Huawei's fall hits growth of Sony's chip business
TOKYO -- Growth of Sony Group's semiconductor business has slowed, reflecting a plunge in shipments of image sensors for smartphones to Huawei Technologies as a result of the U.S.-China trade war.
Although Sony has avoided a fall in the volume of shipments
thanks to orders from other Chinese smartphone makers, the recovery of earnings
appears likely to be delayed until fiscal 2022 through March 2023 because of
weakened demand for sensors for high-end smartphones.
As Samsung Electronics of South Korea, which is strong in
processing sensors for midrange smartphones, catches up, Sony is halfway toward
recapturing the smartphone market.
"We cannot achieve an earnings recovery in the year
through March 2022," said Terushi Shimizu, president and CEO of Sony
Semiconductor Solutions, at a press briefing on June 3.
For fiscal 2021, the semiconductor arm of Sony Group expects
its operating profit to decline for the second consecutive year to 140 billion
yen ($1.26 billion). The projection reflects changes in the smartphone market
structure resulting from the trade friction between the U.S. and China.
Huawei had a global market share at the 4% level in terms of
shipments in the January-March period, according to U.S. research firm IDC.
With the U.S. government banning the export of American technology to Huawei,
the Chinese company saw its market share plunge some 14 percentage points from
the same quarter of 2020, when it ranked second.
At the expense of Huawei, Samsung, Apple of the U.S. and
three Chinese smartphone manufacturers -- Xiaomi, Oppo and Vivo -- expanded
their shares.
Sony commands half of the global market for image sensors in
value. Growing demand for high-definition smartphone cameras, and the trend of
using two or more cameras in a smartphone in recent years, have enabled Sony to
expand shipments to Apple and Huawei on the back of its advanced technology of
producing high-end sensors.
With Huawei losing its momentum, demand for cutting-edge
sensors for high-end smartphones has weakened. Sony thus increased shipments to
the three Chinese smartphone makers which primarily manufacture middle- and
lower-end phones. While sensors for such phones are each priced low, the makers
demand improvements in image quality to attract consumers.
Samsung has set an eye toward capitalizing on the "new
normal" created by the trade friction between the world's two largest
economies, in a bid to recover its lost ground.
Samsung ships nearly 300 million smartphones per year, most
of which contain image sensors it produces on its own. While having stable
demand, the company is strong at producing high pixel sensors used in midrange
smartphones and is enjoying growing demand.
In the global image sensor market, Samsung, with a share of
20%, is trailing Sony, with its 50% share. With Samsung boasting
microfabricating technology needed for high pixel sensors, Shimizu said,
"We are actually falling behind as far as high pixels are concerned."
But, he added, "we will add new value using technology
cultivated in the field of high image quality."
Samsung has a large number of manufacturing facilities,
including those for memory chips and central processing units. Sony will spend
700 billion yen on production facilities in its semiconductor business under a
three-year plan through fiscal 2023, up 20% from the preceding plan. But if the
importance of microfabrication technology increases, Samsung may gain an
advantage because of its greater leeway for investment, according to a research
company.
Sony is also expected to take time before reducing its
reliance on the volatile smartphone market. Although the company positions
image sensors for automobiles as a growth market and keeps boosting annual
sales by 50%, the business is still small in scale. Collaborating with its
"Vision S" prototype electric vehicle project, Sony plans to develop
a high-performance sensor capable of detecting objects even in the dark and
sell it to American and European automakers.
Sony will also challenge for a new business model. While
Sony has engaged in the sale of image sensors, it is attempting to establish a
recurring model of collecting fees on a continuous basis. Specifically, it will
use a sensor equipped with data-processing functions of artificial intelligence
it has developed. Data, therefore, can be processed both in the cloud and in
the sensor so that the volume of communication can be reduced.
For example, the sensor can be used in a camera at a
cashless payment retailer with no cash register and improve the performance of
street monitoring cameras.
Sony's AI image sensor has found its way into smart
monitoring cameras the city of Rome will put into use in June to optimize the
operation of buses by sensing congestion at bus stops or emit light to
pedestrians walking through a red light.
The semiconductor business centered on image sensors was
positioned as an engine of growth when Sony was rehabilitating itself. In
fiscal 2019, it contributed to Sony's earnings, logging more than 1 trillion
yen in sales and an operating profit ratio of 22% to sales.
Sony Semiconductor has propped up the revival drive despite
such difficulties such as damage inflicted on its local plant by a series of
earthquakes in Kumamoto Prefecture in 2016.
While striving to address radical changes in the smartphone
market, Sony Semiconductor is being tested for whether it can develop new
growth sectors such as image sensors for automobiles and AI image sensors.
Cutting-edge semiconductors are also drawing attention from
the viewpoint of national security as the government has drafted a policy of
courting overseas manufacturers.
The procurement of logic chips has become difficult as even
Sony farms out most of production to overseas manufacturers. Asked whether Sony
Semiconductor will launch production, including a joint venture project, for
stable procurement, Shimizu admitted to the difficulty of producing them on its
own in terms of both technology and cost.
"Generally speaking, it is extremely meaningful to
receive state support," Shimizu said, suggesting the need for government
financial assistance for production.
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