ST says use of fixed contracts led to MCU sales collapse

Business news | November 24, 2024

By Peter Clarke

Analog MPUs/MCUs

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European chip company STMicroelectronics NV has said that the use of non-cancellable and non-reschedulable sales contracts during 2022 and 2023 contributed to a build-up of microcontroller inventory at customers and then to a big fall in its MCU sales in 2024.

In the first nine months of 2024 ST’s MCU sales were about US$2.58 billion compared to US$4.40 billion in the first nine months of 2023; a decline of 41.3 percent.

As part of a broad lay out of its strategy for the rest of the decade the company used its Capital Markets Day in Paris last week to try and explain why its microcontroller sales fell sharply during the first nine months of 2024 and to re-assure analysts that it is on a path to recovery.

However, during a Q&A session of the capital markets day ST’s CEO Jean-Marc Chery emphasized that 2025 would be a year of transition for the company towards better times to come in 2026 and 2027. Chery said that inventory correction is difficult in sluggish markets such as the industrial market. More general inventory correction will last at least for the 1H25, Chery said.

General-, sector- and company-specific challenges

Remi El-Ouazzane, president of the MCU, digital ICs and RF products group, told analysts that a number of factors had contributed to a falling MCU market. These have been present in the general economic environment and also included trends specific to microcontrollers and specific to ST’s exposure to industrial applications and the Chinese market.

In the general economy geopolitical tensions has eroded consumer confidence from 2021 to 2024 prompting lower global economic growth forecasts. In China GDP growth has been decelerating over the same period, said El-Ouazzane. In MCUs ST has seen increasing competition from Chinese MCU manufacturers while factory and industrial automation has been declining in Europe, he said.

The deteriorating global and industry-specific situation prompted the World Semiconductor Trade Statisictics (WSTS) organization to change its forecast for the 2024 MCU market from US$27.7 billion to US$23.2 billion. While that is not an inconsiderable drop for the general-purpose part of the MCU market – as separate from secure and automotive MCUs – WSTS reset its forecast from US$14.1 billion to $8.8 billion, El-Ouazzane showed in a slide deck.

The growth expected in 2024 never materialized and ST was also hit by a market share decrease due to 2021 to 2023 allocation decisions, El-Ouazzane said.

“These changes coupled with the fact that these purchase orders were non-cancellable and non-reshedulable generated a significant over-inventory in the channel that is now being re-absorbed. We expect that reabsorption to continue through part of 2025,” El-Ouazzane told analysts. He added that the re-absorption of inventory was responsible for 60 percent of the ST’s microcontroller sales decline with the rest being down to the shrinking market and loss of market share.