TXN - STMicroelectronics: Top Pick For Both Silicon And SiC Power Chips

Summary

• STMicroelectronics is the leading supplier of silicon carbide (SiC) power semiconductors.
• STMicroelectronics is in the top five of companies supplying silicon power semiconductors.
• Silicon carbide revenues are less than 10% of the revenues of silicon power semiconductors.
• The percentage of silicon carbide chips for automobile applications will grow from 25% in 2020 to 35% in 2025.

The automobile industry is moving to low carbon footprints as ICE (internal combustion engines) are being replaced by EVs and as oil prices rise and chip shortages impacted only ICE. The strong demand for EVs, which grew 55% globally in 2022 as ICE vehicles grew -0.5%, is placing an even stronger demand on Silicon Carbide ("SiC") automobile chips.

In 2020, power semiconductors for automobiles represented about 25% of total applications, growing to 35% in 2025. According to our report entitled “ Power Semiconductors: Markets, Materials and Technologies ” the combined silicon and silicon carbide-based power semiconductors are a $20 billion subset of the overall $500 billion semiconductor market. I see insulated-gate bipolar transistor (IGBT) and power metal-oxide-semiconductor field-effect transistor (MOSFET) as the main growth drivers.

As shown in Chart 1, SiC chip revenues are a small percentage of the overall power semiconductor market, with traditional silicon-based chips the dominant substrate. SiC-based power semiconductor revenues were less than 10% of the Si-based revenues in 2022.

Chart 1

Chart 2 shows 2021 market shares for SiC power semiconductors led by ST Microelectronics ( STM ). Wolfspeed ( WOLF ) was next, and details on the company can be found in my Sept. 21, 2022, Seeking Alpha article entitled “ Wolfspeed: Separating Automotive SiC Hype From Reality. ”

Chart 2

SiC contributes to higher withstand voltage and higher power, while GaN contributes to higher frequency usage, both of which expand the application fields for power devices.

Typically, 800-V systems also move from Si-based IGBTs to SiC MOSFETs. SiC devices provide much higher switching speeds and thus lower switching losses. By doubling the voltage, charging times are decreased by about 50% for the same battery size. This allows manufacturers to reduce the size of battery packs and make them smaller, linked to ultra-efficient motors and aerodynamics to maximize mileage. Smaller battery packs are lighter which can, in turn, mean a lighter chassis, brakes, and other components to support them.

The Porsche Taycan can charge its battery (to 80%) in 22.5 minutes on a 800-volt level 3 charger, vs. 90 minutes on a 400-volt level 3 charger. Obviously one of the barriers to a larger adoption rate for the 800-volt systems is the charging stations themselves.

Investor Takeaway

The top three power semiconductor companies are STMicroelectronics, Wolfspeed, shown in Chart 2, and Texas Instruments ( TXN ). Texas Instruments dominates the silicon-based chips, but its share among peers has been flat in the past five years. STM and WOLF lead the SiC-based chip market.

According to the first report cited above, between 2020 and 2027, SiC chips are projected to increase at a compound annual growth rate of 38% compared to 0% for silicon chips. Thus, growth will be stronger for STM and WOLF than TXN.

Chart 3 shows share price for the three companies. Over the past 1-year period STM’s share price was positive while TXN was flat and WOLF dropped 29%.

Chart 3

Chart 4 shows share price YTD, which again shows greater performance for STM at +33% compared to TXN and WOLF.

Chart 4

Chart 5 shows Seeking Alpha Quant Rankings with STM ranked no. 8 in the semiconductor industry, well ahead of TXN and WOLF.

Chart 5

Chart 6 shows Seeking Alpha Quant Factor Grades comparing the three companies, with STM better than peers in nearly all factors.

Chart 6

STMicroelectronics continues to profit from strong demand in the automotive and industrial sectors. The chipmaker has reported net revenues of US$16.13 billion for the full year 2022, up 26.4%.

STMicroelectronics, which counts Apple ( AAPL ) as one of its customers, said it expects first quarter revenue to be around $4.2B vs. $4.42 billion in the previous quarter, and gross margin of 48%. Texas Instruments reported fourth quarter results and issued a weak outlook at its recent earnings call. Wolfspeed reported mixed fiscal second quarter results, losing 11 cents per share on $216.1M in revenue, compared to analyst estimates of a loss of 14 cents per share on $226.78M in sales.

In October 2022, STMicroelectronics also announced plans to build a US$730 million integrated SiC epitaxial substrate manufacturing facility in Catania. Production is expected to start in 2023 and ramp up in 2024. In addition, the company continued to ramp up its SiC front-end device production in its Singapore facility and increased back-end manufacturing capacity at its sites in Morocco and China. For 2023, STM plans to invest about $4.0 billion in CAPEX, mainly to increase its 300mm wafer fabs and silicon carbide manufacturing and wafer capacity.

I rate the company a Buy. Most of the SiC activity growth will come from the EV automobile sector as discussed above, which grew 55% in 2022.

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