A-Shares Soar, Semiconductor Companies Cash In!

On October 7th, the Hong Kong stock market experienced a significant uptick in the semiconductor sector, with major players like SMIC soaring over 18% and Shanghai Fudan and Hua Hong Semiconductor both increasing by over 14%. Notably, smaller semiconductor stocks exhibited even more impressive gains, with Brain Hole Technology peaking at a staggering 599%. Analysts suggest that this abrupt surge in Hong Kong's chip stocks is closely linked to a fervent enthusiasm from investors, reminiscent of past market trends where tech stocks are the first to attract attention during major ralliesZhao Yin International anticipates that the semiconductor industry might experience a reevaluation opportunity in the near future.

Following the National Day holiday, the first day of trading in the A-share market saw all major semiconductor stocks open in the green, leading the market's upward momentum

The semiconductor sector itself rose by over 14.4%, with five-day gains surpassing 48.3%, making it the top-performing industry sectorIn comparison, the consumer electronics index trailed behind with a 10.98% increaseStocks for companies like SMIC and Hua Hong even hit the daily limit up, while over 60 stocks across various industry chains—spanning semiconductor materials, equipment, consumer electronics, automotive electronics, and storage modules—also struck limit upsIn addition, other sectors such as software, Huawei concepts, and AI saw substantial gains as well.

Today, SMIC's A-share trading volume reached 20 billion yuan, hitting the daily limitAs the semiconductor sector rallied again in the afternoon, shares for SMIC, Taiji Technology, and Fudan Microelectronics jumped over 19%, while Haiguang Information, Cambrian, and Dongwei Semiconductor also surged.

In the past few days, both the semiconductor index and associated stocks have witnessed remarkable increases

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Companies such as Unigroup Guowei, Tongfu Microelectronics, Huatian Technology, North Huachuang, and Yake Technology have all hit limit upsAfter enduring over a year of high inventory levels, low demand, reduced investments, and capacity cuts, it appears the global semiconductor industry is finally emerging from the darkness into the light.

The performance of domestic semiconductor supply chain companies has been impressive.

This recent stock market surge is not only attributed to broader trends but also closely connected to the outstanding performance of supply chain firms in the semiconductor industry during the first half of this year.

Statistics indicate that 159 A-share listed semiconductor companies achieved combined revenues of 273.83 billion yuan and a net profit attributable to shareholders of 17.92 billion yuan during the first half of 2024, showing increases of 22.01% and 11.57%, respectively, compared to last year.

Among these, Wentai Technology, SMIC, and Changjiang Electronics Technology led the industry in revenue, each surpassing 15 billion yuan for the period

North Huachuang, SMIC, and Weier Technology also reported a net profit of over 1 billion yuan each in the first half.

When examining the sub-sectors, revenue and profits in digital chip design, integrated circuit packaging and testing, and semiconductor equipment segments all saw year-over-year growthIn contrast, areas such as analog chip design, discrete devices, integrated circuit manufacturing, and semiconductor materials faced a scenario of revenue gains with declining profits.

On the R&D front, the 159 listed semiconductor companies collectively spent 33.66 billion yuan in R&D during the first half of 2024, up 17.99% year-on-year, whilst the overall R&D expense ratio stood at 12.29%.

Regarding profits, these companies achieved a total net profit attributable to shareholders of 17.92 billion yuan in the first half, a year-over-year increase of 11.57%. North Huachuang, SMIC, and Weier Technology were the leaders in net profit for the sector, each exceeding 1 billion yuan.

According to Shenwan classification, sub-sectors in digital chip design, integrated circuit packaging and testing, and semiconductor equipment have shown outstanding performances with both revenue and net profit increases.

In the first half of 2024, the digital chip design sector posted revenue of 69.33 billion yuan, reflecting a year-on-year increase of 36.02%, with net profits reaching 6.65 billion yuan, which is a striking 165.99% increase

The integrated circuit packaging and testing industry reported a revenue of 38.63 billion yuan—a 22.95% growth—while net profits surged by 91.52% to 1.49 billion yuanThe semiconductor equipment segment achieved revenues of 28.76 billion yuan, increasing by 38.45%, with net profits up 11.95% to 5.13 billion yuan.

