Electronics

The latest earnings reports of Qualcomm, AMD, Intel and Nvidia have been released recently. The financial report shows that while the traditional track of PCs, mobile phones, and server chips are booming, it also reflects the vertical and horizontal expansion of these four chip manufacturers. It is worthy of the industry to learn from. For the development of the third quarter, the chip giants are also preparing for a rainy day to deal with the challenge of supply shortage.

These areas promote "high-quality development" in the second quarter

"Booming boom" is the key word of the semiconductor business this quarter. As the main track business of the four chip companies, PC chips and mobile phone chips are gaining momentum. Although server chips have fluctuated between different companies, they have resumed growth from the second quarter after experiencing low revenue in the first quarter.

PC chip shipments increased significantly. Driven by new forms of epidemic prevention and control such as "cloud office" and "home economy", the PC market, which has been sluggish since 2010, has entered an upward channel in mid-2020, driving the rapid growth of PC processors. Intel CCG (Client Computing Division) achieved record quarterly revenue and resumed shipments of over 1 million units per day. AMD benefited from the increase in sales of Ryzen desktop and notebook processors, and the average selling price of client processors increased year-on-year and month-on-month, driving a 65% year-on-year increase in the revenue of the Computing and Graphics Division.

Intel CEO Pat Gelsinger pointed out in the performance call that the PC is still in the early stages of a sustainable growth cycle. First of all, as the epidemic prevention and control has changed the way people work, study, and socialize, the number of computers per household (PC density) is increasing. Secondly, the PC replacement cycle is shortening. The shift from desktops to notebooks, the deployment of new operating systems, and better product experiences will drive PC replacements. Third, the PC penetration rate is still rising, and more and more consumers have PC purchasing power. In education and other fields, the number of personal computers per 100 students and teachers still remains in the single digits, with considerable growth potential.

Data center chip competition has intensified. The data center is the second battlefield for traditional PC giants and PC chip leaders to seek transformation, and the competition for server chips is becoming increasingly anxious. In this fiscal quarter, AMD's server processor EPYC (Xiaolong) sales continued to rise, driving its corporate, embedded and semi-custom business units to reach 1.6 billion US dollars in revenue, a year-on-year increase of 183%. Intel, the traditional overlord of server chips, saw its data center business revenue drop 9% year-on-year in the fiscal quarter. Intel stated in its financial report that the decline in the data center business is a result of a more intense competitive environment, increased R&D expenditures, as well as increased 10nm production and 7nm start-up costs. It is expected that the data center business will achieve double-digit growth in the second half of the year.

Although AMD's share of server chips is far from Intel, it is gaining market space by virtue of its continuous small pace and its status as a "second supplier". According to data from Mercury Research, a market survey agency, AMD's server chip share in the second quarter of 2021 has reached 9.5%, which is approaching double digits.

Sheng Linghai, vice president of research at Gartner, told the China Electronics News that AMD has TSMC's process technology support and does not need to conduct process process research and development or absorb process research and development costs. On the other hand, customer companies generally have the mentality of cultivating a second supplier. If AMD's product performance reaches usable and above effects, manufacturers will be willing to adopt it. At the same time, companies such as Amazon began to develop server chips on their own, which also affected Intel's market performance.

The mobile phone chip Qualcomm continues to surge. In the field of mobile CPU, Qualcomm's handheld device chip revenue this quarter was 3.863 billion US dollars, a year-on-year increase of 57%. Qualcomm CFPAkash Palkhiwala pointed out in the performance call that the growth of handheld device chips is mainly driven by 5G products and flagship models of major OEMs. At the same time, the sales of Xiaomi mobile phones using Qualcomm chips surpassed Apple and rose to the second place in the world, boosting the performance of Qualcomm's semiconductor business. At present, Qualcomm is expanding its cooperative relationship with Samsung, which has the highest sales of mobile phones in the world, maintaining good cooperation with Xiaomi, OPPO, and vivo, and has initiated cooperation with Honor. Qualcomm President An Meng said that the total number of designs using Snapdragon 888 chips in this fiscal quarter increased by 20% from the previous quarter.

The next development giants value these aspects

There are generally three ideas for business expansion of enterprises: vertically covering more industrial chain nodes, looking for more business growth points horizontally, and packaging existing businesses and capabilities into a solution. In the business performance and performance Q&A of this fiscal quarter, the chip giants showed the latest ideas on business layout.

