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MediaTek to Focus on Automotive, Edge AI for Growth

The company saw a slight growth in Q2 revenues due to the improving demand for 5G SoCs.
Inventory came down to a relatively normal level.
MediaTek and NVIDIA have tied up to develop a full-scale product roadmap for the automotive industry.
Significant revenues are expected to be seen for MediaTek’s auto and custom ASIC segments from 2026.

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MediaTek’srevenues were slightly up sequentially but down 43% annually in Q2 2023. Inventory has gradually come down to a relatively normal level, but the demand forsmartphoneswill remain slow due to the global macroeconomic situation and therefurbished smartphonemarket. Against this backdrop, MediaTek is diversifying its portfolio by focusing on theauto, smart edge and customASIC segments. The company is estimated to take over two years to get material revenues from these segments.

AI and ASIC Opportunity

CEO:“As for ASIC, we recently see growing enterprise ASIC business opportunities in AI and datacenter markets. With our strong IP and SoC integration capabilities, we aim to continue to grow this business in the future.”

Parv Sharma’s analyst take: “With the growth in generative AI, the demand for edge AI processing has accelerated. Being one of the top players in edge devices, MediaTek is well-positioned to benefit from this shift. The company will focus on winning enterprise ASIC projects but catching up with major players like Broadcom and Marvell will take time, as customers typically work with existing suppliers for repeat projects.”

Growing focus on auto and partnership with NVIDIA

CEO:“We’re very excited about the recently announced partnership between MediaTek and NVIDIA to develop a full-scale product roadmap for the automotive industry. We believe our industry-leading low-power processors and 5G, WiFi connectivity solutions, combined with NVIDIA’s strong capability in software and AI cloud, will help us become highly competitive in the future connected software-defined vehicles market and shorten our time to market to accelerate our growth.”

Shivani Parashar’s analyst take: “MediaTek launched Dimensity Auto to focus on cockpit and connectivity solutions. With its partnership with NVIDIA, the company aims to develop a full-scale product roadmap for the automotive industry. Auto design cycles are long so it will take some time (2026-2027) for the company to increase revenues from this segment. Overall, we can say the auto segment will become a long-term revenue growth driver for MediaTek.”

Customer and channel inventories come down

CEO:“We observed that customer and channel inventories across major applications have gradually reduced to a relatively normal level. Recent demand from our customers has shown certain level of stabilization. However, our customers are still managing their inventory cautiously as global consumer electronics end market demand remains soft. For the near-term, we expect our business to gradually improve in the second half of the year”

Shivani Parashar’s analyst take:“根据我们的供应链检查、库存levels are coming down and will get back to normal in the second half of 2023. OEMs will start restocking but will be cautious due to weak consumer demand and global macroeconomic conditions.” Result summary

Slight improvement in revenues: MediaTek recorded$3.2 billionin revenues in Q2 2023, a slight increase of 2% QoQ but a decrease of43% YoYdue to the weakglobal demandfor end products and the second-hand smartphone market. Customer and channel inventories across major applications have come down to a relatively normal level.
Maintained mobile segment revenue due to 5G SoCs:The mobile phonesegment contributed 46% to the company’s revenue in Q2 2023, which declined by51%YoY and increased by 2% QoQ. The demand for 5G SoCs improved during the quarter. The new flagship Dimensity SoC will be launched in the coming month.
New opportunities for smart edge:聪明的边缘部分comp贡献了47%any’s revenue in Q2, growing 2% sequentially. The demand for connectivity remained stable in the quarter. Business opportunities are growing for the ASIC segment.
Price discipline: MediaTek will focus on maintaining gross margin, following price discipline at a time of uncertainty in the global semiconductor industry.
Favorable guidance: MediaTek guided Q3 revenues in the range of$3.3 to $3.5 billion, growing 4%-11% sequentially. Gross margins are expected to be around47%while the operating expense ratio is expected to be around 32% in Q2 2023. The smartphone, connectivity and PMIC segments will see revenue growth. The smart TV segment will witness declining revenues in the third quarter due to excess inventory.
Autosegment is picking up:Automotivewill contribute$200 to $300million to MediaTek’s revenue in 2023. More significant revenue can be seen from 2026. The current auto design pipeline revenue for MediaTek is over $1 billion.

