Semiconductors, survived!

Market Cap Observation

2024-06-28 10:14Creators in the field of finance and economics

Author: Wen Yu, Editor: Xiao Shimei

After more than a year of high inventory, low demand, reduced investment and reduced production capacity, the global semiconductor industry finally survived the dark night and ushered in the dawn.

[When recovery is underway]

The price increase is the most direct signal of a cycle reversal.

In 2024, power semiconductors will take the lead in raising prices, with a 10-20% increase in the full range of Sanliansheng products, a 10-18% increase in the full range of Lancai Electronics products, a 10-20% increase in the full line of products of Gaogxin Microelectronics, and a 5-10% increase in the TrenchMOS of Jiejie Microelectronics. From May to June, China Resources Micro, Yangjie Technology and other power manufacturers have successively made new bargaining moves.

The wave of price increases has even begun to spread from components to the foundry.

According to the latest market news, TSMC's 3nm foundry plans to increase its price by more than 5%, and the annual quotation of advanced packaging next year will also increase by about 10%-20%, affected by this news, on June 18, TSMC's Taipei stock price jumped high, and hit a record high in intraday trading. Morgan Stanley also reminded in the latest report that the current utilization rate of Hua Hong semiconductor fab has exceeded 100%, and it is expected that wafer prices may be raised by 10% in the second half of the year.

For the warmth and coldness of the industrial chain, the enterprises in it can feel it best.

In the field of wafer fabs, SMIC's revenue in 2024Q1 was 12.594 billion yuan, an increase of 23.36% year-on-year and 3.63% quarter-on-quarter, while guiding Q2 revenue to continue to grow by 5%-7% quarter-on-quarter; Among the packaging and testing plants, Changdian Technology's revenue in the first quarter of this year was 6.842 billion yuan, a year-on-year increase of 16.75%. Tongfu Microelectronics' revenue in the first quarter was 5.282 billion yuan, a year-on-year increase of 13.79%.

In the first quarter of 2023, the average inventory turnover days of domestic leading chip manufacturers such as GigaDevice, Zhuosheng Micro, Weir Co., Ltd., Montage Technology, Jingchen Co., Ltd., Rockchip Micro, Beijing Junzheng, Shengbang Co., Ltd., and Unisplendour Guowei Co., Ltd. were as high as 351 days, and then decreased to 298 days in the second quarter, 268 days in the third quarter, 243 days in the fourth quarter, and continued to decline to 240 days in Q1 2024.

Prices, inventories, performance, capacity utilization, all these indicators confirm the fact that the semiconductor industry cycle is on the upswing. Whether from the perspective of historical laws or based on practical considerations, this recovery has strong and solid logical support.

First of all, the semiconductor industry itself has obvious cyclicality, booming and declining, or not, and historically, the downward phase (year-on-year sales growth from the peak to the bottom) generally lasts for 4-6 quarters.

Taking the data of the past ten years as an example, 2013Q1-2014Q4 is the upward period of the economy, and 2015Q1-2016Q2 is the downward period of the economy; 2016Q3-2018Q2 turned into an upward stage, and 2018Q3-2019Q3 was a downward trend; The prosperity of 2019Q4-2021Q4 has improved, and 2022Q1-2023Q1 has fallen into weakness again. According to the data disclosed by SIA, the year-on-year growth rate of global semiconductor quarterly sales has continued to narrow since bottoming out in the first quarter of 2023, and turned positive year-on-year in the fourth quarter.

▲Source: Guosen Securities

On the other hand, the long-term direct introduction of AI has generally increased the demand for computing power and storage power in the whole society, and these needs will eventually be carried by semiconductors.

According to Gartner's estimates, the global AI chip market size will be $44.2 billion in 2022 and is expected to grow to about $120 billion by 2027. According to Micron's forecast, the CAGR of DRAM capacity will be 14-19% and that of NAND capacity will be 26%-29% from 2021 to 2025.

In the latest release of the 2024 spring edition of the semiconductor market forecast, the World Semiconductor Trade Statistics Organization WSTS raised the forecast of the semiconductor market size in 2024 from 588.364 billion US dollars to 611.231 billion US dollars, and adjusted the global semiconductor market size to 526.885 billion US dollars in 2023.

This means that the size of the semiconductor market will increase by 16% year-on-year in 2024.

[Equipment is stable happiness]

With both elasticity and certainty, if you want to find out the most noteworthy subdivision in this round of semiconductor new cycle, it must be equipment.

