The microcontroller unit (MCU) industry once thrived amid a chip shortage, characterized by a burst of financial investment and a convergence of talent and innovationThe landscape appeared vibrant and full of promise, as companies clamored to carve out their market share in a rapidly evolving technological ecosystem.

However, the tides have significantly turnedBy the end of 2023, the MCU market was trapped in a tangle of heightened competition and relentless price wars that clouded the industry's futureWhat was once a favorable environment for suppliers has evolved into a brutal battleground characterized by limited profit margins and overwhelming pressure from adversaries.

In mid-2023, echoes from an online electronics forum revealed the uncomfortable reality for many engineersA product initiative from one firm stipulated the use of microcontrollers costing less than 30 cents, demanding a comprehensive suite of features detailed in a multi-page technical brief

Surprisingly, three separate suppliers were willing to undertake the project at no charge, vying for the opportunity to secure an order in an increasingly cutthroat environment.

Experts in the field have noted that heading into 2024, the number of domestic MCU manufacturers in China has surged past 400. This staggering competition landscape elucidates why suppliers are resorting to such extreme measures, such as free development, to seize a dwindling number of contracts.

Reflecting on the MCU market's evolution, STMicroelectronics, once heralded as the top player in the sector, has found itself grappling with fierce competition from indigenous firmsChinese manufacturers are slashing prices to levels that contrast sharply with the previous premium offerings from international companies like STThe cost of domestically produced MCUs has plummeted; in some instances, prices have dipped to around 50 cents

• Debt Costs Soar as Banks Reevaluate Deposit Strategies
• Crypto Surge Pushes Major Indices to New Highs
• Bitcoin Breaks $100,000 Barrier
• MCU: Struggles and Breakthroughs
• Oil Prices Expected to Fall to $65/Barrel Next Year

Traders, too, are engaged in aggressive pricing strategies, often selling at a loss to capture market share.

Consequently, STMicroelectronics, once celebrated for its premium product line, now finds itself caught in a precarious situation, exacerbated by a disturbing trend of inverted pricing, where cheaper local products undercut their historically high-priced counterparts.

This phenomenon is not limited to ST; other major international corporations have also come to terms with the shifting tide in the market ecosystem, necessitating strategic realignments across the board.

Challenges Facing International Giants

Recently, STMicroelectronics reported a staggering 41.3% year-over-year decline in MCU sales as reflected in their nine-month revenue report for 2024, with figures dropping to approximately $2.58 billion from $4.4 billion a year prior

CEO Jean-Marc Chery attributed this downturn, in part, to dwindling market share within China.

In discussions held during a capital market presentation in Paris, Chery and Remi El-Ouazzane, president of digital ICs and radio frequency products at ST, elaborated on various factors contributing to the revenue decline, primarily pointing to unalterable and non-cancelable contracts signed in 2022 and 2023, which left customers with excess inventory, ultimately leading to crashing sales volumes.

What were once viewed as stabilizing contracts have now become burdensome amidst geopolitical tensions, fluctuating global economic conditions, and a pronounced slowdown in the Chinese marketST's fixed pricing turned into a liability, presenting considerable pressures surrounding surplus inventory and price risks that culminated in significant financial losses.

El-Ouazzane noted that inventory adjustments account for approximately 60% of the decline in MCU sales—significant and indicative of larger market shrinkage impacting their share.

In response to these challenges, ST has sought to adapt by forging partnerships, as demonstrated by a recent collaboration with Hua Hong Semiconductor, focusing on joint production for 40nm MCU chips within China, a market viewed as crucial due to its vast potential

ST’s performance in the automotive sector has notably faltered, partially due to a loss of market share in this integral space, compelling them to localize manufacturing efforts in hopes of regaining a foothold.

Chery explicitly remarked on the rapid evolution of the electric vehicle market in China and acknowledged the accelerated growth of local enterprises, emphasizing that failing to establish a presence there could result in a company falling behind.

As quarterly financial reports continue to roll in, it is evident that the challenges facing leading companies like Microchip, NXP, and Infineon are similarly bleak.

Microchip Technology, renowned as one of the leaders in the MCU domain, reported a staggering 48.4% year-over-year revenue drop in its second fiscal quarter, ending September 30, 2024, bringing revenues down to $1.164 billionMicrochip's President and CEO remarked on their ongoing battle with surplus inventory amid a broader trend of macroeconomic sluggishness.

NXP's third-quarter revenues fell by 5.4% year-on-year to $3.25 billion, with a downcast outlook for the final fourth quarter

Weak performance was notably evident in the automotive sector, compounded by persistent weaknesses within their industrial channels.

