On October 18th, the semiconductor sector saw a significant rise, with Jinghua Micro, Shanghai Bell, RoboTech, Yongji Shares, Jinhaitong, North HuaChuang, and Zichun Technology all hitting their upper limits. Companies such as Kerma Technology, Linkage Technology, QuanZhi Technology, Blue Arrow Electronics, and National Technology were among the leaders in terms of gains.

It can be said that after enduring over a year of high inventory, low demand, reduced investment, and decreased production capacity, the global semiconductor industry has finally emerged from the dark night into the dawn.

According to industry organization SEMI, it is estimated that the total global semiconductor equipment sales from original manufacturers will reach $109.47 billion in 2024, an increase of 3.36% compared to $105.91 billion in 2023, surpassing the $107.4 billion in 2022, setting a new historical record.

Price increases are the most direct signal of a cyclical reversal.

In 2024, power semiconductors took the lead in raising prices, with Sanlian Sheng's full product line increasing by 10-20%, Blue Color Electronics' full product line by 10-18%, GaoGe Core Micro's full product line by 10-20%, and JieJie Micro's TrenchMOS by 5-10%. Entering May-June, power giants such as Huarun Micro and Yangjie Technology have also successively taken new pricing actions.

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The price increase wave has even begun to spread from components to the wafer foundry end.

According to the latest market news, TSMC's 3nm foundry plan is expected to raise prices by more than 5%, and the advanced packaging annual quote for next year is expected to increase by about 10%-20%. Affected by this news, on June 18th, TSMC's Taipei stock price opened with a gap and set a new historical record during the trading day. Morgan Stanley also noted in its latest report that the current utilization rate of HuaHong Semiconductor's wafer factory has exceeded 100%, and it is expected that the wafer price may be increased by 10% in the second half of the year.

Enterprises within the industry chain are the most sensitive to its ups and downs.

In the wafer factory field, SMIC's revenue in Q1 2024 was 12.594 billion yuan, a year-on-year increase of 23.36%, and a sequential increase of 3.63%, while guiding Q2 revenue to continue to grow sequentially by 5%-7%; in the packaging and testing factory, 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, WeiEr Shares,澜起 Technology, JingChen Shares, RuiXin Micro, Beijing JunZheng, ShengBang Shares, and ZiGuang GuoWei were as high as 351 days, which then decreased to 298 days in the second quarter, 268 days in the third quarter, 243 days in the fourth quarter, and continued to decrease to 240 days in Q1 2024.Prices, inventory, performance, and capacity utilization rates—all these indicators confirm the fact that the semiconductor industry is in an upward cycle. Whether viewed from the perspective of historical patterns or based on current realities, this recovery has a strong and solid logical foundation.

Firstly, the semiconductor industry itself is inherently cyclical, with periods of prosperity followed by decline, and vice versa. Historically, the downturn phase (from peak to trough in year-over-year sales growth) typically lasts for 4-6 quarters.

Taking the data from the past decade as an example, the period from Q1 2013 to Q4 2014 was a time of industry upswing, which turned into a downturn from Q1 2015 to Q2 2016. The industry then entered another upswing phase from Q3 2016 to Q2 2018, followed by a downturn from Q3 2018 to Q3 2019. From Q4 2019 to Q4 2021, the industry's prosperity increased, but it fell into another slump from Q1 2022 to Q1 2023. According to data disclosed by the Semiconductor Industry Association (SIA), the global semiconductor quarterly sales growth rate bottomed out in the first quarter of 2023 and has been narrowing since, turning positive in the fourth quarter. Following historical patterns, a new cycle of prosperity has already begun to brew.

On the other hand, the rapid advancement of AI has universally increased society's demand for computing and storage capabilities, which will ultimately be supported by semiconductors.

The computing power required for Transformer-like AI large models grows by an average of 750 times every 2 years. According to Gartner's estimates, the global AI chip market size was $44.2 billion in 2022 and is expected to grow to approximately $120 billion by 2027. Storage capacities across various fields will also grow in tandem. Micron Technology forecasts that the Compound Annual Growth Rate (CAGR) for DRAM capacity will be 14-19% from 2021 to 2025, and for NAND capacity, it will be 26-29%.

