Recently, Texas Instruments has announced price reduction news, and it is a substantial price reduction. It is reported that TI's PMIC in Taiwan, China, has significantly reduced the price by 20%-30% in order to seize market share and increase capacity utilization. This kind of price reduction is rare for TI, and this price reduction reflects the market downturn.
Analyzing TI's recent financial report, you can also understand its decision to cut prices sharply. In the first quarter of 2023, the company’s revenue was US$4.379 billion, down 11% year-on-year, operating profit was US$1.934 billion, down 25% year-on-year, and earnings per share was US$1.85, down 21% year-on-year. Among them, analog chip revenue was US$3.289 billion, a year-on-year decrease of 14%, and embedded processing chip revenue was US$832 million, a year-on-year increase of 6%. In the first quarter, the number of inventory days increased by 38 days to 195 days, and the amount of inventory increased by US$531 million to US$3.3 billion. It can be seen that the market demand has declined and the inventory has risen sharply
Such poor performance, especially the main revenue of analog chips, has fallen sharply. In the context of weak overall market demand, there seems to be no better way than to cut prices.
Strong price cuts
Dare to significantly reduce prices by 20%-30%, TI's confidence is mainly reflected in two aspects: one is the IDM module, and the other is the large-scale construction of 12-inch wafer fabs
In the analog chip market, IDM has many advantages. Unlike digital logic chips (memory, processors, etc.), analog chips are more complicated from design to manufacture, and it is difficult to form standards. The degree of correlation between design and production line is high, which makes analog chips especially IDM mode.
In this mode, it is more efficient to transform designs into production line products, and the cost is controllable. Especially for TI, its analog chip products have the largest variety and quantity in the world, which can further reduce costs.
Another very important point is that TI has been expanding its 12-inch fab for many years, reducing the proportion of 8-inch wafer production lines.
In the next few years, TI will build four new 12-inch fabs in Sherman, Texas, two of which will start construction in 2022 and achieve mass production in 2025, and the other two are still under planning. Prior to this, TI has built several 12-inch factories in the state, including DMOS6 and RFAB1 in Dallas, and RFAB2 in Richardson, which will be put into mass production in September 2022
In addition to Texas, TI also has a 12-inch wafer fab, LFAB, in Lehi, Utah, which was acquired by TI from Micron in October 2021. Analog and embedded chips in 65nm and 45nm processes
Not long ago, TI also announced that it will invest another 11 billion US dollars to build a new 12-inch fab (LFA) next to its existing 12-inch fab in Lehi. The new fab will start construction in the second half of 2023, the earliest Set to start production in 2026, once complete, the two Lehi fabs will operate as one fab
As an analog chip manufacturer, it is rare to build so many 12-inch fabs. The main purpose of TI in doing so is to improve production line efficiency and reduce the cost of a single chip. Traditionally, analog chips are mostly produced with 8-inch wafers, or even 6-inch wafers. However, with the development of market applications and demands, and the intensification of competition, analog chip manufacturers, especially those with leading strength in the industry, have begun to use 12-inch wafers. The main purpose of this is to improve production efficiency and reduce the cost of a single chip, because a 12-inch wafer can produce more chip products than an 8-inch wafer. TI is a typical company that does this. The company's 12-inch wafer comprehensive cost is 35%-40% lower than 8-inch (including depreciation). Well-known manufacturers such as ADI are also doing similar work, but the investment and scale are not as large as TI.
In recent years, after the existing and new 12-inch fabs have been put into production, TI's analog chip production has been further increased, and the production efficiency is higher, which provides more room for price reduction of TI products to a certain extent. However, in order to ensure a high gross profit margin, TI will not easily cut prices significantly. This time TI significantly lowered the price of PMIC, which was also a helpless move due to the industry downturn.
