From the layout of the two power giants, see the road to ever-green semiconductor foundation
Foreword: Infineon and ON semiconductor are two of the top ten leading companies in analog and power device manufacturers. From their recently announced corporate strategic development directions, we can get a glimpse of the development direction of semiconductor companies and the future development path of the industry.
At Infineon Technologies’ 2021 Investor Day earlier this month, the leadership announced Infineon’s strategic direction, namely Electrification and Digitalization. Coincidentally, two months ago, ON Semiconductor also announced two strategic development directions of the company, Intelligent Power and Intelligent Sensing. Since then, the two leading companies in analog and power devices have continued to develop in different directions in addition to their fundamental power semiconductors.
The strategic direction of Infineon Technologies and ON Semiconductor
Source: Public account 01 Xinwen
In the strategic development direction of electrification or smart power supply, the core products of the two companies are similar. They are power switching devices based on IGBT, MOSFET and compound semiconductor, covering modules and single-tube products from low voltage to high voltage. In addition, it also includes various IC products, such as driver chips and power management chips. The main applications are also similar, focusing on the power required for 5G and cloud computing, electric vehicle powertrain and supporting charging facilities, conversion and energy storage of new energy such as wind energy and solar energy, as well as power management for industrial automation and traditional automotive applications such as Engine control, body and light power supply, etc. A slight difference is that Infineon has a product line of high-power modules of thousands of volts, which can cover applications such as power transmission and high-speed rail powertrains that require high-voltage products.
Power semiconductors are the foundation of Infineon and ON Semiconductor, both of which are among the top ten companies in the industry. In the segmented market, it is even more outstanding: Infineon and ON Semiconductor occupy the top two in the global power MOSFET market share, and are also the first and third suppliers in the IGBT market. Therefore, Infineon and ON Semiconductor continue to strengthen their own advantages in the field of power semiconductors. They not only maintain their research and development strength in traditional silicon devices, but also successively launch various types of high-power modules for automobiles and industries. They also build or acquire 12-inch wafers. The circular fab is used for the production of power semiconductors, which not only greatly increases the production capacity, but also reduces the cost. Not only that, the two companies also acquired the legendary manufacturers of the industry, IR (International Rectifier) and Fairchild Semiconductor, respectively, during the peak period of mergers and acquisitions in the semiconductor industry in 2015. These two acquisitions not only enhanced the technical strength and product breadth of Infineon and ON Semiconductor in silicon switching devices, but more importantly, complemented the layout of the two companies in the third-generation semiconductors.
Infineon’s acquisition of Gallium Nitride (GaN) technology, which IR has been developing for many years, adds a promising product line for consumer and industrial applications. And ON Semiconductor not only obtained the industrial and automotive grade silicon carbide (SiC) technology accumulation from Fairchild, but also obtained Fairchild’s mature wafer fab in Bucheon, South Korea, and immediately had the large-scale production capacity of 4-inch silicon carbide. And 6-inch silicon carbide development capabilities. Since then, both companies have been able to supply both silicon carbide and gallium nitride products. Subsequently, Infineon and ON Semiconductor also acquired silicon carbide material suppliers, and continued to maintain their leading position in the industry today when the development of third-generation semiconductors is in full swing.
Application areas covered by ON Semiconductor’s strategic direction
Source: ON Semiconductor
one for each table
But in another strategic development direction, Infineon and ON Semiconductor parted ways.
Infineon has chosen digitalization. In recent years, it has spared no effort in investing in this area. It not only acquired Cypress, a veteran digital chip company, but also set up a special committee in the company’s Executive Board to cooperate with COO and Cypress Semiconductor. The Chief Digital Transformation Officer (CDTO) at the CFO level is responsible for the company’s digital strategy. This position is held by Ms. Constanze Hufenbecher, a former Lufthansa Technik board member.
The core application of Infineon’s digital strategy is the Internet of Things (IoT), including assisted and autonomous driving, smart homes, smart factories, smart warehouses, smart cities, wearable devices and other application fields. Part of this strategic direction is inherited from the acquisition of Cypress, whose Cypress 3.0 strategy focuses on two key growth areas, the Internet of Things. This strategic direction corresponds to five product lines of sensing, computing, connectivity, security and storage, as well as corresponding software development platforms, including 8/16/32-bit microprocessor series, connection solutions such as WIFI, Bluetooth and NFC, sound, pressure And radar and other sensor chips, memory chips, security chips, etc. Some of these products are from Infineon before the acquisition, and some are from Cypress, and many of these products were already among the most competitive chips in their market segments before the two companies merged. After the merger, the new Infineon product portfolio covers digital, analog and power semiconductors, resulting in strong synergies. For example, in the Internet of Things at the edge, Infineon can provide various types of sensors, microprocessors, non-volatile memory, power chips, connection chips, security chips and corresponding software platforms.
