The trend of demand recovery is obvious

Since 2024, the semiconductor industry has shown a clear trend of recovery. The World Semiconductor Trade Statistics Organization released a report showing that the semiconductor market grew to $166 billion in the third quarter of 2024, an increase of 10.7% compared to the second quarter of 2024. The global semiconductor market is experiencing a strong recovery, and the industry is entering an upward cycle.

Among listed companies, the development of semiconductor companies also demonstrates signs of industry recovery. In the first half of 2024, the net profit of 57 companies increased by nearly 200% year-on-year. Among them, 10 companies are expected to report a net profit of over 400 million yuan in the first half of 2024, with North Huachuang (424.030, 8.35, 2.01%) and Weier Shares (101.020, 2.38, 2.41%) having net profits of up to 2.96 billion yuan and 1.408 billion yuan, respectively. The latest third quarter report disclosed by Northern Huachuang also continued the trend of recovery, achieving a revenue of 8.018 billion yuan in the third quarter, a year-on-year increase of 30.12%; Net profit was 1.682 billion yuan, a year-on-year increase of 55.02%. SMIC (90.200, 0.10, 0.11%), the world's third-largest chip and wafer foundry, released its third quarter performance. The announcement shows that the company's operations improved significantly in the third quarter of this year, with a single quarter revenue of 15.6 billion yuan, a year-on-year increase of 32.5%; The net profit was 1.06 billion yuan, a year-on-year increase of 56.5%.

The current global semiconductor market has shown signs of cyclical recovery, with demand rebounding, profits growing, and market size increasing, "said Liu Xingliang, a member of the Information and Communication Economy Expert Committee of the Ministry of Industry and Information Technology. Starting from 2023, as the impact of the epidemic on the global supply chain gradually subsides, the problem of high inventory in the semiconductor industry is gradually resolved, downstream enterprises are starting to restock, and the demand for consumer and industrial electronic products is increasing, with a clear trend of recovery.

The electronics industry is showing cyclical growth, with a significant recovery trend in the first half of the year, "said Geng Zheng, chief analyst of the electronics industry at Guangfa Securities (16.720, 0.28, 1.70%). In the first half of 2024, due to the gradual recovery of the industry, the rapid growth in demand for artificial intelligence training and reasoning has driven strong demand for related chips. Coupled with the end of destocking, the prosperity of the electronics industry has entered an upward channel, and global semiconductor sales have resumed year-on-year growth.

Currently, China has been the world's largest semiconductor market for several consecutive years, occupying nearly one-third of the global market share. In the first three quarters of this year, domestic semiconductor sales reached 135.8 billion US dollars, accounting for nearly 30% of the global total. The government has provided significant support to the semiconductor industry, gradually promoting the scale and high-end development of local semiconductor manufacturing and supporting industrial chains through industry policies, tax incentives, and talent cultivation.

Several securities companies have shown a positive attitude towards the semiconductor sector. Guojin Securities (9.240, 0.13, 1.43%) stated that the active destocking has ended, and there is a cyclical upward signal in the semiconductor industry in 2024. The overall supply adjustment is in place, and as demand steadily increases, chip prices are expected to bottom out and rise, and the semiconductor industry chain is about to open an upward channel.

Guosen Securities (11.530, 0.04, 0.35%) released a research report emphasizing the optimistic outlook on the sustainability of the semiconductor market. With the formation of the market's "policy bottom", the hard technology sector combines the dual characteristics of "pro cyclical economy" and "new quality productivity" in the policy orientation of "balancing stable growth and structural adjustment", and the semiconductor industry has become the industry sector with the highest market consensus.

Domestic substitution acceleration

The strength of the semiconductor sector this time is partly due to the need for technological innovation. Many investment institutions and individual investors are optimistic about the future development of the technology industry, viewing semiconductors as the key to technological innovation and industrial upgrading. The technology sector has attracted a large amount of capital to actively invest. On the other hand, the complex and ever-changing external environment also provides opportunities for the development of the semiconductor sector.

Faced with the uncertainty of the international supply chain, the importance of domestic substitution of semiconductor equipment is increasingly prominent and has become a focus of market attention. Driven by both national policies and market demand, investors are optimistic about the long-term growth potential brought by domestic substitution and are investing their funds in this field, looking forward to sharing the fruitful results of technological self-reliance and self-improvement.

CITIC Securities (31.330, 0.58, 1.89%) proposed that the domestic demand market and independent controllability of China's semiconductor industry have become clear development directions. CITIC Securities further proposed that the "bottleneck" of the US in the field of advanced technology will not change the long-term high-end development direction of China's semiconductor industry, but will accelerate China's industrial self-reliance and self-improvement.

