Chip hunger from car manufacturers drives Melexis towards a new record year

The car industry may have problems keeping its factories running at full capacity, but the chip developer Melexis is not experiencing much of that for the time being. “What counts is not how many cars are made, but what’s in them.”

It is becoming a habit for Melexis CEO Marc Biron. When the CEO of the chip developer comes up with quarterly numbers, he raises expectations in the same breath. Biron already announced in April that 2022 would be the second record year in a row by raising profit expectations. In the half-yearly report, the managing director goes one step further.

Melexis

started the year with the ambition to achieve growth of 12 to 17 percent in revenue, but now expects growth of 28 to 30 percent. The profit margin will be 26 percent against 23 percent in the original business plan.

The essence

  • Chip developer Melexis raises expectations for the second time this year after a solid second quarter.
  • The company benefits from the chip hunger of the automotive sector, which is in full electrification.
  • In addition to the automotive sector, Melexis targets other markets such as gaming, home automation and industry.

In the middle of the interval, the turnover will therefore land at 831 million euros, the operating profit at 216 million euros, which is almost half more than last year. (see diagram).

Chip Hunger

But Melexis mainly benefits from structural trends and the appetite for chips in the automotive industry. It is not so much about the increased sales of cars, says Biron. “In 2021, 80 million cars were produced. Well, by 2022 that number will be about the same. The difficult supply chains play tricks on car manufacturers, they cannot produce their full potential. But what happens in those cars supports the demand for our chips. Electric cars contain more chips than cars powered by a conventional engine. And there is more attention to security and comfort, applications that often also run on our chips.’

Because automakers cannot drive at full capacity, they prioritize the more luxurious models that can be sold at higher margins. These models rely more on Melexis chips than their simpler brethren. The more expensive models contain chips for e.g. tire pressure monitoring, automatic braking or battery system and temperature monitoring.



More emphasis is placed on safety and comfort. The applications for this often run on our chips.

Every car that rolls off the production line somewhere in the world now contains an average of 18 Melexis chips, compared to 13 a year ago. That figure varies greatly from brand to brand and model to model. For some Tesla models Melexis supplies more than 50 chips, for a Mercedes model even 170 Melexis chips.

The aim is to bring the average number up to 20 within the foreseeable future. “We only do the calculation once a year,” says Biron. “But we are well on our way, that much is certain.”

King car

With continued strong demand from the automotive industry continuing to outstrip supply, Melexis also faces what could be seen as a luxury problem. The chip developer has been trying to become less dependent on the cyclical car market for some time. The goal is to bring the ratio to 80 percent auto and 20 percent other markets. But due to the continued chip hunger of car manufacturers, the figure is heading in the other direction. A few months ago, Melexis was ‘only’ 88 percent dependent on cars, today it is 90 percent.

Biron is pragmatic about it. ‘We have increased our focus on the other markets in recent months. Of the six products we launched in the past few months, two were for markets other than the automotive industry. A chip is aimed at power tools, game consoles and automation of home applications. The other measures e.g. the liquid level in industrial processes. We have also moved part of our sales force to other markets. But the demand from the car market is so great that it is difficult to change the proportions.’

18

potato chips

Every car that rolls off the production line somewhere in the world today contains an average of 18 Melexis chips.

As demand exceeds supply, Melexis has to allocate its chips. “The car manufacturers sometimes get priority,” says Biron. ‘Not only because they are our most important customers, but also because we are the only source of chips for many. Other markets can often also fall back on other sources.’

In the press release, Melexis says that it is encouraging in the short term – thanks to the crowded order book – and in the long term – thanks to the structural trends in the automotive industry. However, the medium term is less certain due to macroeconomic and geopolitical uncertainties. ‘There are many question marks, it can go either way’, says Biron. “Who knows, the demand for cars will stop soon, but it might as well be that there is no visible effect. That’s why we prefer to be a little more cautious’.

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