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Netgear Q2 Gets Premium Push, Inventory Stabilization Seen in Q3

Netgear’s Q2 2023 revenue declined 22.3% YoY to $173.4 million.
Inventory correction in H1 2023 totaled $66 million.
Orbi, Nighthawk, 5G mobile hotspots and Pro AV will drive revenues in Q3 2023.
Netgear expects the Q3 2023 revenues to be in the range of $175-$190 million.

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Netgear’s revenue declined 22.3% YoY in Q2 2023 to $173.4 million, coming at the higher end of the guidance primarily due to an increase in orders from the service provider channel. The company experienced an inventory correction worth $29 million in Q2 2023, taking the H1 2023 inventory corrections to $66 million. As the inventory levels begin to stabilize, we expect the inventory spills will be 20% lower in H2 2023 compared to H1 2023.

Premium offerings, Pro AV switches shine amid revenue declines in both segments

Connected home and SMB (small and medium business) segments suffered declines of24% and 21% YoY, respectively, in Q2 2023 primarily due to inventory corrections at channel partners.
Gross margin continued to be above30%in the second quarter as premium product sales grew and freight costs went down.
However, the operating margin continued to be in thenegativeregion as inventory correction amounted toover $29 million. It is expected to improve in Q3 with an improved mix of higher-ASP products in the connected home and SMB segments.
The retail market is starting to stabilize with consumer demand increasing toward premium networking equipment as the number of Wi-Fi-enabled devices continues to increase. As home networks become more crowded with bandwidth-hungry devices, the demand for Mesh routing devices will increase with time to ease out home networks.

The end consumer devices have become more feature-rich, especially withAI(artificial intelligence) which now requires more bandwidth, low latency and more reliable Wi-Fi connection. This has led to strong consumer demand for premium routers offering such features.
The Orbi and Nighthawk series of routers continued to perform well forNetgearalong with 5G mobile hotspots and experienced a YoY increase in shipments in Q2 2023.
Pro AV-managed switches continued to outperform other end devices in the SMB segment to deliver a growth of more than40% YoY in Q2 2023. Netgear is significantly committed to building leadership in IP-over-AV switches and continues to invest more to grow this segment.
Other SMB products experienced a major drop in sales due to macroeconomic headwinds affecting enterprise spending in the past couple of quarters, delaying the upgrades to newer Wi-Fi technologies.

Revenues from service providers, in APAC and Europe decline significantly

Though service provider revenue increased sequentially in Q2 2023 to $25 million, it suffered adecline of 30% YoY. Revenues were at the higher end of the guidance due to an increase in orders from a major service provider.
Netgearshipped around6 million unitsof wired and wireless networking devices, compared to2.2 millionin the same period last year. It shipped around426,000units of all types of routers and gateways.
Sales in APAC and Europe declined20% and 40% YoY, respectively, due to an economic slowdown in these regions, especially Greater China and South Korea.

Paid subscribers to reach 875,000 by year-end, inventory corrections to stabilize

Netgear is on the path to achieve a paid subscriber base of875,000by the end of 2023 as it touched800,000 in Q2 2023. Revenue from subscriptions grew8% YoYin Q2 2023 to end at$10.3 million.
With concerns about internet security on the rise, especially with a growing number of smart devices, online internet security software is expected to gain momentum in the second half of this year.

Netgearexpects the revenue to be in the range of$175 million to $190 million in Q3 2023, as inventory correction is expected to ease out. However, it will still take two more quarters for Netgear to bring down inventory-carrying levels to less than 10 weeks.

