Jerome Roux of STMicroelectronics talks about the trends he sees in Asia, the challenges—and opportunities—brought about by the global pandemic, and his outlook for the semiconductor industry this year.
Jerome Roux, Executive Vice President, Head of Sales & Marketing for STMicroelectronics’ Asia Pacific Region talks about the trends he sees in Asia, the challenges—and opportunities—brought about by the global pandemic, and his outlook for the semiconductor industry this year.
Trends and Market Drivers
The automotive industry is well on its way to a strong recovery this year. Light vehicle sales and production recovered from last year’s COVID-19 lockdowns first in China, and then in Europe and the Americas, and finally in Japan, according to Jerome Roux. “Recovery has been fastest in China where year-on-year growth has been positive since August. Demand for electric vehicles is boosted by increasing interest from consumers, new model introductions, and government subsidies,” he says.
The NEV (neighbourhood electric vehicle) market will continue to grow at a faster pace than the market average, boosted by incentives and by government regulation to mitigate the average fleet CO2 emission. There is also a genuine demand for “low carbon mobility” that is growing thanks to the larger and more affordable xEV—which includes mild hybrid, full hybrid, plug-in hybrid, and battery electric vehicle—offerings. This trend is further boosting the demand for all semiconductors and especially for power silicon and silicon carbide (SiC), which are becoming very pervasive. In fact, for BEVs (battery electric vehicles), ST estimates that more than 40% of those solutions currently have an on-board SiC-based inverter.
According to Jerome, among the key elements that will continue to drive EV proliferation are the building up of a proper recharging infrastructure; charging systems that are able to partially or totally recharge the vehicle in a few minutes; and endorsements and investments from local governments.
“Chinese, American, and European governments clearly have this objective in mind. Independent analysts estimate that these three regions will need to invest a minimum of $50 billion, balanced across the regions, until 2030 to build the required coverage of charging piles. This build-up represents a huge business opportunity, especially for suppliers like ST, that have the benefit of a wide product portfolio and undisputed leadership in products for power-conversion systems with best-in-class high-voltage MOSFETs, IGBTs, rectifiers, diodes, along with wide bandgap materials like SiC and gallium nitride (GaN), and much more,” Jerome says.
The industrial segment started showing signs of recovery after the fourth quarter of last year, Jerome says. Demand began increasing for the factory automation and robotics markets, especially in the automotive and semiconductor sectors. A demand surge for COVID-19-related equipment, such as respirators and mask manufacturing machines, has spurred growth, while the overall medical and instrumentation markets remain healthy. The appliances sector is seeing better demand for large appliances, driven by new “green” mandates, and the healthy housing market—consequence of lockdowns and still favorable credit conditions—while the smaller appliance market is growing more moderately following the strong demand in the first half of 2020. In the smart meter market, more attention is now focused on water-metering needs.
“ST is a leading supplier in the industrial market with comprehensive solutions and product portfolios, which enable customer innovation,” says Jerome. “Asia is the leading industrial market in the world—and it is #1 for ST, too. It is a very wide and diversified market for us. In Asia, we have thousands of customers across the full range of application categories; close relationships with more than 20 distributors and large number of design houses; extensive salesforce focused on the industrial market; and the ST Industrial Competence Center, which brings expertise to the customers’ doorsteps.”
Communications Equipment, Computers, and Peripherals
After a break in 5G deployment in China in the fourth quarter of 2020, new installations are now expected to resume with expansion in second-tier cities in 2021. Capex for cloud infrastructure is also expected to grow in 2021 as digitalization expands.
The pandemic has resulted in many people moving from their offices to work from home, or for students, studying off campus. All those people working in “new places” have increased the demand for personal electronics equipment such as laptops, TVs, smartphones, and accessories markets, in particular TWS (True Wireless Stereo), Jerome notes.
The consumer market is evolving from home/family PCs and is shifting to Chromebooks and notebooks. The high-end gaming segment is expected to enter a new growth cycle with the introduction of new generations of graphic cards.
Meanwhile, the enterprise market recovery will be driven by the broader economic recovery. This communication equipment and computers/peripherals market growth will contribute to growth in data centers, servers, and power and energy-related markets.
Challenges and Opportunities
“The pandemic has brought many challenges and opportunities to the electronics and semiconductor industries. It was, and is, a wake-up call for the entire world on the necessity to be both diversified and localized. ASEAN definitely can attract companies looking for manufacturing-footprint diversification,” explains Jerome. “For example, in ST, one of our strengths is to have manufacturing sites in ASEAN like Singapore, Malaysia, and the Philippines, in addition to Europe and the Mediterranean. It enabled us to have the continuity in our production when Europe was being shut down, and to manage the various issues that came up along the way since spring. ASEAN is a good base to understand larger trends and grow across all of Asia.