Product lines corresponding to Infineon’s strategic development direction
Source: Infineon Technologies
ON Semiconductor is optimistic about the relatively subdivided field of intelligent perception. The Intelligent Perception Business Group (ISG), which has been integrated by several acquisitions in history, is the main support department. The products include image sensors used in cameras, ultrasonic radars and lidars. , photomultiplier tubes and transceivers and other components, mainly for automotive assisted driving and autonomous driving, as well as industrial automation and some consumer fields.
Comparing the two companies’ presentations at the Investor Day horizontally, ON Semiconductor still adopts a more traditional way of publicizing semiconductor companies, starting from the market size and growth rate, decomposed into the system solutions required by the target application, and then extended to the specific product level. Infineon, on the other hand, is a high-level building. It no longer only pays attention to the product and system level, but starts from the top-level technology trends, corresponds to the application field, and then leads to overall solutions and product portfolios that generate synergies. Like a system company rather than a component company introduction. In addition to competitive hardware products, Infineon can also provide software support for the Internet of Things and propose a software-as-a-service (SaaS) business model, increasing the company’s imagination.
On the other hand, technologies such as WIFI acquired by ON Semiconductor’s acquisition of Quantenna in 2019 did not get exposure opportunities at the investor day, while Infineon organically integrated the original Cypress products through the digital strategic direction. The capital market also reflected this, with shares of Infineon rising 2.7% on the day of the investor day, while shares of ON Semiconductor fell 2.1%.
Of course, Hassane El-Khoury, the new CEO of ON Semiconductor, has only been in office for more than half a year, and has just adjusted its organizational structure to actively deploy its new strategy. One of the measures is to adjust the position of the Marketing Department. In the past, the department was owned by the sales department and reported to the executive vice president of sales, which El-Khoury said has resulted in marketers becoming salespeople, chasing short-term revenue goals rather than mid- and long-term market plans. So in the same month of the investor day, ON Semiconductor separated the marketing department from the sales department and appointed Ms. Felicity Carson as CMO chief marketing officer and senior vice president, reporting directly to the CEO. The company has other measures planned to achieve its strategic direction, but it will take time to see the changes they bring to ON Semiconductor.
A peek at the way to a long-lasting foundation
Combining the two investor day speeches and previous company news and quarterly reports, we can get a glimpse of how the original semiconductor factory has achieved longevity.
First, you have to be a leader in a certain field or even a certain segment, whether through organic growth or acquisition.
ON Semiconductor has continued to invest heavily in image sensors for more than ten years, and has continuously integrated the strengths of Aptina, Truesense, Cypress Image and SensL through acquisitions, which has allowed ON Semiconductor to obtain more than 50% of the image sensors for automotive applications. market share. At the same time, enterprises can also find partners across the value chain for joint development and increase their leading edge. A good example is that major semiconductor manufacturers customize high-current IGBT single-tube and subsequent TPAK modules for Tesla.
In 2015, when I initiated the development of two high-current automotive-grade IGBT single-tube AFGY160T65SPD and AFGY120T65SPD at Fairchild Semiconductor, I worked closely with Tesla’s powertrain department from the very beginning to jointly define product performance and various test requirements – whether it is 100% transient immunity test (Transient Immunity), or device binning (binning), or creepage distance and pin length selection, etc. – all start from the mass production data and practical application of Model S. Although Tesla finally chose other semiconductor manufacturers due to many reasons such as price and supply chain, these two products were used by several system manufacturers in China and Europe. Further, the successful mass production of these two products has also laid a foundation for technology, testing and production for Fairchild and ON Semiconductor (acquired by Fairchild in September 2016) to expand their high-current automotive-grade IGBT product portfolio. After that, ON Semiconductor’s VE-Trac series IGBT modules and bare die products benefited from this.
STMicroelectronics has also benefited a lot from the cooperation with Tesla, especially the first-generation TPAK module combines Tesla’s experience in electric vehicle mass production and accurate judgment of technology trends, and STMicroelectronics The silicon carbide technology reserve of the company eventually became the first silicon carbide module to be applied on a large scale in electric vehicles. This explosive product not only brought a lot of revenue and industry visibility to STMicroelectronics, but also provided valuable application data and allowed it to master new technologies such as Ag Sintering. This data and technology spread to other STMicroelectronics products, further strengthening the company’s leadership in automotive power electronics.
AFGY160T65SPD and TPAK
Source: ON Semiconductor, System Plus Consulting
Second, find a long, wet trail in the field of application where you can earn high profits by taking a seat there.
Self-driving cars, the Internet of Things, artificial intelligence, and the upcoming 5G application are all possible high-margin trails. And they are still in the early stage of competition, and there are still many opportunities in subdivisions or niche markets. At the same time, according to McKinsey research, five major categories of semiconductor companies, namely memory, microprocessors, fabless models, semiconductor equipment and foundries, captured 60% of the total semiconductor industry profits during 2015-2019, and This situation will continue in the future. Therefore, semiconductor companies should also consider how to move closer to these five categories when choosing snow courses. Among them, memory, microprocessors, semiconductor equipment and wafer foundries are areas with obvious advantages for leading companies, so the fabless business model has become the choice of most small and medium-sized semiconductor manufacturers and start-ups.
