The semiconductor industry has shown a continuous downward trend in the past year. According to LONGPORT data, the Philadelphia Semiconductor Index has fallen by 37% year-to-date. Mr. Dolphin believes that the reasons for the frequent declines in the semiconductor index in the past year are: ① The impact of the Federal Reserve’s interest rate hike ; ② The impact of the downward cycle of the semiconductor industry .
Source: LONGPORT
Putting aside the influence of macro-environment , this article of Dolphin mainly focuses on the situation of the semiconductor industry, starting from three questions: ① What is the reason for the decline of the semiconductor industry; ② What is the current situation of the semiconductor industry chain ; ③ Does the semiconductor industry have investment value .
Through the analysis of the semiconductor industry and company data, Dolphin believes that this round of semiconductor decline is mainly caused by weak downstream terminal demand. However, judging from the latest financial report, there is no sign of significant improvement in the semiconductor industry chain.
Since the stock prices of and reflect expectations, they often take precedence over the recovery of the industry. Although the current cycle is still in a downturn, it does not prevent early layout, and the most important thing at this time is to select stocks and direction.
Dolphin Jun believes that the rise in panel prices and the decline in Xiaomi inventory mean that the current panel industry and Android phones may be prioritized for bottoming out repairs. Affected by the epidemic and other factors, Apple mobile phones may have a certain risk of decline this quarter. As the high backlog of inventory in all aspects of the industry is eliminated, the industry is expected to return to the normal rhythm of purchasing goods, and valuations are also expected to be restored from the current low level. The low base of in the past year has paved the way for growth in the next year.
Mr. Dolphin has previously warned about the recovery signals of panels and Xiaomi. He will continue to track the inventory digestion situation of the semiconductor industry and work with everyone to seize the opportunity of the "difficulty to reverse " in the semiconductor industry chain.
The following is Changqiao Dolphin’s analysis of the current semiconductor industry:
1. What is the reason for the decline of the semiconductor industry?
Mr. Dolphin and everyone will look at the reasons for the decline of the semiconductor industry from the perspective of the industry chain. Since semiconductors are mainly used in electronic products after they are manufactured, research on the semiconductor industry should start from both the semiconductor industry chain and the electronics industry chain.
This round of semiconductor downturn is still due to the sluggish demand for downstream products, which is transmitted to the entire semiconductor industry through the industrial chain:
① Electronics industry chain : Electronic products (weak terminal consumption such as mobile phones and PCs) - electronic manufacturers’ inventory backlog - high prices
② Semiconductor industry chain : Chip company orders have decreased - tape-out at semiconductor manufacturing plants has been reduced - semiconductor manufacturing plants' capacity utilization has decreased, and the company's capital expenditures have begun to be lowered.
Therefore, the current downward trend in the semiconductor cycle is mainly caused by insufficient demand for downstream electronic products. According to IC Insights data, computer products and mobile communication products are the largest downstream segments of the semiconductor industry, accounting for more than 70% of overall demand. Because the prosperity of the semiconductor industry is closely related to these two downstream industries.
) Computer products - PC market: continued decline
The global PC market shipped only 74.25 million units in the third quarter of 2022, another year-on-year decline of 14.3%. Since the beginning of 2022, the continued decline in PC market shipments has reduced demand for computer-related chips. Referring to the prices of graphics cards, storage and other chips, there are also frequent declines.
After the demand for the stay-at-home economy faded due to the epidemic, PC market shipments fell from highs, giving a downward push to the current semiconductor cycle.
) Communication products - smartphone market: continued decline
Coincidentally, in the latest third quarter, global smartphone shipments were only 300 million units, down 8.8% year-on-year. Affected by unstable factors such as the epidemic and insufficient product innovation, consumers have reduced their purchases of mobile phones. As an important downstream of the semiconductor industry, mobile phone demand is weak and has also prompted semiconductors to enter a downward cycle.
Although the development of new fields such as smart cars and VR equipment has brought new market growth to semiconductors. However, smartphones and computers still account for the largest share of the current semiconductor market. The weakness in these two fields has directly weakened the demand for semiconductor chips .
Mobile phones and computers cannot be sold, and the inventory of downstream manufacturers has increased, reducing the stocking of semiconductor chips. The reduction in orders from chip companies has also reduced the tape-out at semiconductor manufacturing plants, causing an overall downturn in the semiconductor industry chain.
