China Semiconductors_ 2024 review and 2025 outlook

Industry and Company Overview Industry: China Semiconductors Coverage: Semicap, Analog, Foundry, Computing Timeframe: 2024 Review and 2025 Outlook Key Points 1. 2024 Review * Top Picks: NAURA, AMEC, Hygon, SMIC, Silergy * Outperformers: NAURA (63% growth), AMEC (30% growth), Hygon (106% growth), SMIC (68%/80% growth), Silergy (Market-Perform upgraded in December) * Misjudged: Cambricon & Hua Hong rating changes * Lessons Learned: Consider both fundamentals and sentiment when making rating changes 2. 2025 Outlook * Semicap: * Geopolitical tension to boost domestic substitution * Demand strong, entity list impact priced in * Top picks: AMEC, NAURA, Piotech * Analog: * Silergy as a quality long-term investment target * Growth driven by China Auto * Short-term pressure due to weak China demand * Foundry: * Upcycle and share gain to boost confidence * Profitability pressure remains * SMIC preferred over Hua Hong * Computing: * Export control creates market for local chip vendors * China shifting to inferencing and smaller models * Hygon preferred over Cambricon 3. China WFE Industry * Demand: Expected to decline -19% YoY in 2025 due to strong pull forward in 2024 * Domestic Share: Expected to reach 28% in 2026 * Self-sufficiency: Expected to reach 36% by 2026 * Local fabs: Pushing for supply chain resiliency through co-development with local WFE suppliers 4. Key Companies * NAURA: * Largest domestic WFE platform * Positive top line projection of YoY +30% in 2025 * GPM expected to improve with higher share from WFE and better mix with advanced node equipment * AMEC: * Leader in dry etch, expanding into deposition * Key advanced foundry/memory progress to be major driver of 2025 onwards * Overall localization trend in advanced logic/memory inevitable * Piotech: * Rising star in CVD & hybrid bonding * Significant top line upside in 2025/26 * Shipped products up +160% YoY in 3Q24 * Silergy: * China's largest analog chip supplier * Leader in Power Analog segment * Expected to grow 26%+ CAGR for next few years * SMIC: * Aggressive investments on capacity expansion * Potential on Advanced Node Logic * EPS expected to rebound in 2025 * Hua Hong: * Matured node foundry * Potential re-rating as China's matured node foundry enters demand upcycle * ASP expected to increase in next few quarters 5. Risks * Global overcapacity in matured logic * ASP pressure on matured node foundries * Weak demand in certain segments * Technological challenges Conclusion The China semiconductor industry is expected to continue growing in 2025, driven by domestic substitution, technological advancements, and increased demand for computing and analog chips. However, there are also risks to consider, such as global overcapacity and technological challenges.