Investment advice
Industry strategy: with the huge data of year-on-year multiple growth generated by machines every year, and the structural shortage caused by the annual demand for analog chips with 20% CAGR increment and MCU, CPU, GPU, AI and WiFi chips with 20% CAGR increase in electric self driving and servers, we estimate that the downward cycle of the global logic chip industry will be relatively stable in 2023 (a year-on-year increase of 5-7%), but we expect the delivery time of various short material chips to be shortened, The number of months of global / Chinese chip inventory will be adjusted, and the year-on-year revenue growth will slow down. The production expansion of 12 “mature process capacity may exceed the demand increment. Although the inflection point signals have emerged one by one, the valuation adjustment of global and Chinese semiconductor leading companies has been significantly ahead of the slowdown of fundamentals. We maintain the buy rating of the semiconductor industry.
Recommend strong application portfolio: we recommend strong application leading chip companies Montage Technology Co.Ltd(688008) (server memory interface, PCIe gen4 / 5retimer, Tianjin CPU), Sg Micro Corp(300661) (analog chip leader, scattered product portfolio), Starpower Semiconductor Ltd(603290) (vehicle power IGBT), Gigadevice Semiconductor (Beijing) Inc(603986) (China memory design leader), and Naura Technology Group Co.Ltd(002371) (domestic alternative chip equipment leader).
Industry perspective
Structural shortage of strong global semiconductor demand: 1) since 2019, the data of machine manufacturing has increased year-on-year by multiple. These huge data need to be processed and analyzed through artificial intelligence chips and collect useful data in memory chips; 2) Self driving electric vehicles drive more than 20% of vehicle chips to grow CAGR in the next few years, including various analog chips (power management, motor drive, signal adjustment, transceiver), power (MOSFET, IGBT, SiC), MCU, edge computing CPU, FPGA, aigpu, and memory requirements; 3) Metauniverse, big data, iterative competition, accelerated drive server and supporting chips demand more than 20% CAGR, including 5 / 4 / 3 / 2nmx86 / armcpu / aigpu, ddr5 / 6, PCIe Gen 5 / 6 retimers, FPGA, NV link, infinity fabric, CXL, CXL and high-speed network chips.
Inflection point signals emerge one by one: 1) we expect that the delivery date of short material chips (analog, MCU, power, FPGA and network chips) for vehicles and servers will be reduced by 3-5 weeks quarter by quarter from 40-50 weeks in the first quarter to 30 weeks in the fourth quarter of 2022. If the quarterly delivery date is reduced more than expected, the inflection point is clear; 2) Worried about the rising price of wafer foundry and repeated orders for fear of being kicked out of the queue of wafer foundry, we expect the number of global logic chip inventory months to move towards exceeding the reasonable number of chip inventory months from less than 3.5 months at the end of 2021 (4 months globally, 5 months for Chinese chip design customers are reasonable, up to 6.5 months at present); 3) We expect that from 2022 to 2024, except that the demand for automotive, server and industrial chips will grow steadily by more than 20%, the revenue growth of other weak applications (mobile phones, laptops, TVs and mature consumer electronics) chips will be less than 10 points year-on-year, or even decline; 4) We expect that in 2023, 8 “mature process expansion (with a year-on-year increase of 8%) and 12” advanced process expansion (with a year-on-year increase of 15-20%) will meet the demand, but 12 “mature process expansion (with a year-on-year increase of 16%) will exceed the demand (with a year-on-year increase of 8%); 5) the inflection point will be seen from whether the price rise of wafer foundry can continue.
Risk tips
The risk of the expansion of the Ukrainian Russian war, the risk of the interruption of China’s production chain, the risk of rising global inflation, raising interest rates and reducing demand, the risk of oversupply of wafer foundry capacity and the over average number of chip inventory months.
