A-shares Surge, Semiconductor Companies Prosper
In recent times, the semiconductor stocks in Hong Kong have witnessed a remarkable surge, capturing the attention of investors and analysts alike. Semiconductor giant SMIC saw an impressive rise of over 18%, while other notable players like Shanghai Fudan and Huahong Semiconductor also experienced significant gains, each exceeding 14%. The most astonishing performance came from smaller semiconductor stocks, such as Brainhole Technology, which soared by as much as 599% during intraday trading. Analysts speculate that this sudden explosion in semiconductor stock prices is closely linked to the exuberance of investor sentiment. Historical trends suggest that in each wave of substantial market movements, technology stocks often lead the charge in attracting capital inflows. CMB International has predicted that the semiconductor industry is potentially on the brink of a revaluation opportunity.
The excitement didn't stop there; on the first trading day following the National Day holiday, the A-share semiconductor sector opened to a sea of green, propelling the main index higher. The semiconductor industry index surged by over 14.4%, with a five-day increase exceeding an astonishing 48.3%. This performance led all sectors, while the consumer electronics industry index followed closely with a gain of 10.98%. Heavyweights like SMIC and Huahong both opened up by 20%, hitting their upper trading limits, as over 60 stocks across various segments of semiconductor materials, devices, consumer electronics, automotive electronics, and memory modules experienced similar upward momentum. Furthermore, other sectors including software, Huawei-related firms, and AI technologies also witnessed considerable gains.
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On this particular day, SMIC’s A-share trading volume reached an impressive 20 billion yuan, leading to its stock hitting the daily limit. The semiconductor sector climbed again in the afternoon, with SMIC, Taiji Co., and Fudan Microelectronics increasing by over 19%, while companies such as Haiguang Information and Cambricon also enjoyed substantial gains.
The recent days have been characterized by a significant upward trend in the semiconductor index and related stocks, with firms like Unisoc, Tongfu Microelectronics, Huatian Technology, Northern Huachuang, and Yake Technology all hitting their price limits. This upturn marks the end of a long, challenging period for the global semiconductor industry, characterized by high inventory, low demand, reduced investment, and cut production capacities. Finally, this industry seems to have emerged from the shadows of uncertainty into a new dawn of hope.
Domestic Semiconductor Industry Shows Strong Performance
This impressive stock market surge, beyond broader market trends, is intrinsically linked to the exceptional performance of domestic semiconductor companies in the first half of this year.
Statistics reveal that China’s 159 publicly listed semiconductor companies generated a combined revenue of 273.83 billion yuan in the first half of 2024, with a net profit attributable to shareholders reaching 17.92 billion yuan. This represents year-on-year increases of 22.01% and 11.57%, respectively.
Among these companies, Weitai Technology, SMIC, and Changjiang Electronics stand out with revenue exceeding 15 billion yuan each in the first half of the year. The net profit attributable to the parent companies for Northern Huachuang, SMIC, and Weltrend exceeded 1 billion yuan during this period.
Diving deeper into specific segments, the digital chip design, integrated circuit packaging/test, and semiconductor equipment sectors all saw revenue and net profit growth compared to last year. However, some sectors like analog chip design, discrete devices, integrated circuit manufacturing, and semiconductor materials experienced revenue growth without corresponding profit increases.
In terms of research and development investments, these 159 semiconductor companies combined spent around 33.66 billion yuan on R&D, marking a 17.99% increase year-on-year, equating to an overall R&D expense ratio of 12.29%.
Overall, the profit figures are promising, as these companies amassed a total net profit attributable to shareholders of 17.92 billion yuan in the first half of 2024, showing an 11.57% growth. A closer look at the segments categorized by Shenwan Industry Classification reveals that the digital chip design, integrated circuit packaging/test, and semiconductor equipment sectors demonstrate noteworthy performance, recording gains in both revenue and net profit compared to last year’s figures.
In the first half of 2024, the digital chip design industry achieved revenue of 69.33 billion yuan, a growth of 36.02% year-on-year; the net profit attributable to shareholders stood at 6.65 billion yuan, skyrocketing by 165.99%. The integrated circuit packaging/test sector recorded revenue of 38.63 billion yuan, up by 22.95%, with net profit at 1.49 billion yuan, reflecting a remarkable year-on-year increase of 91.52%. The semiconductor equipment sector's revenue reached 28.76 billion yuan, up 38.45%, with a net profit of 5.13 billion yuan, increasing by 11.95%.