OEM business. Intel's foundry business is extending vertically to more industrial chain nodes. PatGelsinger pointed out in the performance call that IFS (Intel chip foundry service business) will provide the widest range of IP from x86, ARM to RISC-V, and customers can use Intel's IP and their own IP to design products. At the same time, based on the supply capacity of its subsidiary IMS in EUV multi-beam mask writers, Intel is working hard to build an EUV ecosystem, including key processes such as photoresist, photomask production and metering. Combining the existing process and packaging capabilities, Intel will continue to build a more robust, geographically balanced and secure foundry supply chain.

IoT and automotive business. From a horizontal perspective, IoT and smart cars have become "non-traditional" growth points for chip companies and are beginning to contribute revenue. Autonomous driving company Mobileye contributed $327 million in revenue to Intel this quarter, an increase of 124% year-on-year, making it Intel’s fastest-growing business unit. IoTG (Internet of Things Division) revenue was US$984 million, a year-on-year increase of 47%, and operating profit was US$287 million, a year-on-year increase of 310%. Qualcomm's IoT and automotive businesses both achieved 83% year-on-year growth. Anmeng said that the RF front-end, IoT, and automotive businesses contributed 40% of the semiconductor business's revenue this quarter, and the year-on-year growth rate was 1.6 times that of the handheld device business.

"Qualcomm and Intel are not traditional automotive electronics chip companies. They focus on intelligence and connectivity. The growth of the two companies' automotive business illustrates the growth in the demand for automotive intelligence and connectivity. Smart homes in the Internet of Things field The demand for ultra-low power consumption, ultra-long standby chiplets, as well as chip requirements for sensing and transmission in smart buildings, and smart life are also accelerating the growth of the Internet of Things business of chip companies. "Xinmo Research Director Wang Xiaolong pointed out to reporters.

Both true and false "meta universe". Another new business worthy of attention is Nvidia's "Meta Universe." Omniverse, a virtual collaboration and simulation platform, belongs to NVIDIA's professional vision business. It is the world's first 3D real-time simulation and collaboration platform, and integrates creative tools used by millions of users, such as the open source 3D tool Blender and creative software Adobe. Nvidia founder and CEO Huang Renxun stated in the financial report meeting that Omniverse can truly restore physical reality to the virtual world and connect with other digital platforms. It is hoped that engineers, designers and even automated machines can connect with Omniverse to create digital twins and "industrial Version Yuan Universe".

These places are generally bullish in the third quarter

For the market trend in the second half of 2021, chip manufacturers generally remain optimistic. However, the shortage of chips and parts will still bring challenges to the balance of supply and demand in the second half of the year.

According to the expectations of various companies, the client and data center still have a strong growth momentum in the third quarter. Intel expects third-quarter revenue to be 18.2 billion US dollars, an increase of 5.4% year-on-year. In terms of CCG, Intel expects customer demand to remain strong. In terms of data centers, enterprises, governments and cloud computing are expected to recover further in the third quarter. Qualcomm's forecast for fourth-quarter revenue is between US$8.4 billion and US$9.2 billion, with the median value (US$8.8 billion) exceeding market expectations. Nvidia's third-quarter revenue is expected to be 6.8 billion U.S. dollars, fluctuating 2% up and down, and a chain growth of about 4.5%. AMD expects revenue in the third quarter to be approximately US$4.1 billion, up and down by US$100 million. Driven by its gaming and data center business, revenue will increase by 46% over the same period last year. Revenue in 2021 is expected to increase by approximately 60%.

Faced with the shortage of foundry capacity and parts, chip companies are also actively seeking countermeasures. Intel predicts that the continuing industry-wide shortage of component substrates will reduce CCG's revenue. The supply shortage will continue for several quarters. The third quarter seems to be particularly serious for customers. In this regard, Intel is helping its substrate suppliers increase supply, including using the company's own equipment to help suppliers produce, and strive to increase production capacity. Qualcomm expects that the supply problem will be improved by the end of the year. Akash Palkhiwala said that Qualcomm has been seeking diversification of foundry in the past few months. At the same time, the expansion plan promoted by Qualcomm and OEMs is expected to be completed and launched by the end of the year. AMD CEO Su Zifeng said that AMD has always been committed to helping solve the overall shortage of chips, and it is expected that the general supply shortage in 2022 will improve.