Philips muscling into local auto sector
By Li Weitao (China Business Weekly)
Updated: 2004-07-19 15:30

Europe's No 3 chipmaker, Philips Semiconductors, is placing much greater emphasis on China's ever-racing auto market, as it hopes to boost its automotive semiconductor sales in the country.

Philips Semiconductors, a unit of Philips Electronics, expects its chip sales in China's car industry to double "very quickly," said Drue Freeman, vice-president in charge of Philips Semiconductors' global automotive marketing and sales.

"We are seeing a lot of growth potential from China's automotive market."

Philips is committed to bringing industry-leading semiconductor solutions to China to help Chinese manufacturers of automobiles and automobile components achieve better standards for entertainment, comfort and safety, he added.

China is the world's third-largest auto market, and ranks No 4 in vehicle production.

Car sales in China are projected to grow from 4 million units last year to 8.6 million in 2014.

"China is the No 2 automotive electronics market in Asia, and we expect it will become the No 1 market in five to six years," Freeman said.

Research firm iSuppli predicts the size of China's car electronics market will grow from US$1.6 billion in 2002 to US$5.5 billion in 2007.

"Electronics content (in China) is still low today, but will increase over the next decade," Freeman said.

Automotive semiconductor consumption in China will grow from US$416 million in 2002 to US$1.45 billion in 2007, predicted iSuppli.

Philips is better positioned to carve out a large share of China's automotive semiconductor market, as it "is much more involved in the auto industry" compared with its competitors, Freeman said.

Last year, 17 per cent of Philips Semiconductors' sales were within the automotive industry.

The Asia-Pacific market contributed 51 per cent to the firm's sales.

China contributed a "very significant portion," Freeman noted.

Philips Semiconductors last November set up a US$29-million joint venture with Shanghai-listed Jilin Sino-Microelectronics Co Ltd to develop, design and manufacture power semiconductors.

The joint venture, located in Northeast China, will supply semiconductors for consumer, communications, computer and auto products.

"Parallel to the growth of the automobile industry, safety standards and comfort requirements will spur the need for better automotive electronics in China," he said.

Demand for the latest information entertainment devices will be another stimulus, the vice-president said.

Electronics solutions, in which semiconductors play a vital role, are being widely used in vehicles.

Even semiconductor technology is being adopted to reduce vehicle thefts.

Philips is one of the world's top semiconductor producers of in-vehicle networking, in-car radio, carDSP (digital-signal processing) and car access and immobilizer solutions.

The firm holds more than 50 per cent of the world's semiconductor market for in-vehicle networking.

"Our globally proven technologies -- such as RF (radio frequency) identification solutions for car access and tire pressure monitoring, analog and digital radio chips, in-vehicle networking solutions and solutions for advanced front lighting systems -- will make Philips a partner of choice for Chinese companies in their drive to become world-class players," Freeman said.

The lighting business last year contributed 16 per cent to Philips Electronics' sales.

Chip sales, meanwhile, contributed 17 per cent.

Philips Electronics last week announced its second-quarter net profit surged to 616 million euros (US$764 million), more than 14 times greater compared with the same period a year ago.

The hike was buoyed mainly by sales of chips and flat-screen TVs.

Philips Semiconductors posted a 143-million-euro operating profit last quarter, up from a 139-million-euro loss a year ago.

Semiconductor sales will rise 28-29 per cent this year, in terms of dollars, said Jan Hommen, chief financial officer of Philips Electronics.

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