Infineon reported overall revenue for the 2024 fiscal year at €14.955 billion, marking an 8.3% decline, with a considerable reduction in operational profits by 44.5%. While automotive revenues saw a slight increase, nearly all other sectors experienced downward trends exceeding 10%. Infineon's CEO candidly recognized the lack of growth momentum in end markets, except in artificial intelligence.

An Unfolding Narrative in the Domestic Landscape

Amid these developments, a fresh narrative has emerged in the local landscape, with a leading analog IC manufacturer, Sireen, reporting plans to disband their MCU team, a surprising pivot from a firm that only stepped into the MCU arena in 2021.

This restructuring initiative is anticipated to affect around 80 employees, some of whom were previously affiliated with Texas Instruments' MCU division in China, which had been disbanded in 2022. Reports indicate that the restructuring included significant personnel shifts across departments such as Design Engineering (DE), Application Engineering (AE), and Product Management (PM), with many personnel transitioning to other product lines.

Founded in 2021, Sireen planned to invest heavily into MCU development, aiming to bridge a technology gap in the industry by leveraging their analog expertise

Their ambitions included producing an MCU that significantly outperformed both domestic and international products through enhanced integration and performance.

By late 2021, Sireen had rolled out its TPS32 series of microcontrollers, targeting markets such as smart locks, human-machine interfaces, and industrial control applicationsWith innovative integration strategies demonstrated by their choice of the STAR-MC1 core, a departure from traditional Cortex-M4F designs, Sireen aimed to achieve differentiation and performance excellence.

While 2023 saw Sireen launch competitive offerings, the harsh market realities have cast doubt on the sustainability of such investmentsThe domestic MCU landscape remains largely dominated by foreign firms, with local competitors chiefly targeting lower-tier applications such as household appliances.

Industry observers speculate that Sireen's decision to dissolve its MCU division is fundamentally tied to an increasingly saturated market where profitability appears elusive.

Despite this troubling turn of events, Sireen has continued to allocate significant resources toward developing MCU products, underscoring a commitment that represents both an aspiration to innovate and a struggle against overpowering market forces.

Data reflected in Sireen's financial report for the third quarter of 2024 illustrated revenues heavily skewed toward their signal chain and power management product segments, where MCU ventures have yielded negligible returns since launch.

As competition intensifies within China's MCU sector, the implications of Sireen's own challenges may foreshadow a broader trend, possibly discouraging further investment in an arena stamped by high competition and market pressure.

Q3 Performance Among Domestic MCU Companies

The current environment for domestic MCU manufacturers indicates that a fierce battle for market share persists, with many firms struggling against negative financial indicators

Investor confidence is dampened as most firms report declines in revenue and net profit while grappling with elevated inventory levels.

Despite these challenges, some companies have emerged stronger, buoyed by revived demand in the consumer electronics space and increased penetration in automotive applicationsData shows that major domestic MCU players saw notable improvements in revenue during the first three quarters of the year.

For instance, GigaDevice boosted its sales to 2.04 billion RMB in Q3 2024, marking a significant 42.83% increase compared to the previous year, largely attributed to adept inventory management in key sectors like industrial applications.

In tandem with improving sales figures, the inventory turnover rates among MCU manufacturers improved, indicating a more efficient management environment as companies sought to shed excesses accrued in past quarters.

Navigating the Future: Paths for Domestic MCU Companies

As the landscape continues to evolve, smaller executives encounter critical decisions regarding their future trajectories amidst overwhelming competitive forces exerted by larger entities.

The trend of mergers and acquisitions is emerging as an essential aspect for many mid to small-sized MCU companies as they contemplate tactical consolidation in the wake of considerable challenges

This pattern parallels strategies seen in industry leaders like Infineon, NXP, and Microchip, all of whom have effectively expanded their portfolios through acquisitions to capture emerging technologies and broaden market reach.

On the flip side, moving toward a high-end MCU market symbolizes a vital growth frontierRecent reports indicate that while domestic manufacturers have experienced extraordinary volume increases, particularly in automotive sectors, the evolution and demand for high-end options are more pressing than everRecognizing the existing reliance on imports in this segment, a concerted effort from domestic firms to engage in high-end MCU production could pave the way for enhanced profit margins and competitive advantages.

In sectors like automotive and industrial applications, where the domestic MCU firms remain vulnerable to performance disparities compared to established international giants, the pathway toward the high-end MCU evolution cannot be overstated.

Ultimately, the drive to capture the high-end market will serve as a critical barometer of the domestic MCU industry’s evolution