Key takeaways

Counterpoint expects an increase in shipments for 5G mobile hotspots in H2 2023 as the consumer demand for such products is on the rise. Netgear is expected to launch a couple of Wi-Fi 7 Orbi Mesh routers and quadband Nighthawk routers in Q3 2023.
However,Wi-Fi 7upgrade cycle is expected to begin sometime in mid-2024, as IEEE is yet to announce the schedule of the certification program forWi-Fi 7. Therefore, Wi-Fi 6/6E is expected to form more than 50% of the market in the next two years.
Netgear is expected to open more company-owned premium retail outlets which will help it to provide a better customer experience and a competitive edge in the market.
Consumer awareness around online internet security remains low. Netgear can play a part in increasing consumer awareness through its D2C (direct-to-consumer) communication channels.
Macroeconomic headwinds have slowed down enterprise spending, thus delaying the Wi-Fi upgrade cycle toward Wi-Fi 6/6E.
5G FWA market has been performing well across most of the regions. With more regions opting to reduce the digital divide through FWA, the market promises to offer further growth and become a challenger to fixed broadband technologies.

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NXP Reports Record Revenue in 2022, Automotive Shines

2022 was a record-breaking year for NXP with solid profit growth and healthy free cash flow generation.
Accelerated growth drivers (except UWB) are on track within the expected revenue growth range (∼25%) to help take NXP’s total revenue to $15 billion by 2024.
For Q1 2023, the company expects revenue of about $3 billion. This would mean a deceleration of 4% YoY with a 9% downside sequentially.

NXPSemiconductors reported record revenues of $13.21 billion in 2022, a yearly growth of 19.4% on account of increased revenues in all end markets, unprecedented design wins across the entire portfolio and higher pricing (due to input cost inflation).Automotiveand coreIoTmarkets witnessed robust demand throughout 2022, outstripping the company’s supply capabilities.Consumer IoTand mobile markets experienced softening demand environment in the latter half of the year. In Q4 2022, NXP delivered revenues of $3.31 billion, up 9% YoY and down 4% QoQ. The Q4 revenues were $12 million better than the midpoint of the guidance with all markets performing in line or better than expected except the communication and infrastructure segment. The full-year non-GAAP gross profit was $7.64 billion with non-GAAP gross margin standing at 57.9%, an increase of 180 basis points YoY due to higher internal factory utilization and follow-through on higher revenues.

Automotive

NXP’s automotive business captured 52.1% of the total revenue in 2022, an increase of 2.4% from the previous year. Revenue for the full year stood at $6.88 billion, a yearly growth of 25.2%. This growth was driven by higher pricing, record customer design wins (forxEVsolutions – battery management solutions, inverter controls, other xEV control processors, etc.), and strong traction of company-product drivers owing to accelerated content increases within xEVs andpremiumcar models.
Q4 revenues were $1.81 billion, up 17% YoY and flat QoQ, in line with the company’s guidance. Due to supply constraints, NXP couldn’t ship more in Q4.
NXP emphasized on its auto-specific accelerated growth drivers, which will help it with increased yearly revenues in the future. Theyinclude 77-gigahertzradarsolutions, electrification systems, and the S32 domain and zonal processors. Customer enthusiasm for S32 processors continues to grow, far exceeding expectations. A major automotive OEM has selected the S32 family of automotive processors and microcontrollers for use across its fleet of vehicles beginning next decade.
In Q4, NXP introduced the high-performanceS32K39series MCUs for electrification applications like traction inverter control, BMS and OBC, and announced its collaboration withDelta Electronics后者将利用NXP的S32 automotive platform and S32K39 MCUs to develop next-generation EV platforms. At theCESthis year, it unveiled theSAF85xxSoC, the industry’s first 28-nanometer RFCMOS radar one-chip IC family forADASapplications.
For Q1 2023 revenues, the company is estimating this segment to be up in the mid-teens and flattish on a YoY and QoQ basis respectively.Increasedglobal automotive production and growing penetration of xEVs would prove beneficial for future revenue growth.