“ST’s strong localised presence in the Asia Pacific region has also allowed the company to be extremely agile and flexible, ensuring door-to-door local support to customers even during the pandemic. In this unprecedented year, while we experienced headwinds, the strength of our product portfolio and broad customer base has given ST the ability to succeed despite short-term market turbulence. So, we are continuing to take advantage of opportunities driven by technology disruptions happening in the markets.”
The pandemic significantly impacted car sales in 2020 and has put higher pressure on the legacy automotive business. In reaction, the automotive industry has adopted an accelerated path towards greener and safer cars. According to Jerome, the automotive semiconductor market is driven by the combination of car volumes and silicon content.
“After a difficult/depressed first half in 2020, the automotive market has sky-rocketed in the second half and the outlook remains bullish. This market is expected to keep on growing for at least the next three years. Moreover, forecasters expect a significant shift in the mix between internal combustion engine (ICE) and hybrid and electric vehicles (HEV). This is one of the key drivers for silicon content growth in the coming years. As the semiconductor content is much higher—well over $1,000—in a fully electric vehicle than in a car with an internal combustion engine ($400) or a hybrid ($700),” explains Jerome. “In light of this, our strategy for the automotive sector remains unchanged: to accelerate our ongoing action plans to better serve macro trends, adapting our capacities to the strong demand. This includes expanding our electrification programs based on SiC, IGBTs, microcontrollers, and smart power solutions, as well as accelerating partnerships in Asia for electrification. In addition to joint lab initiatives with key partners, our Asia NEV Competence Center provides all technical expertise and support to customers.”
“Factory automation was an area where the pandemic had a strong negative impact,” says Jerome. “However, Asia’s positive and dynamic handling of the pandemic allowed the industrial market to not decline as much as in other regions, ensuring a quick rebound of manufacturing activity and enabling the development of factory automation programs. Demand for home related equipment as well as electrical tooling has also surged as people are staying longer at home—bringing about more fixes and modifications to home appliances. Globally, favourable growth rates are expected for the next three years.
“This growth is being driven by automation and motor electrification, as well as a need for higher power efficiency, battery charging, sensors, and data-centric Industrial IoT (IIoT) applications. ST has strengthened its industrial embedded processing offering with portfolio extensions, ecosystem investments, and connectivity acquisitions. We are the undisputed leader in 32- and 8-bit MCUs in Asia, covering the entire industrial market need. We also have a leading presence in analog and power products, strengthening our power offer with SiC and GaN investments with supply agreements and targeted acquisitions. We’ve also added additional field resources in Asia, including competence centers and joint labs close to customers, for long-term development while strengthening customer support structures to handle the current shortage situation at best.”
Jerome says the main developments in the personal electronics market over the past year were a result of the US-China trade war. “This dispute has changed the smartphone-player landscape, with big market-share shifts among some key players. The macroeconomy also impacted smartphone sales in the first half of 2020, primarily due to lockdown measures, and benefited from a rebound during the second half of 2020. 5G smartphone sales also took off with shipments doubling in 2020 compared to 2019, despite the COVID shutdowns. In fact, as a direct result of the pandemic, work-from-home activities boosted sales of accessories and other personal electronics sales,” he explains. “We continue to see strong dynamism in the China smartphone market with 5G smartphone opportunities developing in the coming year—and we will benefit in areas where ST has been leading the market for many years with state-of-the-art IP and technologies in differentiated products or custom solutions, including optical sensing solutions, custom analog and power management, 5G RF, secure solutions (including secure elements, NFC, and eSIM), and a large variety of sensors.”
Due to the pandemic, there are also a growing number of opportunities materializing in areas such as the gaming industry as well as wearables, accessories, and personal-care devices, he adds.
Communications Equipment, Computers & Peripherals
Meanwhile, as companies realized their limitations early on, the pandemic has also accelerated the development of cloud, data centers, and digitalization investment to ensure business continuity, according to Jerome.
“At ST, we are capitalizing on our know-how to develop and manufacture products dedicated to high data rate communication, such as 5G. We are also expanding our portfolio offer in computers and peripherals, transitioning resources to new products such as custom analog devices that address growth areas. With continued demand for more data management, transmission and storage, this market segment will definitively keep growing in the next three years.”
On the Diversity of the ASEAN Market
Southeast Asia is a very diverse market—with the high-end design segment in Singapore and the low- to mid-level design and manufacturing technologies in Thailand, Indonesia, Malaysia, Vietnam, and the Philippines.
