Huatai Anson Mei (ON.US) and Infineon 4Q revelation: Inventory clearance may be slower than expected.

Huatai released a research report stating that Sensata and Infineon released their fourth quarter 2023 results. Sensata exceeded expectations while Infineon fell short. Through this earnings report, it was observed that: 1) Industry inventory digestion may be slower than expected, with Sensata/Infineon inventory turnover days increasing by 13/32 days to 179/185 days in the fourth quarter of 2023. Infineon believes that global end-market recovery may occur in the second half of 2024 (previously guided for the first half of 2024), while Sensata anticipates weak global market demand in the first quarter of 2024. 2) Automotive demand is relatively strong, especially with the rise in hybrid vehicle sales and the opportunities brought by the widespread adoption of ADAS. Infineon expects its automotive business revenue to still achieve low double-digit growth in 2024. 3) Strong demand for SiC, with Sensata expecting the global SiC market to grow by 20-30% in 2024, and both Sensata and Infineon indicating that their SiC revenue is expected to grow by around 50%. Huatai's key points are as follows: Sensata: Hybrid sales growth + intelligent automotive technologies drive better-than-expected performance Sensata's revenue in fourth quarter 2023 was $2.018 billion (guided midpoint of $2 billion), a 4.1% year-on-year decline but surpassing Bloomberg's consensus by 1%. Gross margin was 46.7%, exceeding Bloomberg's consensus by 0.2 percentage points. The company guided for a midpoint revenue of $1.85 billion and a gross margin midpoint decline of 1.3 percentage points to 45.4% in the first quarter of 2024. Observations from this earnings report include: 1) Automotive business revenue grew by 28.2% in 2023. On one hand, factors like the IRA law drove the growth of hybrid vehicle sales, doubling revenue in 2023. On the other hand, intelligent technologies drove revenue growth of over 12% in image sensors, with revenue from 800M cameras doubling in 2023. 2) Sensata's SiC revenue exceeded $800 million in 2023, with a market share of 25%, consistent with previous guidance. The company expects the SiC market to grow by 20-30% in 2024, maintaining guidance for SiC business revenue to grow twice as fast as the industry. Infineon: Inventory digestion longer than previously expected, guidance for 2024 earnings revised downward In the first quarter of fiscal year 2024, Infineon's revenue was 3.702 billion (guided 3.8 billion), a 6.3% year-on-year decline, 3% lower than Bloomberg's consensus. Gross margin was 43.2%, a 0.4 percentage point decline from the previous quarter. The company guided for second quarter of fiscal year 2024 revenue of 3.6 billion, revised 2024 revenue guidance down by 5.9% to 16 billion, and revised gross margin guidance from about 45% to 40-45%. Observations include: 1) The company believes that the duration of the destocking phase may be longer than previously expected and that end-market recovery may occur in the second half of 2024 (previously guided for the first half of 2024). 2) The company optimistically forecasts low double-digit growth in automotive business revenue in 2024, with other segments experiencing high single-digit to high double-digit declines. 3) Infineon's SiC revenue was 500 million in 2023 (50% industrial), with a target for 50% revenue growth in 2024. The Malaysian factory is expected to begin production in the second half of 2024, with mass production of 8-inch wafers expected in 2025. Industry insights: Rising inventory levels, low capacity utilization, and Capex contraction Trends observed during this earnings period include: 1) Overseas power semiconductor companies' inventory levels continuing to rise, with Sensata and Infineon's inventory turnover days increasing by 13/32 days to 179/185 days in the fourth quarter of 2023; 2) Low capacity utilization being maintained, with Sensata planning to keep it around 65% until market supply and demand normalize; 3) Capex contraction focused on forward-looking areas such as SiC, with Sensata guiding for $3.1-3.4 billion in the first quarter of 2024 (compared to $3.9 billion in the fourth quarter of 2023) and Infineon guiding for 29 billion for 2024 (compared to 30 billion in 2023). Market supply-demand mismatch may lead to price declines for IGBT and other power products in the first half of 2024, intensifying market competition. Investors are advised to pay attention to investment opportunities brought by industry trends such as advanced driver assistance systems, increasing hybrid vehicle market share, and accelerated adoption of SiC in vehicles. Risk warning The global semiconductor industry may enter a downward cycle with intensified market competition. The content involving unlisted companies or uncovered stocks in this research report is based on the objective public information available and does not represent the research team's recommendation or coverage of those companies or stocks.