2023-04-14 11:24:45 ET
Summary
- STMicroelectronics remained as the market leader of the $1.6 bln SiC market in 2022 with a 44% share (which is more than double over second-placed Infineon).
- However, it has lost its product performance advantage to Infineon which has the highest volt rating (2,000V) and most products (8) for a volt rating range above 1,700V.
- The SiC market had been growing at a 4-year average of 40% and STMicro has been growing at 1.59x faster than the market.
In this analysis of STMicroelectronics N.V. ( STM ), we have examined the company's recent financial results for the full year 2022, which revealed robust growth in its SiC revenues, reaching $700 mln. Our assessment focuses on evaluating STMicro's current market leadership status in the SiC market based on its 2022 market share, as well as comparing its growth performance relative to the overall market growth. Additionally, we have conducted an updated analysis of the competitive landscape, considering factors such as product breadth and performance, to determine whether STMicro still maintains a competitive advantage in these areas.
Still the Silicon Carbide Market Leader
Company Data, Yole Development, Khaveen Investments
In the chart above, we compiled the SiC revenues for the top 5 companies which include STMicro, Infineon and ON Semi based on company data and Yole Development. For Wolfspeed (42.6% 2022 revenue growth) and Rohm (16% 2022 revenue growth), we estimated their SiC revenues in 2022 to have grown from 2021 in line with their overall 2022 company growth rate. In total, we derived the overall SiC market size in 2022 to be valued at $1,596 mln.
From the chart, STMicro is the market leader with a large share of 44% followed by Infineon in second with a 19.8% share and Wolfspeed in third place with 14.7%. The company has maintained its position as the leading company in the SiC market since 2020. Furthermore, ON Semi is the next largest company at fourth (12.5%) while Rohm is last among the top 5 companies.
In 2022, STMicro management highlighted that it added 8 customers and 60% of projects were automotive-related. More recently, STMicro announced a partnership deal with ZF, the third largest automotive parts supplier to supply SiC components from 2025. In comparison, second-placed Infineon announced only 3 new customer wins for its SiC business including Stellantis and a Japanese and US automaker OEM.
In silicon carbide for Automotive and Industrial, we achieved $700 million of revenues with silicon carbide in 2022, with a plan to be above $1 billion in 2023. We finished the year with 115 order projects, spread over 80 customers, adding 25 projects and 8 customers during 2022, about 60% of these projects are for Automotive customers. - Jean-Marc Chery, President & CEO
Therefore, we believe STMicro has remained the market leader of the $1.6 bln SiC market with the largest share of the top 5 competitors, which highlights its market position advantage in the SiC market.
Superior SiC Growth Than Market
SiC Revenue ($ mln) | 2018 | 2019 | 2020 | 2021 | 2022E | Average |
STMicro | 100 | 194 | 300 | 500 | 700 | |
Growth % | 94.0% | 54.6% | 66.7% | 40.0% | 63.8% | |
SiC Market Size | 420 | 541 | 711.2 | 1,090 | 1,596 | |
Growth % | 28.8% | 31.5% | 53.3% | 46.4% | 40.0% |
Source: Company Data, Yole Development, Khaveen Investments
Based on the table above, we compiled the company's revenue from 2018 through 2022 as well as the total SiC market revenue by Yole Development. From the table, the company's average growth in the past 4 years is higher than that of the SiC market growth, at an average of 40%. Thus, this highlights the superior growth of STMicro compared to the SiC market.
In its latest quarterly earnings call, STMicro management provided guidance 2023 SiC revenue guidance of $1 bln which is 43% higher than its 2022 SiC revenue of $700 mln.
We previously already covered STMicro's 300 mm capacity expansion in Crolles and Agrate as mentioned in the image above. Since then, the company appears to have also expanded its SiC front-end production in its facilities in Catania (Italy) and Singapore as well as back-end production in Morocco and China. The company's Catania SiC facility has a planned investment of EUR730 mln over 5 years and production is expected to start in the second half of 2023.
We had previously estimated $3.5 bln in capex for 2022 (excluding subsidies) which was exactly the full-year capex that STMicro spent. Management guided $4 bln in capex for 2023 with 80% of it for the expansion of 300mm fabs and SiC capacity expansion. However, just like how we expected STMicro's true capex figure to be $4.2 bln due to subsidies, we believe this year's actual capex to be below $4 bln as the company mentioned its expansion "will be supported financially by the State of Italy in the framework of the National Recovery and Resilience Plan".
Compared to the top SiC competitors, Infineon announced that plans to spend a total capex of EUR3 bln ($3.3 bln) in 2023 but did not disclose the allocation for SiC while Wolfspeed maintained its target of $1 bln in capex.
According to Yole Development, the SiC market is expected to grow at a CAGR of 34% through 2027. We determined the company's growth outlook for its SiC revenue based on a bear case, base case and bull case.
- For the bear case, we assume the company's gain in share of the SiC market reverses to a 5-year average of 38.3% and is multiplied by the projected SiC market size of $6.9 bln by 2026 which translates to a CAGR of 30.4%.
- For the base case, we assume the company continues to grow at the market CAGR projections of 34%, maintaining its current market position in terms of share
- For the bull case, we assume the company continues to outpace the market growth, we derived a growth factor by dividing its 4-year average growth over the market growth which is 1.59x and multiplied with the market CAGR of 34% to obtain 54.3%.