Sectors such as analog chip design, discrete devices, integrated circuit manufacturing, and semiconductor materials saw revenue increases, yet their respective net profits reflected double-digit declines compared to last year, indicating a notable drop in profitability. Specifically, the net profit in the analog chip design sector dropped by over 100%, while those in integrated circuit manufacturing and discrete devices experienced falls exceeding 50%, highlighting a significant downturn in profitability.
The encouraging results in the semiconductor industry are largely driven by revitalized demand in the consumer electronics market. Overall, surpassing 80% of the semiconductor industry chain companies achieved profitability as the industry cycle warmed up.
Fundamental Recovery Fuels Investment into Semiconductor Sector
The market currently displays optimism regarding a recovery in the global semiconductor cycle. Recent data from the Semiconductor Industry Association (SIA) indicates that global semiconductor sales reached $53.1 billion in August 2024, marking a year-on-year increase of 20.6% and achieving continuous growth for ten months.
On the back of recovering demand, there has been a remarkable expansion of wafer fabs worldwide. In June, the International Semiconductor Equipment Association (SEMI) released a quarterly global wafer fabrication forecast report, stating that “increased market demand recovery and government incentives globally drove a significant surge in wafer fab investments across major chip manufacturing regions. It is predicted that global production capacity will grow by 6% in 2024 and 7% in 2025, reaching a record monthly capacity of 33.7 million wafers (measured in 8-inch equivalents).”
This upward trend also propels the semiconductor equipment market. SEMI forecasts that expenditures on equipment for 300mm (12-inch) wafer fabs will exceed $100 billion for the first time by 2025 and will hit a record $137 billion by 2027.
Governments in various regions are introducing a series of incentive policies as well. In May, Malaysia’s Prime Minister Anwar Ibrahim unveiled an ambitious “National Semiconductor Strategy” (NSS) at the SEMICON SEA 2024 conference in Kuala Lumpur. The plan aims to attract at least 500 billion ringgit (about $107 billion) in local semiconductor investments, solidifying the nation as a center for semiconductor manufacturing and innovation while focusing on establishing a robust chip design foundation.
Similarly, the Vietnamese government announced its ambitious development plans, aiming to establish at least one semiconductor manufacturing plant and ten packaging and testing facilities by 2030.
China's semiconductor market has also been vibrant. Amid the background of localized production and a resurgence in consumer electronics demand, domestic wafer foundries reported a high level of operational capability in Q2 this year, projecting steady performance recovery among related publicly listed companies.
Data indicates that China’s integrated circuit exports are emerging from earlier pressures, gradually regaining vitality. In the first eight months of this year, China’s integrated circuit exports reached 736.04 billion yuan, a rise of 24.8%. This surge has pushed integrated circuit exports to surpass those of automobiles, marking a significant category in Chinese exports.
Following a downturn in the global chip sector from 2022 to 2023, where the market dynamics shifted from a “chip shortage” to “destocking,” SIA's reports noted that the global semiconductor industry sales totaled $526.8 billion in 2023, down 8.2%. Consequently, China’s integrated circuit export growth slowed to 3.5% and -5% in 2022 and 2023, respectively, ending a five-year stable period of double-digit growth.
However, this trend has recently begun to reverse. Monthly data shows that in August, China’s integrated circuit export value hit 95.18 billion yuan, reflecting an 18.2% increase and demonstrating ten consecutive months of year-on-year growth.
The integrated circuit industry is deemed cyclical, averaging a cycle length of four to five years. Analysts believe the industry is currently emerging from a phase of recession. Innovations in AI applications, exemplified by products like ChatGPT, along with trends in automotive intelligence and electrification, are expected to sustain the upward trajectory of the semiconductor industry.
Against the backdrop of gradually improving fundamentals, substantial capital has flowed into the semiconductor sector. Reports indicate that net capital inflows totaling 120 billion yuan entered the Shanghai and Shenzhen indexes just yesterday, with the semiconductor sector attracting a net inflow of 27.85 billion yuan, second only to the brokerage sector’s 54.7 billion yuan inflow.
