NXP Semiconductors talks chip supplies, future car networks

The more intricate in-car chippery gets, the happier it is

Execs from chipmaker NXP Semicondcutor spoke in San Francisco this week about industry supply chain problems, but also noted the increasing complexity of in-car networking was working in the firm's favour.

NXP has a portfolio that covers automotive components, communications, and industrial semiconductors, with product lines including microprocessors, power management, RF chips and wireless communications, many of which have seen high demand as the industry emerges from the pandemic.

Speaking at the Morgan Stanley tech conference, NXP chief financial officer Bill Betz started by commenting on how NXP's Tianjin factory – where it does assembly and testing – was shut down for 10 days due to a COVID-19 outbreak, and this hit the firm to the tune of a cool $50m. "I'm very pleased that has been back up and running, and we should see that $50m worth of supply come back in Q2," he said.

However, Betz went on to say that NXP started sharing its lead times to customers about two quarters ago, at which point about 70 percent of the entire portfolio was on 52-week lead times.

"That has actually increased to now 80 percent across our entire portfolio of autos, industrial, comms and mobile, and clearly, our NCNRs (non-cancellable, non-returnable contracts) are much greater in size. We can't supply them all, and we're basically sold out for the year," Betz said, adding "2022 is going to be a difficult year. We'll see what happens in 2023."

Last month, NXP revealed during an earnings call that chip shortages were so bad that many customers were willing to sign multi-year NCNR contracts simply to secure supplies.

In response to a question, Betz said that NXP did not source its neon supplies from Ukraine, and so was not immediately affected by the Russian attacks there. Ukraine is a major producer of the neon gas that is used for lasers employed during chipmaking, and some media reports had suggested that a disruption of supplies could lead to further chip production problems.

"We typically hold six to nine months' worth of neon," Betz said. "So really, in the short term, [there's] no impact, but this is something that we are continuing to monitor very carefully, and we will adjust accordingly as we go forward. "

Thousands of semiconductors in the average new car

On the wider semiconductor supply chain, Betz said that things are "super complex" and therefore difficult to keep on top of even in normal times, citing the example of automobiles that may have thousands of semiconductor components these days.

"As the industry is running maxed out, with manufacturing at close to 100 percent across the board, any little hiccup that occurs, you'll feel it," he said. "Last week, as an example, Taiwan lost half their power for a couple of hours. Clearly, that was an impact and we'll have to recover from that impact as we have a factory there and our suppliers are there."

He warned that every little event such as that was being felt in the supply chain these days, because "it's so tight across the board. There's basically no inventory, I would say. And everything we're shipping today, we're shipping hand to mouth."

Betz said that he believed that supply will continue to improve over each quarter during 2022, and that was why NXP was comfortable in predicting that it will grow more than the high end of the firm's long-term guidance of 12 percent for 2022.

NXP also talked about the automotive sector, which accounts for about half of its business and how digital technology was progressing in vehicles that are being designed now.

"Today in the average car, the architecture of the car is a flat point-to-point type of system. And what's happening is you're seeing more and more data come into the car, more and more data generated in the car, and it's choking that network. If you think about the lines of code for the operating system of the car, it can be up to 2 million lines of code. That's continuing to expand," said Jeff Palmer, Vice President of Investor Relations.

Palmer explained how the automotive vendors want to expand the in-car network and segment it, perhaps mirroring the way that data network architecture in the enterprise has evolved.

"They want to create some hierarchy in the car and partition the car into specific segments where you would have what we call a domain processor, and think of that as not as a microcontroller, but a multicore MPU that will control all the leaf nodes in a domain below it," Palmer said.

"That domain processor role, we've been able to identify about five of them. And they will talk again to each other against a high-speed gigabit Ethernet backbone to almost a network gateway type of a device. And so in this way, you'll be able to create some partitioning hierarchy into the car," he explained.

Palmer stated that NXP sees this as an opportunity for growth in the near future.

"That creates brand new socket opportunities, brand new design opportunities. The business for S32 (NXP's automotive chips) is already about $300m, and we expect that to grow at least about $600m by 2024, and actually accelerate quite dramatically beyond that," he said.

"It's not only this hierarchy that's being built, but as cars become more and more complex, and more and more features added to cars, this is the only way you can really get your arms around it. It's very analogous to what happened in the building network industry 20 years ago," Palmer added. ®