The Ups and Downs of Image Sensors
In early December we noted that Sony (SNE), the leader in the CIS (CMOS Image Sensors) market, lowered their fiscal 2021 expectations from -6.5% to -11.8% for the year ending this March. While we believe some of the reduction was due to a general slowdown in the smartphone market, the bulk of the cut was due to the expected severe reduction in orders from the company’s 2nd largest customer, Huawei, as the US extended trade ban limited Huawei’s ability to source necessary smartphone components. The #2 producer is Samsung (005930.KS) who has pushed hard against Sony for the last 18 months, especially in the smartphone market, where its ISOCELL image sensor line currently has a top end sensor with 108m pixels and 12 bit color depth, giving it an effective 12,000 x 9,000 resolution (company info.) and has been used in a number of high-end smartphones, primarily those by Samsung Electronics, Xiaomi (1810.HK), and Motorola (MSI), with models from RealMe (pvt) and Nokia (NOK) expected soon, with a multitude of smaller sensors sizes. The two companies make up ~85% of the image sensor market.
To make matters worse, Sony reported a ~10% drop in CIS sales for its December quarter, citing slower smartphone sales and a lower-priced mix, but they also revised their full-year sales guidance (March 2021) up by ~6% for the year. So what changed recently? Sony says it is a number of things, pointing to higher-than-expected image sensor sales to the smartphone market, which was a bit too general, so looked deeper and discovered that Sony’s sales to Huawei, which were suspended in September leading to the downward revision, have been resumed. Whether the resumption was due to legal issues surrounding the US Department of Commerce ban on sales to Huawei (even by foreign companies that use US products during production), or Huawei’s resumption of ordering for its 2021 smartphone line (even at reduced volumes), it seems that when Huawei sneezes, Sony gets a cold, despite being the leader in the space.
We expect that Sony will be able to make up the expected lower volumes from Huawei in their 2022 fiscal (March 2022), but with Samsung constantly nipping at their heels, we expect Sony will have to offer some price incentives to new or growing customers, who certainly understand that Sony, while they might still be in a leadership position, needs to fill in some sales gaps, and as such will likely make it more of a negotiation rather than Sony setting hard prices. If Sony continues to cite mix as an issue for weaker results, it would be a sign to us that such pricing pressure has already begun.
To make matters worse, Sony reported a ~10% drop in CIS sales for its December quarter, citing slower smartphone sales and a lower-priced mix, but they also revised their full-year sales guidance (March 2021) up by ~6% for the year. So what changed recently? Sony says it is a number of things, pointing to higher-than-expected image sensor sales to the smartphone market, which was a bit too general, so looked deeper and discovered that Sony’s sales to Huawei, which were suspended in September leading to the downward revision, have been resumed. Whether the resumption was due to legal issues surrounding the US Department of Commerce ban on sales to Huawei (even by foreign companies that use US products during production), or Huawei’s resumption of ordering for its 2021 smartphone line (even at reduced volumes), it seems that when Huawei sneezes, Sony gets a cold, despite being the leader in the space.
We expect that Sony will be able to make up the expected lower volumes from Huawei in their 2022 fiscal (March 2022), but with Samsung constantly nipping at their heels, we expect Sony will have to offer some price incentives to new or growing customers, who certainly understand that Sony, while they might still be in a leadership position, needs to fill in some sales gaps, and as such will likely make it more of a negotiation rather than Sony setting hard prices. If Sony continues to cite mix as an issue for weaker results, it would be a sign to us that such pricing pressure has already begun.
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