Xinda Securities (15.410, 0.22, 1.45%) believes that in the medium to long term, this will force supply chain restructuring, increase domestic demand for advanced process capacity, and promote technological breakthroughs in upstream semiconductor equipment and materials.

The adjustment of the supply chain in the international semiconductor market has provided domestic enterprises with opportunities to overtake on the bend, "said Liu Xingliang. The global trend of risk reduction and localized manufacturing has led countries to strengthen their investment in the local semiconductor industry. At the same time, China has introduced a series of measures to stabilize growth, stimulate domestic demand, promote the recovery of related industrial chains, and overall, further stimulate semiconductor demand.

In the future, there is still a vast space for domestic substitution, and domestic semiconductor companies are expected to continue to benefit from the deepening of the domestic substitution process. Geng Zheng said that semiconductor domestic substitution will continue to advance from point to surface, from easy to difficult. From consumer electronics to industrial control vehicle products, from chips to manufacturing and equipment, local manufacturers continue to increase their R&D investment, constantly achieve technological breakthroughs, and expand their growth boundaries.

Further unleashing growth potential

Looking ahead, industry insiders believe that the growth trend of the semiconductor sector is expected to continue.

The new quality productivity emphasizes knowledge intensity, technological leadership, and resource conservation, and the innovative development of the semiconductor industry is highly in line with this concept. Liu Xingliang stated that the semiconductor industry belongs to the field of new quality productivity, representing the core driving force (10.890, 2.15, 24.60%) in the economic structural transformation. It not only improves the efficiency of traditional industries, but also gives rise to new economic forms such as intelligent manufacturing, autonomous driving, and smart cities. With the continuous expansion of downstream demand such as artificial intelligence chips, automotive electronics, and smartphones, the growth potential of the semiconductor industry is expected to be further released.

According to data from the World Semiconductor Trade Statistics Organization, the total size of the global semiconductor market is expected to rise to $611.2 billion by 2024. Looking ahead to 2025, it is expected that the global semiconductor market will grow by 12.5%, with a valuation of $687 billion. In the long run, the market believes that the positive trend of the semiconductor industry will not change.

Xinda Securities stated that the country continues to strengthen policy support for scientific and technological innovation, providing strong guarantees for science and technology innovation oriented enterprises. The semiconductor industry has strong scientific and technological innovation attributes and is an important part of new quality productivity. The current trend of semiconductor recovery is gradually becoming clear, with continuous support from national policies, and the semiconductor industry has long-term investment opportunities. SMIC's third quarter report shows that the company has added 21000 pieces of 12 inch monthly production capacity, promoting further optimization of product structure and an increase in average sales unit price. The overall capacity utilization rate of the company has increased to 90.4%, and the gross profit margin has increased to 20.5%. In the fourth quarter, the guidance given by the company's management is for revenue to remain stable on a month on month basis and increase by 2%, with a gross profit margin between 18% and 20%.

Tianfeng Securities (5.180, 0.37, 7.69%) stated that the semiconductor industry will enter the traditional peak season in the second half of the year. With the release of new consumer electronics devices, it is expected that artificial intelligence smartphones and personal computers will be the main highlights of this year's new devices. In addition, breakthroughs in the research and development of domestic servers will continue to revive semiconductor demand, highlighting the growth potential of Chinese semiconductor companies. SMIC's third quarter report shows a significant improvement in revenue and net profit in the third quarter, mainly due to a year-on-year increase in wafer sales volume and changes in product mix. In the third quarter of 2024, SMIC's revenue from the China region increased by over 6 percentage points compared to the second quarter. Under the expansion of production capacity, the company's capacity utilization rate is also increasing, reaching 90.4%, compared to 77.1% in the same period last year.

CITIC Securities believes that looking ahead to 2025, the global semiconductor industry is expected to continue to grow in scale, and the high computing power in the cloud is expected to continue. At the same time, it expects end-to-end AI to become a new growth point driving the continued upward trend of the semiconductor industry. The domestic semiconductor industry, as the underlying foundation of technological innovation and productivity, is expected to perform better in the next stage, driven by various favorable factors such as policy support, cycle reversal, incremental innovation, and domestic substitution. At the same time, it is also influenced by higher participation in the field of AI at the end.

Looking ahead to 2025, with the economic recovery at home and abroad, the demand for the semiconductor industry is expected to improve, "said Liang Zhenpeng, Chief Advisor of Zhifan Coast Institution and a senior observer of industrial economics. Under the long-term development trend of independent innovation in China's semiconductor enterprises, with continuous research and development innovation, it will be more beneficial for the overall development of the industry chain. Enterprises in various links of the upstream and downstream must seize development opportunities.

Source: Economic Daily