European Chip Giant Warns of Gloomy Future, Chips Priced Like Cabbage

In recent years, chip giants from the United States, Japan, and South Korea have fallen into difficulties, and now Europe seems to be on the verge of collapse as well.

Currently, the global chip industry is filled with doubts: How quickly will the US and Western countries lose market share? Will China truly sweep the globe? How long will it take for chips to become as cheap as cabbage?

The chip giants from the US and Japan-Korea have a significant portion of their market in China, and losing a large share of the market has severe consequences. However, European chip giants, backed by the vast European market, are also struggling. Why is that?

On January 25th, the European chip giant STMicroelectronics announced that due to weak automotive demand and a further decline in orders from the industrial sector, the company's revenue for the first quarter is expected to drop by more than 15%, far below market expectations.

The issues faced by STMicroelectronics are not a recent development. In the fourth quarter of last year, the company's revenue was $4.28 billion, a year-on-year decrease of 3.2%, and its profit was $1.02 billion, a significant year-on-year decrease of 20.5%, indicating a clear downward trend.

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STMicroelectronics, formed by the merger of Italy's SGS and France's Thomson Semiconductor, is the largest chip company in Europe. In 2023, the company ranked 8th in the global chip industry, with its main clients being the automotive, industrial, and consumer electronics sectors, among which automotive chip revenue accounts for nearly half.

Is this related to the Chinese market? Or is it related to competition with China's chip industry? Let's look at the data.

In 2021, STMicroelectronics' revenue was $12.761 billion, with the Asia-Pacific region accounting for as much as 68% of its revenue. In the fourth quarter of 2022, revenue from the Asia-Pacific region fell to 61%, a drop of 7 percentage points in just one year, which is quite astonishing.

It is evident that the decline in the Asia-Pacific region's revenue, which accounts for an excessive proportion, may be one of the reasons for STMicroelectronics' lack of growth momentum.STMicroelectronics stated in its Q4 2023 financial report that our customer orders have declined compared to the third quarter. We continue to see stable end-demand for automotive products, no significant growth in demand for consumer electronics, and further deterioration in demand for industrial products.

Some analysts believe that the Russia-Ukraine conflict leading to a European energy crisis and a decline in industrial capacity is also one of the important reasons.

Some analysts also believe that STMicroelectronics is overly dependent on the automotive industry. However, compared with the growth rate of electric vehicle demand in previous years, the sales volume of electric vehicles has shown a trend of slowing down since 2023, and this trend may continue in 2024.

This statement seems to be in stark contrast to the rapid development of China's electric vehicle industry, which can only indicate that STMicroelectronics has not benefited from the growth of China's electric vehicles. In other words, it has not won the Chinese market.

However, compared with the downturn of Western chip giants, China's chip industry is advancing rapidly.

After three years of the epidemic, starting from April 2023, China's chip production began to show an amazing growth momentum, and it has been growing rapidly for five consecutive months, especially reaching an astonishing growth rate of 21.1% in August.

Let's look at the data from the recent two or three years, and the trend is more obvious.

In 2022, global chip sales increased by 3.2% year-on-year, while China's chip industry sales increased by 16.5%.

On January 17, according to foreign media reports, preliminary statistics from market research firm Gartner showed that global chip sales in 2023 decreased by 11.1% year-on-year.

In 2023, China's chip industry sales increased by 8% again, with a total chip output of 351.4 billion pieces, an increase of 6.9%, far higher than the global average.A report from the internationally renowned institution TechInsights indicates that China's chip self-sufficiency rate is rapidly increasing year by year.

In 2020, China's chip self-sufficiency rate was approximately 16.6%, in 2021 it was about 17.6%, and in 2022 it was around 18.3%. It is projected to be about 23.3% in 2023 and around 26.6% by 2027. Some experts believe that this growth rate could be even faster.

It is clear that the chip restriction policies of the United States and Western countries, along with strong competition from China's rivals, are causing their chip giants to lose a large portion of the market, while Chinese chip companies are rising collectively.

Experts from TrendForce, a global market research firm, warn that China is significantly expanding its chip manufacturing capabilities, most of which use mature process technologies to produce chips, enabling China to quickly capture the global chip market at these nodes.

This could lead to an oversupply of production capacity, causing wafer foundries to lower their quotes, and some companies may go bankrupt. The global chip industry will soon face a reshuffling.

TrendForce forecasts that by 2027, China's capacity for mature process technologies is expected to grow from 29% to 33%. These chips will flood into the global market in large quantities, potentially triggering a global chip price war.

Overall, in the next few years, the global chip market will be turbulent, and China's era will eventually arrive.