A recovery in the car market will boost revenues for European chipmakers this year. Automakers are scrambling to source the most efficient parts for their passenger cars as they push to electrify vehicles.
Over the past three years, major semiconductor suppliers have been grappling with a chronic shortage of chips that has hampered production of a wide range of goods, including home appliances, computers and cars. Component supplies are now improving, but some semiconductor products are still hard to come by.
Amit Harchandani, Citi's head of EMEA Tech Research, told The Wall Street Journal: "Comments from supply chain participants suggest that conditions are continuing to improve, but it would be premature to say that all constraints are completely behind us."
Harchandani said the auto end market is more important in Europe than in the U.S. and Asia, where leading chipmakers deal with more end-demand in smartphones and personal computers.
Demand from continental European automakers is expected to remain resilient this year, with light vehicle production expected to rise 2.7 percent from 2022, according to UBS Group. Sales of electric vehicles, which typically require more chips than internal combustion engines, are expected to jump 39 per cent as carmakers seek to comply with emissions regulations as well as meet customer demand.
Bernstein senior analyst Daniel Roeska told the Wall Street Journal that while lingering supply chain constraints could weigh on auto production levels this year, production is expected to rise across the industry in 2024. As supply chain problems ease further, and if the economies of China, Europe and the U.S. begin to recover, automakers should be able to ramp up production, he said.
Germany's Infineon Technologies AG (IFX.XE, IFNNY) Chief Executive Jochen Hanebeck said in February that the company was benefiting from the electric car boom among automakers. Shortly thereafter, the chipmaker raised its forecast for the second quarter and full fiscal year, in part because of the resilience of its core automotive business.
The group now expects revenue of more than 4 billion euros ($4.34 billion) in the three months to March 31, up from a previous forecast of about 3.9 billion euros, and higher margins than previously expected.
Infineon said overall revenue for fiscal 2023 would be much higher than its previous forecast of around 15.5 billion euros, with a corresponding positive impact on margins, without elaborating.
Citi's Harchandani said: "Automotive is a key end market for Infineon, the world's leading manufacturer of automotive semiconductors, and we estimate that automotive will account for more than 50 per cent of Infineon Group revenues in the current fiscal year."
To accommodate the expected growth, Infineon will invest 5 billion euros in a new chip plant in Dresden, Germany, and auto supplier Robert Bosch GmbH said it would invest 3 billion euros in its semiconductor unit by 2026 as part of European Union efforts to boost chip production, Some of that investment is being used to build two development centers in Germany.
For European chipmaker Stmicroelectronics Nv (STM.MI), the automotive end market accounted for a third of group revenue last year and should contribute a higher percentage in 2023, Harchandani said. The midpoint of the company's overall revenue target is $4.2 billion for the fiscal first quarter and between $16.8 billion and $17.8 billion for the full year.
"Our expectations for both Infineon and stmicroelectronics are based on the fact that their automotive businesses will grow faster than the company as a whole, so the fundamentals of the automotive business will be a key driver of stock performance for both companies in the coming quarters," Harchandani said.