Industrial & IoT

The industrial andIoTsegment’s revenue for 2022 was $2.71 billion, up 13% YoY. The growth can be attributed to higher pricing and demand for its industrialprocessors, and analog, connectivity, and security solutions. Specifically, its secureconnectededge solutions (accelerated growth driver), which include bothcrossoverandi.MX application familiesofprocessors,grew nearly 50% YoY in 2022.
Q4 revenues were better than their earlier guidance at $605 million, down 8% YoY and 15% QoQ respectively. Due to lockdowns inChinaand uncertain macro conditions, consumer-exposed IoT businesses saw a deceleration in revenue.
In Q4, the company launched its new analog front-end (N-AFE) family of devices targetingindustrialapplications, specifically software-defined factories. It will help with high-precision data acquisition and condition monitoring systems for factory automation.Schneider Electricis incorporating the N-AFE family in its industrial solutions. NXP also launchedMCX N seriesMCUs for secure intelligent edge industrial andIoTapplications and expanded its portfolio of end-to-end Matter solutions by announcing theRW612andK32W148wireless MCUs. Both are targeted towardsmart homeapplications such as garage doors, thermostats, smart plugs, and smart lighting.
For Q1 2023, the industrial and IoT segment is expected to be in the negative territory in both YoY (low 30% range) and QoQ (low 20% range) terms. The core industrial business remains supply constrained in some areas while consumer IoT is expected to experience cyclical weakness in demand and potential correction of customer inventory.

Mobile

For 2022,Mobilesegment revenues stood at $1.61 billion, an increment of 14% YoY due to higher pricing and continued traction of the secure mobile wallet.
In Q4, it reportedrevenuesof $408 million, up 9% YoY and down 0.5% QoQ, and faring better than the company’s guidance. As observed in theprevious quarter, weakness in the Android mobile market continued to persist, affecting the largely channel-driven mobile business.
NXP’s mobile segment-specific accelerated growth driverUltra-Wideband(UWB) was below the expected revenue growth range since NXP’s UWB solutions are aimed at the Android market, which is experiencing softening demand. However, the company is optimistic about this growth driver in the near future as it continues to build out its ecosystem and register more design wins both in the mobile and automotive sectors.
For Q1 2023, NXP is expecting this segment to be down in the mid-40% range both in YoY and QoQ terms. The mobile segment is dependent on a cyclical rebound and is expected to improve performance as and when theAndroidhandset market fares better.

Communication infrastructure and other

The ‘communication infrastructure and other’ segment’s revenue in 2022 was $2 billion, up 15% YoY. This growth was driven by higher pricing and sales of in-demand solutions likenetworkprocessors, secure transit and access products and RF-powered products for the cellularbase stationmarket.
Q4revenuesstood at $494 million, up 8% YoY but down 5% QoQ and below the company’s guidance. Weakness in this quarter had nothing to do with demand but was primarily due to operational issues and supply constraints.
NXP’s accelerated growth driver –RFpower amplifiers– was on track as per its expected revenuegrowthrange. The industry transition from LDMOS technology to gallium nitride happened faster than expected and the company’s revenue doubled YoY with respect to gallium nitride-based solutions. However, the demand continues to outstrip even its increasing supply capabilities.
In January 2023, NXP launched a new wideband GaN RFtransistor–MMRF5018HS– primarily for aerospace and defense communications.
For Q1 2023, the guidance expects the revenues to be flat both in YoY and QoQ terms. NXP will try to improve its supply capabilities to cater to the pent-up demand in RFID packing solutions, e-government identification, 5G base station market build-out especially inIndia, and more.

Capex overview and inventory

Cash flow from operations stood at $3.9 billion in 2022. Netcapexinvestments were $1.06 billion or 8% of overall revenue, a 1% jump from the previous year. Due to softening demand in consumer-oriented markets, internal front-end utilization rates have dropped for non-auto industrial products. From running in the high 90s in Q3 to touching 90% inQ4 2022and in Q1 2023, it is expected to go down to 85%. Despite this, NXP is confident of keeping itsgross marginwithin its long-term range of 55%-58% as it has a disciplined inventory management approach and a better grip on its cost structure, which is more variable in nature now than it was in past.
NXP continues to face shortages in certainnodes和其他技术,如180纳米,9055克allium nitride and the high-voltage analog mixed-signal (which are proprietary to NXP). This can lead to significant customer escalations which thecompanyhopes will moderate by the end of this year. However, it remains optimistic about its supply capabilities in the future as its ability to cater to risk-adjusted backlog has gone up from 85% in 2022 to 90%-95% in 2023.
DOI has increased to 116 days, a 17-day sequential increment, and distribution channelinventoryhas been deliberately restricted to 1.6 months as opposed to its long-term target of 2.5 months. China’s market is experiencingweakersell-through and NXP is being prudent about shipping more in the channel as it might not meet the true end demand and lead to an unnecessary inventory build-up. Since more than 50% of the company’s revenue goes through the channel, it is taking a very vigilant inventory management approach and keeping more than enough products in hand to fill the channel as and when required.