However, amid this period of market enthusiasm, a wave of massive sell-offs has accompanied the rising trends. Recently, Huada Jiutian announced that its shareholder, Puran Semiconductor (Shanghai) Co., reported a reduction of 302,900 shares. Nanchip Technology’s shareholder, which holds 5.82% of the shares, is also planning to sell up to 4.2546 million shares through centralized bidding and block trading, comprising 1% of the company's total equity. Furthermore, Weitai Technology announced a shareholding reduction plan involving Gree Electric.
Chinese Enterprises Innovate Continuously and Expand AI Sector Layout
This year, the integrated circuit industry in China has showcased exceptional performance, with widespread recovery observed in both chip manufacturing and design enterprises’ revenues. Notably, AI has emerged as a key driver of industry growth, leading to skyrocketing demand for GPU chips, servers, and high-bandwidth memory (HBM) chips.
On the evening of October 8, preliminary third-quarter earnings forecasts were released by a number of A-share listed companies, revealing sufficient orders and anticipated net profit growth for the first three quarters.
For instance, Huitian Co. projected a net profit between 1.821 billion and 1.871 billion yuan, a growth of 91.05% to 96.29%, with expected third-quarter net profits between 680 million and 730 million yuan, approximating a year-on-year increase of 47.67% to 58.53%.
The reasoning behind this impressive forecast stems from structural demands brought about by high-speed computing servers and the burgeoning AI sector, suggesting significant revenue and profit growth for the third quarter of 2024 compared to last year.
Likewise, Guanghe Technology, which also specializes in PCB products, has reported optimistic expectations. According to their latest announcement, the ongoing upgrade of general servers due to AI applications has substantially driven up the demand for server PCBs, leading to a projected net profit of 485 million to 500 million yuan for the first three quarters of this year, reflecting a growth of 67.34% to 72.51% year-on-year.
Since the beginning of this year, governments have unveiled numerous supportive policies aimed at unlocking the potential of AI applications.
Focusing on the demands of AI inference scenarios, Chinese enterprises continue to innovate and establish extensive layouts in AI technology and applications.
Reports indicate that Huawei has commenced bulk shipments of the Ascend 910 accelerators to major players in the internet sector, including Alibaba, Baidu, and Tencent, who previously purchased a significant number of NVIDIA GPU accelerators. The Ascend 910C is reported to be a competitive alternative to NVIDIA’s H100, particularly for large-scale AI training and inference applications, and it is expected to outperform NVIDIA's B20, which was custom-developed for Chinese clients. The initial shipment of the Ascend 910C is estimated at around 70,000 units, valued at approximately 1.4 billion yuan, averaging about 20,000 yuan per piece, which offers a far better price-to-performance ratio than NVIDIA’s GPUs.
Building around the Ascend processors, Chinese companies have released numerous solutions.
In recent years, SenseTime Medical has actively aligned itself with government policies, making significant strides towards the localization and adaptation of AI medical products. Its medical model, known as “Big Doctor,” made its debut at the 9th Huawei Connect Conference. To date, the model has achieved compatibility certification with the Ascend processors, and its AI-assisted diagnostic applications are now adapted to mainstream domestic software and hardware bases, which include CPUs, NPUs, operating systems, databases, and middleware, spanning multiple key modules across leading domestic brands such as Kunpeng, Ascend, Kylin, Unified Operating System, and more.
Moreover, deploying large models in enterprises requires a suite of supporting software and hardware. However, the high cost of computing power typically correlates with massive expenditures in data security. In response to this challenge, DingTalk and Ascend jointly launched a dedicated AI all-in-one solution, fostering deep collaborations in software and hardware to accelerate the deployment of intelligent assistants within enterprises.
According to Zhang Xiwei, President of Huawei's Computing Product Line, the company plans to invest 1 billion yuan in developing its ecosystem annually over the next three years. The aim is to promote the proliferation of natively developed applications, support the growth of over 1,500 native application partners, and cover over 80% of computational scenarios wherein applications developed on Kunpeng and Ascend platforms reach a similar coverage rate.
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