In the latest spring 2024 edition of the semiconductor market forecast, the World Semiconductor Trade Statistics Organization (WSTS) revised its forecast for the 2024 semiconductor market size from $588.364 billion to $611.231 billion, while adjusting the global semiconductor market size for 2023 to $526.885 billion.

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

Combining flexibility and certainty, if there is a sub-sector worth paying the most attention to in this new cycle of semiconductors, it must be equipment.

It is important to clarify that advanced process logic devices have a significantly increased demand for etching, thin film deposition (especially ALD, EPI), metrology, thermal processing, and various other types of equipment compared to mature processes. This increase is reflected in both the total amount of equipment used and the value of individual pieces of equipment. First-hand research data shows that a 12-inch advanced process production line with a monthly output of 10,000 wafers requires 41.5 oxidation/high-temperature/annealing devices, which is 1.9 times that of a mature process production line, and 87 metrology devices, which is 1.7 times that of a mature process production line.

Currently, there is a significant room for expansion in semiconductor equipment, especially in the domestic market.Although the Chinese semiconductor industry has a large market size, the domestic substitution rate is low. In 2023, the self-sufficiency rate of chips in mainland China was only about 12%, and high-end digital chips heavily rely on imports. According to statistics from灼识咨询, the scale of China's AI chip market accounts for 30%-40% of the global AI market size, with a significant portion of orders taken by Nvidia. In the fiscal year of 2023, Nvidia's operating income in mainland China reached $5.8 billion, accounting for 21.45% of its total revenue.

Amid the restrictions on overseas foundry services for high-end chips, for the Chinese semiconductor industry to keep up with the global development pace, it must enhance the domestic manufacturing capabilities of high-performance processors and memory devices, which in turn necessitates an increase in equipment deployment. However, the import of high-end semiconductor manufacturing equipment is subject to strict regulation.

Therefore, the spring for domestic equipment is about to arrive.

According to the latest statistics from SEAJ, in the first quarter of this year, global semiconductor manufacturing equipment sales amounted to $26.42 billion, a year-on-year decline of 2%, while mainland China's sales surged by 113% against the trend, becoming the world's largest semiconductor equipment market for four consecutive quarters. Additionally, based on the calculations by Open Source Securities, due to increased capital expenditure on advanced storage logic wafer fabs and the improvement of domestic equipment substitution rates, the semiconductor equipment sales in mainland China are expected to grow from $36.6 billion in 2023 to $65.77 billion in 2027, with a CAGR of 15.8%.

With a large market space and a favorable competitive landscape, there are only a few companies that can compete in each segment of domestic semiconductor equipment. The core players in the thin film deposition equipment segment are North Hua Chuang and Tuo Jing Technology, the main participants in the etching equipment segment are Sino Micro and North Hua Chuang, Shanghai Micro Electronics leads in the photolithography segment, and Hua Hai Qing Ke is the top player in the CMP equipment field...

When a few companies divide a large piece of cake, it will inevitably lead to explosive performance.

In Q1 2024, North Hua Chuang's operating income was 5.859 billion yuan, a year-on-year increase of 51.36%, and the net profit attributable to the parent company was 1.127 billion yuan, a year-on-year increase of 90.4%. The company's contract liabilities were 9.251 billion yuan, an increase of 11.23% compared to the end of 2023; Tuo Jing Technology achieved an operating income of 472 million yuan, a year-on-year increase of 17.25%, with the amount of sales orders on hand (excluding Demo orders) amounting to 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%; Sino Micro's revenue 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 process production and the domestication of production line equipment. Since last year, the procurement of domestic advanced wafer fabs has begun to accelerate marginally, and the verification and introduction of domestic equipment are also being intensified. Sino Micro's CCP etching equipment and ICP etching equipment have achieved a process coverage of 94% and 95% in logic and storage devices, respectively. North Hua Chuang's ICP equipment has achieved breakthroughs in all 12-inch technology nodes, and its CCP equipment has also achieved coverage of multiple key processes in logic, storage, and power semiconductor fields.

With demand and the ability to meet that demand, the new round of concentrated volume release of domestic semiconductor equipment is entirely值得期待.