NXP and third-party market research foresee rapidly accelerating semiconductor demand in second half 2024 and early 2025, after the recent period of inventory corrections. This situation creates a serious and growing risk that the industry repeats its mistakes from 2020/2021 and ultimately our customers (and their customers) would again suffer from shortages.
Therefore, we suggest to jointly apply the lessons learned from the past semiconductor supply crisis and collaboratively work with you and your distribution partner on risk mitigation. NXP asks you to provide extended and granular order visibility to your distribution partner in order to enable us to effectively manufacture the correct mix of products. Furthermore, we ask you to maintain appropriate levels of inventory. Both requests are driven by the semiconductor manufacturing cycle times stretching typically 12-35 weeks.
Per WSTS, the growth of the global semiconductor market, excluding memory, is forecasted to accelerate to 8% in 2025 from 3% in 2024. This acceleration applies particularly to two primary sectors of NXP: (1) For the industrial sector, semiconductor growth is forecasted to accelerate from ~5% 2024 to 7-11% 2025. (2) Within the automotive sector, secular growth drivers such as Software Defined Vehicles, ADAS and Electrification are expected to drive automotive semiconductor growth above market average, and a strong rebound of approximately 11% in 2025 is expected. This is a step function increase from the negative 2% forecasted for 2024 leading to the growing risk of future shortages.
NXP is committed to apply all lessons learned to support its customers through this rapidly accelerating growth. We continue to make significant investments in additional capacity to support our customers’ long-term expectations of growth. Additionally, we continue to maintain a significant amount of inventory on our balance sheet, 144 Days Inventory Outstanding, as compared to our publicly communicated target of 95 days. We are managing NXP’s and our distributor inventories proportional to the visible orders received via our distribution partners. Hence, we require your best possible demand visibility (orders and forecast) and urge you to hold appropriate inventory buffers. This is a key measure we can jointly take to ensure business continuity, following your mix and volume requirements while acknowledging the semiconductor manufacturing cycle times, such as typical 16-26 weeks for microcontrollers, as well as the lead times involved in ramping up capacities both in-house and with our foundry partners. NXP Semic onductors, High Tech Campus 60, 5656 AG Eindhoven, The Netherlands Confidential www.nxp.com
Specifically, we request you:
- (a) Maintain a minimum 12-week buffer of NXP product at your local production sites.
- (b) Provide your EDI forecast/orders through the end of 2025 through your distribution partner. This forecast should include the buffer mentioned in (a).
We are confident that the above measures will help us to avoid manufacturing the wrong mix of products, prevent us from having to increase quoted lead times under short notice, and avoid cost increases from a supply capacity-demand disconnect.
In closing, NXP is committed to offer business continuity and smooth operations of its customers by applying the associated learnings from the past and we count on your active support by implementing the above requests. We have a joint responsibility to prevent a severe allocation situation to reoccur and ensure we are learning from the past.
Thank you for your understanding and continued partnership! We are looking forward to your response to your distribution partner before July 12.