. What is the current situation of semiconductor industry chain companies (design/manufacturing/equipment)?
Since this round of semiconductor downturn is caused by weak downstream demand, how is the current performance of companies in each link of the semiconductor industry chain? Are there any signs of recovery?
.1 Semiconductor design link ( Qualcomm , NVIDIA, AMD)
Judging from the transmission of the industrial chain, insufficient demand from downstream terminals is first passed on to chip companies. Dolphin Jun chose Nvidia, Qualcomm, and AMD to look at the current situation of semiconductor design. Among them, the downstream of Nvidia and AMD are mainly in the computer field, while the downstream of Qualcomm is mainly in the field of smartphones.
① Revenue end : NVIDIA, Qualcomm and AMD all experienced a decline in revenue growth this quarter. In particular, NVIDIA's revenue in this quarter saw a double-digit year-on-year decline. It can be seen that the weakness of the downstream end market has affected the revenue of the three chip companies.
Based on the decline in the PC market mentioned above, the revenue growth rate of Nvidia and AMD has also declined significantly starting from the second quarter of 2022, which is consistent with the trend of PC shipments at the same time.
② Inventory side : The inventory turnover days of Nvidia, Qualcomm and AMD continued to rise this quarter, and the motivation for downstream shipments has not yet picked up significantly. Judging from the trend, the inventory turnover days of the three companies have actually started to rise since the end of 2021 . Among them, AMD acquired Xilinx during the year, which affected the company's inventory turnover to a certain extent. The inventory of
has begun to rise, which actually implies the risk of pressure on the company's future revenue, which will also begin to appear in the second quarter of 2022.
.2 Semiconductor manufacturing link (TSMC, Semiconductor Manufacturing International , Hua Hong Semiconductor)
The upstream of semiconductor design is the semiconductor manufacturing link. Rising inventories have affected the ordering situation at chip manufacturing plants. Dolphin Jun chose TSMC, SMIC and Hua Hong Semiconductor to look at the current situation of semiconductor manufacturing.
① Revenue end : The growth rates of TSMC, SMIC and Hua Hong Semiconductor slowed down further this quarter, affected by the weakening demand for tape-out from chip design companies. Previously affected by the shortage of semiconductors, rising chip prices have contributed to revenue growth. But starting in the second quarter of 2022, the semiconductor industry began to peak, and the revenue growth rates of the three companies began to decline.
② Inventory side : The inventory turnover days of the three companies of TSMC, SMIC and Hua Hong Semiconductor continued to rise this quarter. Judging from the inventory reflected by the downstream, there is no obvious sign of digestion. Looking at the trend, the inventory turnover days of the three companies will accelerate from the second quarter of 2022 . TSMC has its own particularity, and the release of new products by major customers has a certain digestion effect.
.3 The utilization rate of semiconductor equipment links (Applied Materials, Ram Research, KLA)
semiconductor manufacturing production capacity affects the company's overall capital expenditure planning, which in turn affects the operating conditions of semiconductor manufacturing companies. Dolphin Jun selected Applied Materials, Ram Research, ASML and Ketian Semiconductor to look at the current situation of the semiconductor equipment industry.
① Revenue side : The revenue of Applied Materials, Ram Research and Ketian Semiconductor has not declined, but the growth rate has declined compared with the same period last year. ASML's products have their own particularities, and regional frictions directly affect the company's income.
Semiconductor equipment companies still have a relatively high growth rate, mainly because the impact of semiconductor companies' reduction in capital expenditures has not been apparent in the first three quarters. Therefore, there is a transmission lag in the industrial chain. Although semiconductor equipment companies are still experiencing double-digit growth, there is a certain risk of downstream capital expenditures being reduced in the future.
② Inventory side : Applied Materials, Ram Research, ASML and Ketian Semiconductor have all experienced a slowdown in inventory turnover, but it is still in a state of slow improvement. In comparison, although the revenue of semiconductor equipment companies is still growing rapidly, the inventory side has also begun to slow down. It can be seen that the semiconductor equipment industry may also be affected by the industry downturn in the future.
