Automotive Semiconductors- All You Never Wanted To Know But Probably Should- Part 1

Tue, 20 Feb 2018

Sales of automotive semiconductors soared an astounding 26% in 2017 to $38 billion, propelling them into the fastest growing category of semiconductors and setting the stage for a highly profitable era for those companies engaged in their design and manufacture.

With global semiconductor sales for 2017 checking in a record $412 billion, automotive now represents some 9.2% of the overall semiconductor market- and that number is likely to continue its upward trend in the coming years. The average semiconductor content in a typical internal-combustion engine (ICE) car has risen from ~$300 in 2012 to ~$400 in 2017- and that number is expected to keep on rising.

Furthermore, today’s hybrid and electric vehicles contain an average semiconductor BOM of approximately $700, more than twice as much as ICE cars. At the premium end, the BMW I3 electric car contains ~$4000 worth of semiconductor content. Within the confines of the car, semiconductors must function across a wide range of operating parameters including temperature, humidity, vibration, magnetic & electric fields etc.

As you might expect from a safety perspective, fault tolerances are extremely tight and suppliers must be in a position to meet the most stringent quality and safety requirements. In addition, due to the nature of the automobile design life-cycle (i.e. very long), they must able to guarantee supply for up to ten years into the future.

These critical factors represent significant barriers to entry for new players, a reality that is reflected by the fact that there has been little change in the top ten suppliers globally for the past decade. While this is bad news for potential newcomers, it is good news for the incumbents as they control a market that is destined to grow significantly.

Reflecting keen interest in the sector, there has been some highly significant M&A activity in recent years as the key players push to drive economies of scale, broaden their portfolios and endeavour to keep up with the pace of technological evolution. NXP's $12 billion acquisition of Freescale pushed them into the global number one slot, with some 40% of their revenues now deriving from their automotive segment. 

Samsung acquired Harman , a global leader in automotive infotainment systems, for $8 billion. More recently, the proposed divestiture of the Wolfspeed’s power and RF division, from US-based Cree to German-based Infineon, was blocked by the US just as Qualcomm’s proposed acquisition of NXP was blocked by the Chinese, demonstrating the highly sensitive and proprietary nature of the technologies involved.

In this Insight, we review the market for automotive semiconductors in detail, analysing the secular trends which will continue to drive both growth and profitability. We examine precisely where semiconductors are and will be used in autos and dissect the market leaders according to their competitive positioning in each of the key automotive semiconductor sub-segments.