Global Chip Supply-Demand Imbalance Is Spurring Industry Change: NXP CEO Kurt Sievers

As the global semiconductor industry approaches mid-year, demand continues to exceed supply, spurring changes in the government role in the industry and in the way suppliers partner with customers, NXP Semiconductors CEO Kurt Sievers said in online presentation at Taiwan’s biggest annual technology fair on Tuesday.

The industry in the past two years has been “pretty challenged,” said the leader of Eindhoven, Netherlands-headquartered NXP, one of the world’s largest chip suppliers, particularly to an auto industry facing transformation toward electric vehicles and away from traditional internal combustion engine technology.

“Pretty much after the pandemic was hitting the world in the beginning of 2020, the demand for semiconductors saw an unprecedented growth — I would almost call it an explosion of demand,” Sievers said.

The increase, he said, has been in part due to the acceleration of “edge” computing that moves processing power closer to where data is generated — such as smart connected devices — with the goal of then forwarding it along quickly. “The demand for semiconductors worldwide is surpassing the supply capability of our industry,” he said.

NXP, whose business partners in Taiwan include Taiwan Semiconductor Manufacturing – also known as TSMC, is benefitting from that demand growth. Once known as Philips Semiconductor, NXP said on May 2 net profit in the three months to April 3 rose to $657 million from $353 million a year earlier; revenue climbed by 22% to $3.13 billion. At $1.55 billion, sales by its auto segment accounted for about half of the total and increased 27% from the first three months of last year.

The increase in NXP’s business is consistent with forecasts for overall growth in the global chip market in 2022. Global semiconductor revenue is projected to total $676 billion this year, an increase of 13.6% from 2021, according to a forecast in April by research firm Gartner. Automotive applications will continue to experience component supply constraints extending into 2023, Gartner said.

Sievers spoke at Computex, long one of Asia’s most important technology trade shows. Taiwan’s role in the chip industry has been underscored by chip shortages during the Covid pandemic and recently heighted geopolitical and military tension between the U.S. and mainland China. Auto industry production in the mainland – the world’s largest auto market – fell by more than 40% in April from a year earlier in connection with Covid-related lockdowns in Shanghai as well as chip shortages, hurting the shares of U.S.-listed Chinese manufacturers include NIO, XPeng and Li Auto. (See related post here.)

Computex is open for in-person participation May 24-27 in Taipei after two years of virtual expos amid the global Covid pandemic. Other speakers include Lisa Su, chairwoman and CEO of AMD, and David Moore, chief strategy officer of Micron, along with executives from Nvidia, Microsoft and Texas Instruments.

One implication of tighter chip markets is that “many governments have only now realized how critical semiconductors are for anything which has to do with the digitalization of the world. And that is why Joe Biden, for example, in the United States of America, explicitly called semiconductors a critical part of the critical infrastructure of the United States,” Sievers said.

“What this is all about is public interest, but also public funding of both manufacturing capability as well as R&D innovation for the global semiconductor industry, which is a great move” given their future impact on the world, he said.

Another implication of tight industry conditions has been in partnering between suppliers and customers. “What started in 2020 as stressful, eventually painful, supply discussions” has morphed into strategic innovation collaboration among partners, he noted. “I’ve never seen in my career any period where we have so rapidly moved so much closer into customer strategic relationships to actually work on innovation for the next five to 10 years,” not for the next two quarters, Sievers said.

One example he gave is NXP’s supply relationship with Volkswagen. “We all know Volkswagen’s absolute mission in life (has) moved from combustion engines to electric vehicles. The whole company is in transformation.” NXP is the unique partner for the battery management systems across its EV platform, he said. NXP also supplies chips to Ford, among others.

The semiconductor market has grown “in long waves, and those long waves have been enabled and unlocked by massive application development of new things,” said the long-time chip industry executive.

“Between 2000 and 2010, it was really about laptop computers and gaming. Between 2010 and 2020, it was about smartphones, tablets, and the rise of cloud computing data centers,” he said. “And I think those next 10 years — between 2020 and 2030, it will be about edge computing — edge applications all around us, complementing the power of the cloud.”

“People always want to have numbers. Some market researchers say it’s going to be about 75 billion smart connected devices by 2025. I think they only say this because you can easily remember 75 (and) 25 — feels like a good fit. The reality is we all don’t know,” he said. “Maybe it’s already in 24, maybe it’s only in 26. But the matter of the fact is, it is an explosion from a growth perspective.”

NXP has offices in 18 cities and over 7,000 employees across the Greater China region, according to the company’s website. Its mainland customers include smartphone maker Xiaomi.

See related posts:

Xiaomi Posts First-Quarter Loss As Covid, Parts Shortage Hurts Sales

China EV Maker XPeng Loss More Than Doubles Amid Covid Woes

@rflannerychina