And many IDM manufacturers are also moving closer to the waferless model – although one of the main reasons for this year’s core shortage crisis is the capacity bottleneck of the wafer foundry, Infineon COO Jochen Hanebeck still said at the investor day that outsourcing production The share will continue to increase. El-Khoury also said that ON Semiconductor will switch to a Fab-Liter production model, close its own small-scale fab, focus its investment on a 12-inch fab in East Fishkill, New York, and increase its outsourcing share from 34% to 45%. From the perspective of financial data, the operating profit margin of ON Semiconductor and Infineon is generally only about 12.5%, while the core source system (MPS), which is also an analog and power semiconductor manufacturer, can achieve about 30% through the Semi-Fabless mode. operating profit margin.
Distribution of cumulative profits of the semiconductor industry from 2015 to 2019
Source: McKinsey Consulting
Third, semiconductor manufacturers need to remain vigilant and sensitive to changes in the supply chain, constantly explore diversified production, and increase the flexibility of the supply chain.
For example, as mentioned earlier, the Semi-Fabless model adopted by the core source system, that is, the original factory develops its own product technology and produces it in multiple foundries, thereby obtaining greater foundry pricing power and flexible production layout, while investing in part Self-owned testing equipment and production capacity accelerate product development and enhance quality control. Navitas, the first share of gallium nitride just listed this week, also revealed that the company may adopt a Semi-Fabless approach in the future in order to obtain higher EBITDA (for details, please refer to the previous public article “Gallium Nitride No. 1″. One share, where is Nano Micro Semiconductor strong?”).
In addition, semiconductor OEMs can also cooperate with semiconductor equipment manufacturers to enhance their technical strength in wafer production and packaging and testing, and use new technologies and new supply chain management methods to accelerate mass production ramp-up. For example, when constructing the 12-inch wafer fab in Villach, Austria, Infineon proposed the concept of “One Virtual Fab integrated virtual factory”, that is, in the new Villach fab, it adopts and integrates with Dresden (Dresden) ) The 12-inch fab has exactly the same equipment and process, combined with the latest automation and digital process management and logistics management, to build a virtual single fab. Chip production can be flexibly switched between the two fabs, co-produced, and capacity allocated on demand to achieve the effect of 1+1>2.
Fourth, for industries that lack cores such as automobiles, which may become the new normal, reduce industry cyclicality by adjusting supply terms and pricing strategies.
Supply contracts for semiconductor OEMs are generally long-term binding agreements (so-called Take-or-Pay Deals), requiring customers to provide purchase orders for 6-12 months. However, customers in the automotive industry are different – because the automotive industry used to be known for its stability. Although the supply chain is complex and involves a lot of outsourcing, OEMs follow the Just-in-Time principle for parts procurement. Commitment to bound procurement contracts of several weeks to several months is especially unfriendly to automotive chips with long production cycles and slow capacity expansion. However, the semiconductor shortage crisis since last year has made more and more OEMs require OEMs to sign long-term supply contracts (LTSA) with Tier 1 suppliers to avoid supply disruptions. On the other hand, this also has positive implications for OEMs. Supply chain shocks affecting global production occur on average every four years, according to a study by the McKinsey Global Institute. As a result, businesses lose 42% of their annual revenue in one year every 10 years. Because of this, some far-sighted OEMs have taken the initiative to cooperate with leading semiconductor manufacturers, not only obtaining a stable supply of chips, but also indirectly occupying the production capacity that competitors can obtain from these leading semiconductor manufacturers in the future. For some insights on this part, you can refer to the previous public article “Semiconductor Thinking in the New Situation of Automobiles”.
Infineon’s value proposition for the acquisition of Cypress
Source: Infineon Technologies
Finally, develop an M&A strategy that suits you.
Through small mergers and acquisitions, companies can expand to products and applications adjacent to their own areas of advantage, or acquire certain important capabilities that support their areas of advantage through mergers and acquisitions. The recent acquisition of GT Advanced Technologies by ON Semiconductor is to enhance the company’s technical strength and production capacity in the strategic direction of silicon carbide products and smart power supplies. If the conditions are right and significant new markets can be opened up, large mergers and acquisitions can also be undertaken. Infineon’s acquisition of Cypress is a desire to expand from a supplier of power and analog semiconductors to digital electronics. Of course, large mergers and acquisitions usually face lengthy reviews and disruption from competitors, and both parties need to be fully prepared for business continuity and even acquisition failure. For example, ON Semiconductor’s acquisition of Fairchild took more than a year to complete, during which the former Fairchild employees were in a state of ups and downs, which was not enough for outsiders.
Summary: Although the semiconductor industry is currently in a super boom period, practitioners and investors must not sit back and relax. They need to learn from industry leaders how they are prepared for danger and plan their strategic direction, so as to have a glimpse of their everlasting foundation.
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