Conclusion

Input cost inflation due to supply chainconstraintsled to higher pricing for NXP solutions in 2022, a trend that will continue this year as well. Dynamicmacrotrends continue to pose an uncertain general demand environment and a potential rebound in theChinesemarket could significantly improve end markets’ revenues, which is why managing internal and channel inventory is an important topic for the company. Overall, NXP is prepared for market uncertainties and will continue to execute diligently on its accelerated growth drivers and be disciplined with its operating expenses while protecting long-term R&D investments.

Tesla Reports Record Revenue, Deliveries in Q4 2022

Tesla’s total revenue stood at $24.3 billion in Q4 2022 with 37% YoY growth.
Tesla deployed 2.46 GWh of energy storage during Q4, a growth of almost 152% YoY.
Tesla’s vehicle deliveries are expected to exceed 1.7 million units globally in 2023.

Riding on record 405,278 vehicle deliveries in Q4 2022, Tesla registered a record total revenue of $24.3 billion during the quarter, an increase of 37% YoY. Deliveries rose 31.3% YoY in Q4, bringing the 2022 annual total to1.3 million units. TheUS was the leading marketin Q4, followed by China and Europe. The annual deliveries of Tesla’s premium Model X and Model S grew 167% YoY to reach 66,000 units.

Tesla’s sales inChinafell short of expectations again due to the COVID-19 outbreak. Production at the Shanghai factory, which exported more than 106,000 units in Q4, was halted during the last week of December. Although no specific reason was stated officially, rising COVID-19 cases among workers were a likely cause for the unexpected production halt. On the other hand, the weekly Model Y production in the Berlin factory touched 3,000 units. The rising production in Germany has helped Tesla gain a strong grip onEurope’s EV market. The Model Y remained Europe’s top-selling car model during November and December. Tesla’s in-house 4680 cell production rate also reached 1,000 cars per week.

Financial summary

Tesla’stotal revenueduring Q4 2022 stood at $24.3 billion, an increase of 37% YoY. The company generated more than $20 billion from automotive sales. During Q4, the widespread release ofTesla’s full self-driving(FSD) feature generated $0.32 billion in revenue, indicating that the company is striving to increase the proportion of software revenue in its overall product mix.
Revenue from Tesla’sother businesseslike energy storage, solar panel deployment, charging and vehicle servicing grew by almost 72% YoY to exceed $3 billion. Other businesses contributed 12% of Tesla’s Q4 revenue.
Tesla deployed 2.46 GWh ofenergy storageduring Q4. At 151.7%, it saw the highest YoY growth till now.
Tesla’s total revenue for 2022 exceeded $81.4 billion, a 51% YoY growth.
During Q4,gross profitalso increased by 19% YoY and stood at $5.7 billion. In October, Tesla reducedvehicle prices in Chinaafter increasing them a couple of times during H1 2022. Initially, it was thought the increase in demand would make up for the price cut but the negative foreign exchange impact restricted further gross profit growth.
Tesla’sinventoryin Q4 stood at 34,423 units, bringing the annual total to 55,760 units. The COVID-19 outbreak in China and the increased production in the Berlin factory are probable causes of the higher inventory. In addition, Tesla is facing stiff competition as legacy automakers and new players are offering more affordable EVs. In January 2023, Tesla lowered prices globally, which may help in clearing out inventories and achieving economies of scale.

Outlook

Tesla’s strong fundamentals are expected to keep the company ahead of most other electric vehicle brands globally. Tesla announced price cuts in January 2023, which has resulted in the demand ballooning to twice the production. Besides, pilot production of the Tesla Semi began in 2022 and the vehicle is expected to hit the road soon. The company also plans to start production of theCybertruckin mid-2023. Furthermore, Tesla recently announced an investment of $3.6 billion to set up a 100GW capacity cell factory and a high-volume semi factory. Tesla’s 2023 vehicle deliveries are projected to exceed 1.7 million units, with a 31% YoY growth. This seems attainable if the company’s recent price cuts remain in effect for most of the year.

