Micron: better chip stock as automotive space shifts to electric vehicles (NASDAQ:MU)

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Automotive recovery

Global light vehicle unit sales are shifting from ICE (internal combustion engine) to EV (electric vehicles). Chart 1 shows that the QoQ change in the last three quarters of 2021 of BEV (EV battery) shipments was significantly higher than overall auto shipments.

QoQ change in the last three quarters of 2021 of BEV (EV battery) shipments

Chart 1 (The information network)

Chart 2 shows that total BEV + PHEV (plug-in hybrid vehicle) light vehicle sales recovered only 4.6% from the crisis year of 2020, EV growth of 108% means a doubling of their market share.

Total sales of light vehicles BEV + PHEV (plug-in hybrid vehicle)

(Chart 2) EV volumes

Automotive Semiconductor Growth

Not only are vehicle shipments and revenues picking up, but more semiconductors are being used each year, as shown in Chart 3, according to The Information Network’s report, “Hot ICs: A Market Analysis of Artificial Intelligence.” AI”), 5G, Automotive, and memory chips.” The automotive semiconductor market will be one of the major drivers of the global semiconductor market.

more semiconductors are used each year

Graph 3 (The information network)

During this period 2015-2025, the highest growth of content by will be presented by ADAS (Advanced Driver Assistance System), with a CAGR (compound annual growth rate) of 26% compared to the total growth of the semi-trailer market. – 10% conductors. I discussed ADAS in a December 13, 2021 Seeking Alpha article titled “Intel’s Mobileye: Strong Headwinds From Competitor SoCs, Notably In China”.

Top Automotive Semiconductor Companies

Table 1 lists five of the top semiconductor companies by automotive revenue for 2021.

five of the major semiconductor companies

Company reports

Infineon (OTCQX:IFNNY)

Infineon is the largest automotive semiconductor company, with 44% of its corporate revenue generated from the automotive sector. Power semiconductors accounted for 50% of revenue in 2021, up from 55% in 2019. But Infineon leads the power semiconductor market with a 25% share, and the company’s growing focus on adoption of silicon carbide will be a strong driver in the electric vehicle market, according to The Information Network’s report titled “Power semiconductors: markets, materials and technologies.”

Table 2 shows that Infineon’s revenue increased by 27.5% in 2021 and net income increased by 213.8% year-on-year.

Infineon

Company reports

STMicroelectronics (STM)

STMicroelectronics manufactures a range of chips widely used in cellphones, cars, 5G equipment and other electronic devices. The company, whose customers include Apple and Tesla, again increased capital expenditure for 2021 to $2.1 billion from $1.28 billion in 2020, and plans to increase capital spending to 3, $4 billion and $3.6 billion in capital spending in 2022.

Table 3 shows that STM revenues increased by 25.0% in 2021 and net profit increased by 80.8% year-on-year.

STM

Company reports

NXP Semiconductors (NXPI)

To increase semiconductor content in the average car over time and thereby increase sales, NXPI positions itself on three major trends simultaneously: (1) ADAS, (2) EV and (3) connected infotainment.

Table 4 shows that NXPI’s revenue increased by 28.5% in 2021 and net profit increased by 3,498.1% year-on-year.

NXPI

Company reports

ON Semiconductor (ON)

ON Semi manufactures power and discrete products used in applications such as sensors, imaging and electric motors. In the field of image sensors, the company holds 40% of the ADAS market. ON earnings have crushed the street consensus hard. One driver of this development is ON’s move to silicon carbide (“SiC”) for its automotive IGBT power semiconductors.

I discussed SiC chips at length in a March 17, 2022 Seeking Alpha titled “II-VI: Eyes On Carbide Automotive Chip Market As Semiconductor Shortage Ends”.

Table 5 shows that On Semis revenue increased 28.3% in 2021 and net income increased 331.1% year-on-year.

In the semi-finals

Company reports

Micron technology (NASDAQ: MU)

DRAM has a variety of uses in modern vehicles, including dashboard graphics functions and infotainment systems. Cameras and sensors in ADAS and autonomous vehicles need the bandwidth and capacity of DRAM to process incoming data. All of this data in turn must be processed, wired and routed into the car through various electronic control units (ECUs). The more data generated in the car, the greater the compute/bandwidth requirements. Micron holds nearly 50% of the global automotive memory market and offers a wide range of DRAMs and NANDs.

Connected cars generate up to 25 GB of data per hour. Depending on vehicle architecture, ADAS and Autonomous Vehicle (“AV”) sensors can generate between 4 TB and 20 TB each day. This data must be processed in real time so that compute-centric systems powered by artificial intelligence (“AI”) can react instantly, making modern vehicles the ultimate smart edge devices. The amount of memory and storage required to power these data-intensive systems has led to the automotive memory industry becoming one of the fastest growing segments of the semiconductor market.

Table 6 shows that Micron’s revenue increased 29.3% in 2021 and net income increased 59.8% year-over-year.

Micron

Company reports

Key takeaway for investors

Chart 4 shows the Seeking Alpha Quant rankings of these five companies. ON Semi has the industry’s best ranking of 8th out of 588 in information technology and 4th out of 62 in the semiconductor industry. Micron was a close second in the standings 16/588 and 6/62.

Looking for Alpha Quant Rankings

Table 4 (Searching for Alpha)

In the quantitative rankings, Micron ranked first, especially profitability, as shown in Chart 5. On Semi was next, but with a C+ valuation, affecting its overall ranking.

Looking for Alpha Quant Rankings

Graph 5 (In search of Alpha)

Chart 6 shows the rankings of the six companies. Micron was rated as a strong buy in both Quantitative Rating and Wall Street Analyst Rating. Again, ON Sem finished second.

Looking for Alpha Quant Rankings

Graph 6 (In search of Alpha)

The profit margin of the six companies is shown in Chart 7. Micron’s PM of 28.95% was twice that of ON Semi (14.98%) and the other companies.

Profit Margin Chart

Chart 7 (Y charts)

On the negative side according to an In Ford Authority article:

The affordability of new cars has reached new heights over the past year, thanks to a variety of factors. The shortage of semiconductor chips and various supply chain issues caused by the pandemic are mainly to blame, as these issues have led to low inventory levels and record prices, both in the new vehicle market and in used, as well as practically non-existent new vehicles. incentive vehicles.

Chart 8 shows that the affordability of new vehicles fell again in December 2022, with the median weeks of income needed to purchase the average new vehicle increasing to 43.2 weeks from 42.1 weeks in November. This decline in affordability was helped by a new record average price paid for a new vehicle of $47,077, as well as the worst month for incentives in 20 years.

new vehicle accessibility chart

Figure 8 (Ford Authority)

This data is through December 2021. Inflation rose to 8.5% in the United States. This will be a setback for the auto industry as consumers debate whether to buy a big ticket item when food and gas prices rise to extraordinary levels.

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