STMicro SiC Revenue Growth | 2022 | 2023F | 2024F | 2025F | 2026F | 2027F |
Bear Case | 700 | 913 | 1,191 | 1,553 | 2,026 | 2,642 |
Growth % | 30.4% | 30.4% | 30.4% | 30.4% | 30.4% | |
Base Case | 700 | 938 | 1,257 | 1,684 | 2,257 | 3,024 |
Growth % | 34% | 34% | 34% | 34% | 34% | |
Bull Case | 700 | 1,080 | 1,666 | 2,570 | 3,965 | 6,117 |
Growth % | 54.3% | 54.3% | 54.3% | 54.3% | 54.3% |
Source: Company Data, Yole Development, Khaveen Investments
Management indicated that for SiC, it plans "to increase tenfold the front-end capacity versus 2017". In 2017, the company had below $100 mln in SiC revenue, thus a 10x increase would imply revenues of around close to $1 bln. Based on what management said, we believe that our SiC projections in 2023 are extremely appropriate even our bear case, base case and bull case are all around $1 bln.
Strong Competitor Product Development
In our previous analysis, we compared the top SiC companies based on product breadth and performance and determined that STMicro does not have a product breadth advantage overall but was tied with Wolfspeed for having the highest number of SiC products with a volt rating greater than 1,700V.
SiC Comparison | Number of SiC Products | Volts (Range in V) | RDS(on) (m?) | 650-1199V | 1200-1699V | >=1700V |
STMicro | 69 | Up to 1700 | 8.8 - 1300 | 27 | 38 | 4 |
Wolfspeed ( WOLF ) | 67 | Up to 1700 | 15 - 1000 | 32 | 31 | 4 |
Infineon ( IFNNF ) | 67 | Up to 2000 | 7 - 1000 | 26 | 33 | 8 |
ON Semi ( ON ) | 87 | Up to 1700 | 12 - 960 | 45 | 38 | 4 |
Rohm ( ROHCF ) | 83 | Up to 1700 | 13 - 1150 | 36 | 44 | 3 |
Average | 75 | 33 | 37 | 5 |
Source: Company Data , Khaveen Investments
We updated our analysis of the companies' SiC portfolio and included Rohm's products for comparison among the top 5 companies. Based on the table, STMicro's overall product breadth remains disadvantaged compared to Infineon and Rohm which have more products and is below average. Moreover, Infineon has taken the lead in terms of the highest performance with up to 2,000V SiC products. Infineon's number of products (1,700V and above) is the highest among all competitors at 8. Even for products between 1,200V and 1,699V, STMicro is only tied for second with ON Semi while Rohm is first.
Thus, we believe this highlights a product disadvantage for STMicro with intense competition from Infineon which had secured the performance advantage and the product breadth of the top-performance SiC products.
However, one of the differences between STMicro and its competitors is its integrated SiC production chain of both wafers and devices known as its "silicon carbide vertical integration strategy". Among the top 5 companies, only Wolfspeed has a similar integrated production chain covering both SiC wafers and chips. In our previous analysis on Wolfspeed, we highlighted that Wolfspeed, which is the company's 2nd largest competitor in SiC, was the market leader of SiC wafers with a 62% share .
The company highlighted from its earnings briefing that the advantage of internal SiC substrate production provides it with a "strategic independence", targeting internal SiC substrates production of 40% by 2024. As STMicro currently procures SiC wafers from Wolfspeed, we believe the company's move is to reduce the reliance on its supplier Wolfspeed (which is also its SiC competitor), and in the process further extend its grip on the market.
Moreover, STMicro highlighted another advantage in R&D and efficiency where the company does not want to be dependent on external parties for the innovation of SiC substrates. For example, it mentioned its partnership with Soitec for collaboration of the company's SmartSiC using its SmartCut IP and claims its substrates "improves device performance and manufacturing yields".
Risk: Competition in SiC Market
The SiC market is concentrated among the top 5 players which accounted for a combined share of 99% in 2022 as mentioned in the first point. While STMicro has maintained its leading position as the market leader with a 44% share, we believe it could face increasing competition from other players especially Infineon which we determined has taken the performance advantage with its superior product development and could result in STMicro losing share and revenue growth more in line with our bear case.
Verdict
Our updated valuation utilizing a DCF model is based on 5-year forward revenue growth of 10.9%, a discount rate based on the company's WACC (5.5%) and terminal value based on the company's past 5-year EV/EBITDA average of 9.82x.
In conclusion, STMicro has maintained its leadership position in the SiC market, boasting the largest market share among the top 5 competitors, which underscores its advantage as the foremost player in the industry. The company has demonstrated superior growth over the past 4 years, with an average growth rate of 40%, surpassing the overall SiC market growth rate. However, we note that STMicro faces strong competition from Infineon, which has secured a competitive edge in terms of performance following the expansion of its 2kV CoolSiC portfolio and product breadth in the top-performance SiC segment. Conservatively basing our growth forecast on our bear case still yields an impressive 30.4% SiC growth for the company. Our valuation indicates a stock price upside of 29.78% with a price target of $65.15 , leading us to rate STMicro as a Buy.
For further details see:
STMicroelectronics: Dominance In The Silicon Carbide Market