Comprehensive semiconductor industry chain (design-manufacturing-equipment) situation, Dolphin Jun found that the downward trend of the semiconductor cycle caused by weak terminal demand has been reflected in the design and manufacturing links, while the risks in the equipment link have not yet been significantly released. Currently Micron , TSMC and other companies have lowered their capital expenditure plans, which is bound to have an impact on the performance of semiconductor equipment companies. As the inventory situation continues to deteriorate, chip design companies may give priority to inventory depreciation /promotion operations. In the semiconductor industry chain, design companies will respond first to market conditions because they directly face downstream electronic product manufacturers.
. Does the semiconductor industry have investment value?
From the perspective of semiconductor design, manufacturing, and equipment, there are no obvious signs of improvement. Dolphin believes that the current semiconductor industry is still in a downward cycle. Although semiconductors are still in decline, after this year's decline, the value of semiconductor investments is gradually emerging. The semiconductor industry is still in the left range, but the stock price reflects expectations and often precedes the industry . At present, the priority direction should be:
) The general direction of semiconductors: the medium and long-term trend of semiconductor localization. semiconductor is the key direction of current technological competition, which is related to many aspects such as social life and military strength. However, the current localization rate of semiconductor chips is less than 20%, which is an important part of the road to localization. Even if affected by the industry, there will be a major callback to in 2022, but the industry still has long-term opportunities in the future;
) The industry situation of semiconductors: Some downstream companies are showing signs of improvement. . Affected by weak downstream terminal demand throughout 2022, the semiconductor industry has frequently fallen. However, after experiencing the industry downturn, some downstream industries are showing signs of bottoming out.
①Panels bear the brunt of : After falling below cash costs, panel prices finally began to rise at the end of the year. Although the demand for TVs has not seen a significant boost, the price competition on the supply side and the reduction in production capacity utilization have changed the original supply and demand relationship;
② Android mobile phone inventories have begun to digest : Xiaomi, OPPO, VIVO mobile phone shipments have frequently declined by more than 20% before, and demand has still not improved significantly. Taking Xiaomi as an example, under the strategy of "destocking and destocking ", the inventory finally showed a significant decline this quarter. As inventory levels return to normal levels, Android brand mobile phones are expected to restart sales;
③ Be wary of Apple chain risks : Although Apple still delivered growth against the trend in the third quarter, it is difficult to cover up the risks in the fourth quarter. First of all, the release of the iPhone14 series of mobile phones did not sell particularly well. The overall "purchase-arrival" time is similar to last year; then, under the influence of the epidemic, the main supplier of Apple mobile phones has had a certain impact on the supply side. Therefore, Apple's mobile phone shipments may experience a year-on-year decline this quarter, thus dragging down Apple and its industry chain ;
④ Continue to pay attention to the inventory depletion situation : The industry has bottomed out across the board, and we still need to pay attention to the inventory depletion situation in the industry chain. Although we currently see an increase in the price of panels and the destocking of Android from , the current downstream demand is still not strong. The current recovery of is more of a partial repair.As demand picks up across the board, it is still necessary to closely track terminal shipments and the inventory status of each link.
) Valuation situation: Judging from the Philadelphia Semiconductor Index , after this year's decline, the valuation level of the semiconductor industry has continued to decline. It has now been reduced to 17.83, which is far lower than the valuation median . Affected by the dual impact of macroeconomic interest rate hikes and industry downturn, the valuation of the entire industry is under pressure. The domestic semiconductor index has also fallen to the median level in five years. But Mr. Dolphin believes that when the industry begins to bottom out and risks are gradually released, the industry is expected to return from the current low valuation;
Source: Wind, Changqiao Dolphin Investment Research
Through sorting out the semiconductor industry chain, Mr. Dolphin believes that the current semiconductor industry is still in a downward cycle, and there are no obvious signs of recovery in the financial reports of most leading semiconductor companies. However, since stock prices reflect expectations, they often take precedence over the recovery of the industry. The current left position of should be the selected stocks and directions.
Mr. Dolphin believes that the current panel industry and Android phones may give priority to bottoming out and repairing, while Apple phones may have a certain risk of decline this quarter. As the high backlog of inventory in all aspects of the industry is eliminated, the industry is expected to return to the normal rhythm of purchasing goods, and valuations are also expected to be repaired from the current low level. The low base in the past year has paved the way for growth in the next year.
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