"Science and Technology Innovation Board Daily" reported on June 30 (Editor Song Ziqiao) On the evening of June 29, Hua Hong Semiconductor announced on the Hong Kong Stock Exchange that on that day, the company, Hua Hong Grace (a wholly-owned subsidiary of Hua Hong Semiconductor)

"Science and Technology Innovation Board Daily" reported on June 30 (Editor Song Ziqiao) On the evening of June 29, Hua Hong Semiconductor announced on the Hong Kong Stock Exchange that on that day, the company, Hua Hong Grace (a wholly-owned subsidiary of Hua Hong Semiconductor), Wuxi entity, National Integrated Circuit Industry Fund (referred to as the "Big Fund"), National Integrated Circuit Industry Fund II (referred to as the "Big Fund II") and Huahong Wuxi entered into a capital injection agreement, according to which the board of directors has conditions It was agreed that Huahong Wuxi's registered capital would increase by approximately US$760 million to approximately US$2.537 billion.

Hua Hong Semiconductor, Hua Hong Grace, Wuxi Entity and Big Fund II each contributed approximately US$178 million, US$230 million, US$160 million and US$232 million in cash respectively. After the capital injection of

is completed, Hua Hong Wuxi will continue to be a non-wholly owned subsidiary of Hua Hong Semiconductor, with approximately 22.2% held by Hua Hong Semiconductor and approximately 28.8% held by Hua Hong Grace; the Big Fund and Big Fund II will total Holds about 29%.

Huahong Wuxi is mainly responsible for operating 12-inch production lines. The shortage of 12-inch wafer foundry capacity is the direct reason for Huahong Semiconductor's large investment in subsidiaries.

Huahong Semiconductor stated in the announcement that Huahong Wuxi 12-inch wafer fab will enter its fourth year of production in 2022. Although the factory in China continues to expand its production capacity, due to the continued strong demand for wafers and brought about by market development, the current production capacity is still in short supply. Huahong Wuxi's capacity utilization rate remains at a very high level.

In addition, automotive semiconductors are regarded by Hua Hong Semiconductor as "attractive and significant market opportunities."

Hua Hong Semiconductor predicts that the imbalance between global semiconductor and chip supply and demand will continue until 2022, especially in the automotive field, one of the industries the company focuses on. Huahong Wuxi obtained IATF16949 automotive quality management system certification in 2020 and has introduced automotive products into its 12-inch wafer fab since 2021. Together with the proposed capital injection, Huahong Wuxi's expertise will enable the company to further meet the needs of the automotive market.

▍Production expansion and price increases have become the main theme of the foundry industry. The fundamentals of local foundries are expected to continue to improve.

Since the second half of 2020, due to strong demand in the fields of downstream servers, high-performance computing, automotive and industrial control, the supply side has been affected by equipment. Factors such as the epidemic and the epidemic have limited the increase in production capacity. The integrated circuit industry is currently in a boom cycle where supply exceeds demand.

Although demand for consumer electronics has weakened since Q1 of 2022, demand for new energy vehicles, data centers, etc. is still strong. On June 20, TrendForce data showed that in Q1 2022, the global wafer foundry output value has increased for eleven consecutive quarters, and the revenue of major wafer foundries has shown positive growth month-on-month. Among them, the revenue growth rate of TSMC, SMIC, and Huahong Semiconductor exceeded 10% month-on-month.

New energy vehicles and data center businesses have become the profit growth points of leading foundries. Take TSMC and SMIC as examples:

SMIC stated in its first quarter report that in the first half of 2022, while demand for consumer electronics was weak, demand for new energy vehicles, display panels and industrial fields increased, resulting in semiconductor The structural shortage of manufacturing capacity will intensify in the short term.

TSMC’s Q1HPC business revenue accounted for 41%, contributing the largest revenue, with a month-on-month growth of 26%; the automotive electronics business accounted for a small but strong growth rate, with a month-on-month growth of 26%. In contrast, its smartphone business revenue growth increased by only 1% month-on-month.

Against this background, China's leading wafer fab capital expenditures will continue to rise in 2022.

SMIC's capital expenditure in the first quarter of 2022 is approximately 5.5 billion yuan, and the planned capital expenditure in 2022 is approximately 32.05 billion yuan; TSMC's Q1 capital expenditure is 9.38 billion US dollars, a month-on-month increase of 10.87%, a year-on-year increase of 6.11%, and is expected to be 22 Annual capital expenditure remains at 40-44 billion US dollars; UMC has raised its 22-year capital expenditure to US$3.6 billion (previously expected to be US$3 billion); Power Semiconductor's 22-year capital expenditure is approximately US$1.5 billion.

However, Wanlian Securities estimates based on the current production capacity construction plan that the overall shortage of supply and demand in the semiconductor industry may cover the entire year of 2022.

Production capacity continues to be tight, coupled with cost pressures caused by rising raw materials, leading wafer foundries are planning to increase prices to varying degrees.

Among them, TSMC made an exception and raised prices twice within a year. It plans to increase the prices of all processes starting in 2023 and cover all product lines, with an increase of about 5%-8%;

Samsung will depend on the complexity and is based on contract chips. Prices may rise by 15% to 20%, with traditional process chips increasing even more, and new pricing will be implemented from the second half of this year;

UMC plans to conduct a new round of price increases in the second quarter of 2022, with a range of 4%;

SMIC is also negotiating with customers to increase prices, but the specific plan has not yet been determined.

Tianfeng Securities analyst Pan Jing said that in the short term, semiconductors are still in a new growth stage of application relay such as IoT, automobiles, and AI. In view of the industry’s continued need to ensure supply security, the supply chain is expected to maintain a high level of supply. Inventory;

In the long term, the growth that localization brings to the domestic foundry sector should be prioritized over industry cyclicality. SMIC and Hua Hong Semiconductor, as the leading local foundry companies, have valuations At a low level, the fundamentals are expected to continue to improve marginally, and we are optimistic about its long-term development.