“Countries within Southeast Asia have a wide-ranging mix of cultural, economic, social, and political differences. They are likely to support each other through alliances and treaties but will not bundle or merge to keep their agility and flexibility, capitalizing on their assets and abilities. They smartly play to their strengths, with different national strategies emerging. For example, we all know that there is strength in R&D and education in Singapore, and manufacturing in Malaysia and Vietnam, to name a few,” says Jerome. “ASEAN is a strategic area for development both as a base for activities and as a market. The same goes for the discussions around the ‘China Plus One’ concept—invest both in China and another ASEAN country at the same time for balance and security.”
Jerome says that while ASEAN is a diverse market for the semiconductor industry, it is also a strategic market—from being one of the world’s highest assembly and production houses for consumer electronics like televisions, computers, mobile phones, printers, home appliances, to the proliferation of semiconductor design houses in the region.
One of the bright spots, according to him, is the accelerating promotion and adoption of EVs in the region—driven by the growing environmental awareness across Southeast Asian consumers and boosted and encouraged by infrastructure developments and incentives from local governments. In fact, according to market research, the Philippines, Indonesia, and Thailand are the top three nations in Southeast Asia with the highest inclination in adopting EVs.
“Moreover, Singapore has recently announced that it will be installing 60,000 charging points at public car parks island wide by 2030, with an eye to phasing out all petrol and diesel cars by 2040. Incentives of up to S$20,000 are also being given for early adopters,” Jerome says. “Thailand is further encouraging EV adoption as part of efforts to tackle toxic air pollution—with a target of having electric vehicles account for 30% of car production by the end of the decade.”
Apart from chipmakers and battery manufacturers, countries with raw materials such as nickel—an important component for battery manufacturing—will also benefit from this trend, Jerome points out. “For example, Indonesia is investing and emerging as a country that will count in the global EV supply chain: they are active from the very upstream opportunities, i.e. nickel mines operated by Brazilian company Vale; to lithium-ion battery factories, with both South Korean and Chinese companies present (LG Chem, CATL); to EV production, with a recently signed partnership with a Japanese carmaker Mitsubishi. There are multiple such examples of how ASEAN countries have become progressively part of global value chains, at every step,” he says. “ST is capitalizing on these market trends by staying close to our customers in the region. Since establishing its first operations in Singapore in 1969, ST now employs over 12,000 people in the region, across eight sales offices, manufacturing and R&D in Singapore, test and packaging in Malaysia and the Philippines, and spanning the full semiconductor value chain. Our presence and long-lasting partnerships with local government agencies such as the Economic Development Board of Singapore will continue to develop.
According to Jerome, 2021 is likely to be a very challenging but a good year for semiconductors; evolving in a highly congested industry where the whole supply chain is saturated. “One of our key objectives is to serve our customers and all of the related programs at our best, demonstrating how resilient, agile and supportive we can be during critical times,” he says. “We see a number of very strong trends. Most of these, like the electrification and digitization in the automotive markets, were already in place before the current global situation; and others, like the industrialization of the IoT and the adoption and integration of artificial intelligence into embedded applications, have accelerated by the circumstances in 2020.”
ST is continuing to see strong growth in its SiC business, in line with the electrification and digitization in automotive markets. “In fact, while that business has been taking off in the automotive market, it is now moving rapidly into the industrial space. Half of our customer engagements for SiC projects now are in industrial applications. Automotive digitization is being driven by the trend toward electronic control units (ECUs) and smart gateways, as well as the growing demand for multi-application, deterministic, integrated domain controllers for the automotive market to maximize safety and security. In fact, in this area, ST recently made an announcement with Bosch. There is also an intense effort toward Level 2 and Level 2+ in advanced driver assistance systems (ADAS), where we are very active,” says Jerome.
According to Jerome, ST’s strategy, end markets focus, and strategic objectives have positioned the company perfectly to benefit from the pipeline of opportunities they see. “Our business objective is to achieve organic growth, supplemented where appropriate, with small, targeted, and strategic acquisitions, to reach $12 billion full-year revenue by 2023,” he says. “Our strategy stems from the three long-term enablers—Smart Mobility, Power & Energy, and IoT & 5G—that we’d identified years ago, and that the pandemic has made even more influential. These are driving our investments and roadmap decisions.”
ST is addressing the automotive and industrial markets with a broad approach that leverages all business models and its key enablers to reach and maintain leadership positions. Meanwhile, the company is addressing personal electronics and communications equipment, and computers and peripherals, through a more targeted approach, with a custom design business model, taking advantage of the key capabilities that differentiates the company.
“We have the ambition to outperform the markets we serve, become a sustainable and profitable $12 billion company in the mid-term, while continuing to demonstrate resilience within the current changing dynamics, while keeping our solid financial structure.”