However, in the analog chip design, discrete device, integrated circuit manufacturing, and semiconductor materials segments, revenue saw growth while profits took more than a 10% decline year-on-yearIn particular, the net profits in the analog chip design sector plummeted over 100%, while profits in integrated circuit manufacturing and discrete devices dropped by more than 50%, indicating a notable decrease in profitability.

Driven by rising demand in consumer electronics, companies across the industry chain have achieved commendable results

Overall, with the industry cycle warming up, semiconductor chain companies have displayed impressive performances, with over 80% reporting profitability.

Fundamentals are showing strong recovery while money flows into the semiconductor sector.

Currently, the market is optimistic about the recovery momentum of the global semiconductor industry cycleData from the Semiconductor Industry Association (SIA) indicates that global semiconductor sales reached $53.1 billion in August 2024, representing a year-on-year increase of 20.6%, marking the tenth consecutive month of year-on-year growth since November 2023.

Amidst strong demand, the world is rapidly expanding its wafer fabrication capacity

In June of this year, the International Semiconductor Manufacturing Association (SEMI) announced in its latest quarterly global wafer fab forecast, “The recovery in market demand and increased government incentives are driving a surge in wafer fabrication investments in major chip manufacturing regionsGlobal capacity is expected to grow by 6% in 2024 and 7% in 2025, reaching a historic high of 33.7 million wafers per month (measured in 8-inch equivalent).”

In response to this trend, the semiconductor equipment market is also seeing significant growthSEMI predicts that expenditures on 300mm (12-inch) wafer fab equipment will first exceed $100 billion in 2025, ultimately reaching a record $137 billion by 2027.

Various governments around the world have also unveiled a series of incentive policies.

In May, Malaysian Prime Minister Anwar Ibrahim unveiled an ambitious “National Semiconductor Strategy” (NSS) during the SEMICON SEA 2024 conference in Kuala Lumpur

This plan aims to secure at least 500 billion ringgit (approximately $107 billion) in local semiconductor industry investments, establishing Malaysia as a center for semiconductor manufacturing and innovation while focusing on building strong chip design capabilities.

Vietnam’s government has recently announced its ambitious development plans to establish at least one semiconductor manufacturing facility and ten packaging and testing facilities by 2030.

China's semiconductor market is performing equally wellBuoyed by local production and a recovery in demand for consumer electronics, Chinese wafer foundries were operating at high capacity in Q2 this year, likely maintaining stable recovery trends for related listed companies.

Data shows that China’s integrated circuit exports are emerging from downward pressure and gradually regaining “vitality.” In the first eight months of this year, integrated circuit exports amounted to 736.04 billion yuan, up 24.8%; these exports have now surpassed those of automobiles (which amounted to 540.84 billion yuan), establishing integrated circuits as a major category of China's export products.

During 2022 and 2023, the global chip industry faced a downturn, with the market trend shifting from “chip grabbing” to “de-stocking.” The SIA reported that the total sales in the global semiconductor industry were $526.8 billion in 2023, reflecting an 8.2% decline year-on-year

As a result, China’s integrated circuit export growth rates fell to 3.5% and -5% in 2022 and 2023, respectively, effectively ending five consecutive years of double-digit high growth.

This year, the situation has begun to reverseBased on monthly data, in August, the export value of China's integrated circuits reached 95.18 billion yuan, marking an 18.2% increase year-on-year, with exports growing on a year-over-year basis for ten consecutive months.

Integrated circuits are considered a typical cyclical industry, oscillating every four to five yearsAnalysis suggests that the industry is finally emerging from recessionInnovations in AI applications, exemplified by ChatGPT, along with trends in automotive intelligence and electrification, will continue to drive the semiconductor industry upward.

As the fundamentals gradually improve, a surge of capital is flowing into the semiconductor sector

Data indicates that on the previous day, net inflows into the Shanghai and Shenzhen indices reached 120 billion yuan, with net inflows into the semiconductor sector amounting to 27.85 billion yuan, placing it second only to the brokerage sector, which had net inflows of 54.7 billion yuan.

