Semiconductor Industry Shows Signs of Recovery: Key Signals from TI CEO

Recently, at the Goldman Sachs Communication and Technology Conference, Texas Instruments (TI) CEO Haviv Ilan provided an in-depth analysis of the semiconductor industry’s development trends and corporate strategic layout. Through a systematic analysis of industry cycles, market segmentation characteristics, and corporate operational strategies, he presented a comprehensive view of industry development and corporate response plans.

Signs of Industry Recovery

Ilan pointed out that the semiconductor industry has entered a recovery phase after hitting bottom in the first quarter of 2024. Among the five key segments that TI is focusing on, four markets have shown signs of recovery, while the automotive market remains in a low-level fluctuation state. Ongoing geopolitical conflicts and international trade frictions have significantly increased uncertainty in the industry’s recovery process, delaying the market’s return to normalcy.

From the performance of the segmented markets, the personal electronics market has been the first to initiate recovery, followed closely by the communication market. The data center market has shown strong recovery momentum, with a growth rate of around 50%, nearing the historical peak levels of 2022. The industrial sector has been recovering for two to three quarters; aside from the aerospace and defense segments reaching historical highs, other industrial sectors are recovering at a relatively slow pace. Ilan stated: “Most industrial sectors are currently 20%-40% below historical peak recovery levels. Customers’ cautious capital expenditure decisions have somewhat suppressed the speed of market recovery.”

Benefiting from the market recovery trend and proactive assessments of trade frictions, tariff policies, and advance purchasing behaviors, TI achieved excellent performance in the second quarter of 2024, with a year-on-year growth of approximately 15%, and a quarter-on-quarter growth rate exceeding the industry average, with the Chinese market experiencing a nearly 20% quarter-on-quarter increase. Given the overdraft effect from previous advance purchases, TI expects a slowdown in quarter-on-quarter growth in the third quarter.

TI’s Core Strategic Market Layout

As a global leader in analog semiconductors and embedded processing solutions, TI has established industrial, automotive, and data center markets as its three core strategic markets, driving business growth through differentiated product offerings and technological innovation.

In the industrial market, although it has not fully recovered to historical growth trend lines, automation, electrification, and digital transformation continue to release long-term growth potential. This market once accounted for 40% of TI’s revenue structure at its peak, and currently, its share is still below historical highs at about 30%, indicating significant growth potential. TI has segmented the industrial market into nine verticals, where segments such as aerospace and defense, and data center electrification not only have returned to historical levels but are also showing rapid growth trends.

Ilan particularly emphasized the strategic value of the automation robotics field, using TI’s internal factory as an example. By introducing robotics, automated guided vehicles (AGVs), and humanoid robot technologies, significant reductions in unit pin manufacturing costs have been achieved in the packaging and testing stages. Despite the industry’s ongoing geopolitical influences, the long-term investment logic in automation, digitalization, electrification, and data center energy infrastructure remains solid.

The automotive market is defined by Ilan as “a high-quality market of strategic value.” This market has shown strong resilience during the cyclical adjustment process, with a decline from peak to trough of only mid-to-high single digits, and is currently in a bottom consolidation phase. Ilan highly praised the development achievements of the Chinese electric vehicle market, noting that the penetration rate of new energy vehicles in China has reached 55%, and the government has introduced policies to guide rational industry development. From a global perspective, although the adoption rate of new energy vehicles in other markets is relatively lagging, the market quality and customer demand are at a higher level.

TI’s products are widely used in advanced driver-assistance systems (ADAS), electric vehicle power systems, body electronics, new braking systems, and smart cockpits. Thanks to the continuous increase in semiconductor content per vehicle, TI will continue to enhance its penetration in automotive chip application scenarios by expanding its analog and embedded product matrix.

Although the data center market currently accounts for about 5% of TI’s business landscape, its rapid growth trend is significant, with the market size recovering to the peak levels of 2022 at an annual growth rate exceeding 50%, making it TI’s fastest-growing business segment. Ilan predicts that the data center business’s share of TI’s sales revenue is expected to rise to 20% in the short term. Given that the industrial, automotive, and data center markets contribute 75%-80% of TI’s revenue, the company will continue to increase R&D investment, optimize inventory management and product mix, and consolidate its market competitive advantage through technological innovation.

Capacity Investment and Operational Strategy

Ilan reviewed his management practices since becoming CEO, emphasizing the importance of experience accumulated from the complete industry cycle for corporate strategic decision-making. After reflecting on the lessons learned from the last industry upcycle, TI initiated a large-scale capacity investment plan in 2021, aiming to establish forward-looking capacity reserves to meet future demand peaks.

Considering that wafer manufacturing projects typically require a construction cycle of 3-4 years from planning to production, TI has adopted a proactive capacity planning strategy while building an agile inventory management system to respond to sudden changes in market demand. Ilan noted: “The semiconductor industry experiences significant cyclical fluctuations, and the external environment is full of uncertainties; maintaining a reasonable inventory level is a key factor in ensuring market responsiveness.”

By establishing demand forecasting models, TI ensures that capacity planning and inventory management can effectively support long-term market demand. Ilan stated: “The company has achieved timely delivery and production of advanced process factories, and based on a data-driven inventory management system, has accurately optimized the levels of components and raw material reserves.” Currently, TI has achieved a dynamic balance between supply and demand, providing a solid foundation to cope with market fluctuations.

In terms of business structure optimization, TI has discovered through reflection that the main reason for the lack of growth in the embedded business between 2018 and 2022 was insufficient matching between product mix and market demand. In contrast, the analog product business has shown stronger product expansion capabilities after completing capacity construction and inventory layout. TI continues to increase R&D investment in high-voltage products, covering the entire product spectrum from general-purpose amplifiers and voltage regulators to customized application-specific integrated circuits, thereby enhancing market competitiveness through the construction of complete solution capabilities.

In terms of capacity investment direction, TI continues to promote a localization strategy in manufacturing. The embedded products that previously relied on external foundries have all achieved self-production, and this strategic transformation has significantly improved the company’s profitability, with current gross margin levels stabilizing above 60%.

Proactively Responding to Geopolitics

Regarding the impact of the Sino-U.S. geopolitical game on the industry, Ilan believes that the advance stocking behavior in the Chinese market has indeed caused short-term performance fluctuations, but this cyclical fluctuation will not change the long-term development trend of the industry. He emphasized: “Based on the law of large numbers, the effective information contained in short-term market fluctuations is limited, and the structural growth trend in the industrial sector will continue to accelerate over the next decade.”

Since TI launched its domestic manufacturing capacity expansion plan in the U.S. in 2021, the company has effectively buffered the negative impacts of trade barriers and tariff policies through a global manufacturing network layout. TI’s production bases in China, other regions in Asia, and North America operate in coordination, meeting the dual circulation development needs of local Chinese customers while providing strong support for global supply chain stability.

Editor: Lefeng.shao

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