US Smartphone Inventory at Manageable Levels; Resilient Demand Despite Inflationary Pressures

There have been worries about high global smartphone inventory and weak demand due to high inflation levels. While this might be the story in other regions, the US smartphone market has shown resilience through Q2 2022. Data from theCounterpoint US Monthly Smartphone Channel Share Trackershows the US smartphone market was down 4% MoM but up 2% YoY in May.

Smartphone inventories in the US are higher than last year. However, 2021 may not be the best YoY comparison as the industry was going through 4G LTE chip shortages last year. Smartphone inventories in the US fluctuate between 4-6 weeks but they can go even higher during new device launches and holiday season channel fills.

We believe that the inventories are normal at present given the seasonality of demand, especially ahead of the back-to-school promotional season. The demand has been steady, driven by strong carrier promotions, especially in postpaid channels.

iOS,穿心莲内酯id Inventory Levels in US Smartphone Market

Source: Counterpoint’s US Monthly Smartphone Inventory Tracker

Android vs iOS inventory

Apple has the fastest factory-to-consumer shipping timelines among smartphone OEMs. The iOS inventory was very low at the end of 2021 as the iPhone 13 remained in high demand. The inventory started to increase as the initial demand settled and supply improved. Sell-in continued to improve until March 2022 but dropped back again in April due to China lockdowns. We expect Apple’s Q2 2022 sell-in to remain flat YoY.

Android库存水平已经高于以前years but still manageable. Samsung’s inventory went up in January 2022 driven by the Galaxy S22 series shipments. The Galaxy S22 Ultra accounted for nearly half of the Galaxy S22 series shipments. The Galaxy A13 5G, which is the cheapest 5G device in Samsung’s portfolio, also came in large volumes. Motorola recorded high volumes in Q4 2021 driven by new launches but cooled off in Q1 2021. The brand, too, was impacted by China lockdowns in April 2022 but picked up quickly in May 2022. The Walmart reset was another driver of higher inventories at the end of Q2 2022. This was further supplemented by the launch of new devices from TCL and Nokia HMD, especially in Tracfone channels.

Low-end Android market has growth potential

High smartphone inventory is mostly driven by the low-end sub-$300 Android devices in prepaid and national retail channels. This is manageable ahead of the back-to-school promotional season as the demand is likely to pick up. Besides, with rising inflation, we might see the demand shift back from postpaid to prepaid as consumers shy away from premium postpaid plans and two-year lock-ins. This would be a change from the previous 10 quarters but could further boost demand at the low end.

Verizon, AT&T, T-Mobile and Dish continue to build their prepaid brands. Verizon has strengthened its prepaid presence with the Tracfone acquisition. It now owns Tracfone, Straight Talk, Total Wireless, Net10 and Visible. AT&T, too, enjoys a strong prepaid presence with its Cricket brand. But Dish is likely to be the dark horse that can disrupt the competition in national retail with acquisitions of Republic Wireless, Ting and Gen Mobile. T-Mobile has added national retail doors and its prepaid brand Metro by T-Mobile will remain competitive.

Lastly, as the carriers shut down CDMA networks, they will continue to drive demand for low-cost 4G or entry-level 5G devices. Verizon’s acquisition of Tracfone will drive device upgrades due to compatibility issues as some Tracfone subscribers will migrate from AT&T and T-Mobile’s networks. In addition, DISH must move its Boost subscriber base from T-Mobile’s network to its new MVNO partner, AT&T.

Overall, retail trends in the US market continue to hold strong despite inflationary pressures. Smartphone demand has proved to be resilient both through COVID-19 and the steep inflationary growth of 2021. Though the market can change quickly, early indications are that the US market will see about 3% YoY growth in H2 2022 with a strong Q4 holiday season.

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Insights Tag：Inventory

MediaTek to Focus on Automotive, Edge AI for Growth