Yet amid this euphoric market, significant sell-offs have been taking placeRecently, Huada Jiutian announced that its shareholder, Purun Semiconductor (Shanghai) Co., Ltd., has reduced its stake by 302,900 sharesMeanwhile, a stakeholder of Nanchip Technology, holding 5.82%, plans to reduce their holdings by no more than 4.25 million shares, accounting for 1% of the total share capitalWentai Technology has also announced a shareholding reduction plan involving the renowned Gree Electric.

Chinese enterprises continue to innovate and expand into the AI industry.

In the first half of this year, China's integrated circuit industry performed remarkably, with chip manufacturing and chip design companies generally seeing revenue improvements

AI has emerged as a significant driving force for industry growth, fueling rapid demand for GPU chips, servers, and high-bandwidth memory (HBM) chips.

On the evening of October 8th, multiple listed companies in the A-share market released preliminary reports for Q3. Several firms indicated sufficient orders, projecting a rise in net profits for the first three quarters.

Huidian Technology forecasted a net profit between 1.821 billion and 1.871 billion yuan for Q3, marking a year-on-year increase of 91.05% to 96.29%. The projected net profit for Q3 2024 is between 680 million and 730 million yuan, reflecting a 47.67% to 58.53% year-on-year increase.

Huidian attributed this growth primarily to the structural demand for printed circuit boards driven by emerging computing scenarios such as high-speed computing servers and artificial intelligence, predicting increases in both operating revenue and net profit for Q3 2024.

Similarly, Guanghe Technology, also specializing in PCB products, has provided optimistic projections for its Q3 report

Their announcement indicated that due to the continual optimization of product structure driven by the upgrade of general servers and the growing demand for server PCBs spurred by AI applications, projected net profits for the first three quarters stand between 485 million and 500 million yuan, marking a year-on-year increase of 67.34% to 72.51%.

Since the beginning of this year, numerous local governments have also introduced supportive policies aimed at tapping into the potential of AI applications.

Targeting demand for AI inference scenarios, Chinese companies are continuously innovating and broadly deploying AI technologies and applications.

Reports indicate that Huawei has commenced mass shipments of its Ascend 910 accelerator, with its initial customers, including Alibaba, Baidu, and Tencent, having previously procured substantial quantities of NVIDIA GPU accelerators

It is noted that the Ascend 910C can serve as a substitute for NVIDIA's H100, being utilized for large-scale AI training and inference, and potentially surpassing NVIDIA's B20 designed specifically for Chinese clients in performanceThe first batch of Ascend 910C units amounts to around 70,000, valued at approximately 1.4 billion yuan—making them significantly more cost-effective than NVIDIA GPUs.

Based on the Ascend processors, numerous solutions have emerged from Chinese enterprises.

In recent years, SenseTime Medical has actively responded to state policies, vigorously promoting the domestication of medical AI productsTheir large-scale medical model, "Da Yi," recently made an appearance at the 9th Huawei Connect conference

As of now, not only has "Da Yi" passed the compatibility technology certification with Ascend, but also several AI-assisted diagnostic applications under it have been adapted to mainstream domestic core software and hardware, including CPUs, NPUs, operating systems, databases, and middleware from multiple core modules, covering various Chinese mainstream brands.

Additionally, integrating large models into businesses requires a comprehensive array of software and hardware supportHowever, high computational costs and corresponding data security concerns often lead to substantial investmentsIn response to this, DingTalk and Ascend jointly launched a dedicated AI integrated machine solution that promotes deep collaboration between software and hardware to accelerate the implementation of intelligent assistants in enterprises.

Zhang Yiwei, president of Huawei's computing products line, stated that over the next three years, Huawei plans to invest 1 billion yuan annually to nurture its ecosystem, fully supporting the proliferation and promotion of natively developed applications and aiming to develop over 1,500 partners for native applications, covering 80% of computing scenarios, with the goal of having applications based on Kunpeng & Ascend native development reach 80%.

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