had been seized by consumer electronics. At the same time, the trend of intelligent and connected cars has increased the demand for semiconductor components, further exacerbating the "chip shortage".

After the chip shortage, leading car companies such as Volkswagen, Honda, and Nissan began to reduce or even suspend production at the end of last year. According to IHS Markit's forecast, the chip shortage will cause China, the largest automobile market, to reduce production by 250,000 vehicles in the first quarter, and Europe will reduce production by 100,000 vehicles. Automobile production in North America, Japan, and India will all be affected to varying degrees.

Tesla, the world's leader in new energy vehicles, is also troubled by chip shortages. Tesla founder Musk said at the recent second-quarter earnings conference that the global chip shortage will continue and be serious. For the rest of this year, Tesla's growth will depend on the slowest part of the supply chain.

"Cars produced by foreign car companies are generally more electronic and have more chips per vehicle, so the chip shortage has a more direct impact on production." Zhang Xiang said that car companies have also taken a variety of measures to alleviate the impact of the "chip shortage", such as reducing the functions of some high-end models, reducing the production of low-profit models, and adjusting the production rhythm.

Automotive chips are divided into different categories according to functions, among which MCU (microcontroller) is the main out-of-stock variety.

Currently, TSMC is the dominant player in MCU production capacity, accounting for approximately 70% of global shipments. Under pressure from OEMs to demand supplies, TSMC allocated production capacity, and its automotive business revenue increased by 63% quarter-on-quarter in the fourth quarter of 2020, and by another 31% quarter-on-quarter to US$5.1 in the first quarter of 2021. Industrial Securities made a prediction based on this, saying that considering that the time cycle from TSMC wafer foundry to chip production at the final OEM is about five months, it is expected that the supply of automotive chips will begin to recover at the end of the second quarter of this year, and is expected to improve significantly in the third quarter.

In addition, Wang Ying, secretary of the board of directors of Shenzhen Huaqiang, told reporters that the shortage is mainly concentrated in wafer chips, and the lowest-end chips are in short supply. It is conservatively estimated that it will continue until the end of the year.

Executives from Espressif Systems, which is engaged in the field of Internet of Things chips, said that the chip shortage is expected to be alleviated in 2023.

On the other hand, domestic technology companies are also facing opportunities in the wave of domestic substitution of chips, and may support the supply of domestic automotive chips in the future.

Artificial intelligence chip manufacturer Horizon recently released its third-generation car-grade chip Journey 5 in Shanghai. Horizon said that the Journey 5 chip was successfully tape-out in May this year. After passing various tests, it plans to mass-produce it in the second half of 2022. At present, eight domestic car companies, including SAIC, Great Wall Motors, and Jiangxi Automobile Group, have become the first intended partners of the Journey 5 chip.

Disclaimer: This article is reprinted from the "Securities Times". This article only represents the author's personal views and does not represent the views of Sacco Micro and the industry. It is only reprinted and shared to support the protection of intellectual property rights. Please indicate the original source and author for reprinting. If there is any infringement, please contact us to delete it.

Company phone number: +86-0755-83044319
Fax/FAX: +86-0755-83975897
Email: 1615456225@qq.com
QQ: 3518641314 Manager Li

QQ: 332496225 Manager Qiu

Address: Room 809, Building C, Zhantao Technology Building, No. 1079 Minzhi Avenue, Longhua New District, Shenzhen