First of all, it should be made clear that compared with mature processes, advanced process logic devices have greatly increased the demand for etching, thin film deposition (especially ALD, EPI), quantity detection, heat treatment and other equipment, which is reflected in the total equipment usage and the value of a single device. According to the survey data from the front line, the 12-inch advanced process production line with a monthly output of 10,000 wafers requires 41.5 oxidation/high temperature/annealing equipment, which is 1.9 times that of the 12-inch mature process production line, and 87 testing equipment is required, which is 1.7 times that of the mature process production line.

At present, there is a lot of room for incremental expansion of semiconductor equipment, especially in the domestic market.

Although the market size of China's semiconductor industry is large, the localization rate is low, and in 2023, the chip self-sufficiency rate of Chinese mainland is only about 12%, and high-end digital chips are heavily dependent on imports. According to the statistics of CIC Consulting, the size of China's AI chip market accounts for about 30%-40% of the global AI market size, and a large part of the orders are taken by NVIDIA, and in fiscal 2023, NVIDIA's operating income in Chinese mainland will reach US$5.8 billion, accounting for 21.45% of its total revenue.

In the context of limited overseas foundry of high-end chips, if China's semiconductor industry wants to keep up with the global development speed, it must improve the local manufacturing capacity of high-performance processors and memories, and then must increase equipment investment, and the import of high-end semiconductor manufacturing equipment is strictly controlled.

Therefore, the spring of domestic equipment is coming.

According to the latest statistics of SEAJ, the global semiconductor manufacturing equipment sales in the first quarter of this year were 26.42 billion US dollars, down 2% year-on-year, but Chinese mainland bucked the trend and increased by 113%, becoming the world's largest semiconductor equipment market for four consecutive quarters. According to the calculation of open source securities, based on the increase in capital expenditure of advanced storage logic fabs and the increase in the localization rate of production line equipment, the sales of semiconductor equipment in Chinese mainland are expected to increase from 36.6 billion US dollars in 2023 to 65.77 billion US dollars in 2027, with a CAGR of 15.8%.

▲Source: Cinda Securities

The market space is large, and the competition pattern is good, and there are only a few companies that can play in various segments of domestic semiconductor equipment. The core players in the thin film deposition equipment link are NAURA and Tuojing Technology, the main players in the etching equipment link are AMEC and NAURA Huachuang, Shanghai Microelectronics is the leader in the lithography link, and Huahai Qingke is second to none in the field of CMP equipment......

When a small number of enterprises share a large number of cakes, it will inevitably bring explosive performance.

In 2024Q1, NAURA had an operating income of 5.859 billion yuan, a year-on-year increase of 51.36%, a net profit attributable to the parent company of 1.127 billion yuan, a year-on-year increase of 90.4%, and the company's contract liabilities were 9.251 billion yuan, an increase of 11.23% compared with the end of 2023; Tuojing Technology achieved operating income of 472 million yuan, a year-on-year increase of 17.25%, and the amount of sales orders in hand (excluding demo orders) was 6.423 billion yuan, an increase of 1.821 billion yuan from the end of the previous year, a year-on-year increase of nearly 40%; The revenue of AMEC was 1.605 billion yuan, a year-on-year increase of 31.23%.

From 2018 to 2022, the growth of domestic semiconductor equipment companies mainly benefited from the expansion of mature processes and the localization of production line equipment. Since last year, the procurement of domestic advanced wafer factories has begun to accelerate marginally, and the verification and introduction of domestic equipment is also increasing. AMEC's CCP etching equipment and ICP etching equipment have achieved 94% and 95% process coverage in the fields of logic and memory devices respectively, NAURA ICP equipment has achieved breakthroughs in 12-inch technology nodes, and CCP equipment has also achieved coverage of multiple key processes in the fields of logic, storage, and power semiconductors.

There is demand, and there is also the ability to meet demand, and a new round of centralized volume of domestic semiconductor equipment can be expected.

From the perspective of valuation, the semiconductor equipment sector has continued to pull back since the high point in April 2023, and the current historical quantile of the Wind Semiconductor Equipment Index PE (TTM) is less than 5%, which is extremely cost-effective.

With the official establishment of the third phase of the National Fund, the superimposed "Kete Valuation" market is heating up, and the atmosphere and voice of the valuation are getting stronger and stronger, and a number of semiconductor equipment companies listed on the Science and Technology Innovation Board must attach great importance to it.

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The content of this article related to listed companies is the author's personal analysis and judgment based on the information publicly disclosed by listed companies in accordance with their legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.); The information or opinions contained herein do not constitute any investment or other business advice, and Market CapWatch disclaims any liability for any actions resulting from the adoption of this article.

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