Since the beginning of 2022, there has been endless discussion on the topic of "how domestic semiconductors can go through the cycle." It is now the end of the year, and the sluggish demand in the industry throughout the year and the unilateral downward trend of the index have confirmed that the cycle is difficult to traverse.
As of the close of trading on December 28, the China Semiconductor Chip Index, which best represents the A-share semiconductor sector, has fallen by 38.22% during the year, the third largest decline in the industry. On the other hand, the Philadelphia Semiconductor Index, the most representative index of US stocks, also suffered heavy losses. It fell 36.9% during the year, bidding farewell to three consecutive positive years. The share prices of leaders NVIDIA (NVIDIA.O) and AMD Semiconductor (AMD.O) both plummeted by more than 50%.
looks back at the semiconductor chip industry in 2022. Affected by multiple factors such as the supply and demand mismatch, "core shortage" price increases, and the epidemic in the previous year, the inventory of the entire industry reached a historical high this year, and the demand side continues to be sluggish. Among them, the demand for consumer electronics products has almost dropped to freezing point, and the prices of some products have been "halved" compared with the previous year. When the melody of
's active destocking and sounds will be related to the turning point of this cycle. At present, the mainstream view in the market is that the supply and demand of the semiconductor industry will gradually enter into adjustment in the second half of 2023, and active destocking will begin.
Demand is sluggish, inventories are high, and cyclical downturns are difficult to overcome
In the history of the semiconductor industry, once a large-scale capital expenditure increase occurs, it is often accompanied by a cyclical downturn. In the fourth quarter of 2021, major overseas analysts put forward "be wary of the beginning of the semiconductor cycle downward", and well-known chip companies such as AMD and Nvidia told TSMC in the middle of the year that they would have to adjust order planning.
With the "submission" in 2022, it confirms that this is a bleak year for the semiconductor industry, and "inventory" has become one of the most important disturbing factors in the electronics industry this year. Except for leading wafer factories, equipment factories and some analog chip manufacturers, almost every link has experienced unavoidable pain, and sluggish demand has become the biggest problem.
The demand for consumer electronics represented by smartphones and PCs has dropped to a freezing point, and the decline in shipments throughout the year is a foregone conclusion. The third quarter data released by IDC shows that among the top five PC manufacturers in market share, except for and apple , the year-on-year growth rates of the other manufacturers are declining. Among them, Lenovo 's PC shipments fell by 16% in the third quarter.
Global smartphone terminal shipments also fell sharply year-on-year. CITIC Securities research report predicts that global/Chinese smartphone shipments in 2022 will be approximately 1.217/284 million units respectively. Domestic market shipments will decline significantly year-on-year, mainly because the overall market is relatively mature, the improvement effect brought by the penetration of emerging technologies is limited, and the driving force for innovation is insufficient.
Since the third quarter of 2021, the inventory of domestic smartphones has continued to rise rapidly. In the third quarter of this year, the inventory rising trend has slowed down, but the overall inventory level is at a historically high level. Since the first quarter is the traditional off-season, the industry expects that in the second quarter of 2023, driven by the "618 activity", a certain amount of inventory will be consumed and gradually return to normal safe stocking levels.
Against this background, the performance of the A-share consumer electronics sector was almost at the bottom of all sectors, with only 8 of 86 stocks recording positive returns. Goertek (002241.SZ) led the decline, falling 68%. Lens Technology (300433.SZ) fell more than 53%. The entire sector is also at a historically low valuation level.
Leading companies in all aspects of A-shares are also difficult to survive the bulls and bears. Semiconductor Manufacturing International (688981.SH), the leading wafer foundry, said when looking forward to its fourth quarter results that due to weak demand in the mobile phone and consumer sectors, and the need for some customers to buffer time to interpret the impact of new US export control regulations, operating income is expected to decline by 13% to 15% quarter-on-quarter, with gross profit margins between 30% and 32%. Huahong Semiconductor (01347.HK), the leader in H shares and , showed strong resilience, achieving revenue of US$629.9 million in the third quarter. increased by 39.5% year-on-year, and increased by 1.5% month-on-month, once again setting a new historical record. At present, Huahong Semiconductor has updated its listing prospectus and plans to be listed on the Shanghai Stock Exchange's Science and Technology Innovation Board, preparing to raise 318 billion yuan for production expansion.
On the other hand, due to negative impacts such as repeated epidemics, inflation, exchange rate fluctuations, and the situation between Russia and Ukraine, the IC design side has inevitably suffered a decline in revenue. According to TrendForce statistics, in the third quarter of 2022, the global IC design industry experienced a downward trend in revenue compared with . In the third quarter, the total revenue of the world's top ten IC design companies reached US$37.38 billion, a decrease of 5.3% from the previous quarter. Among them, Qualcomm still ranks first in the world with the stable performance of its mobile phone business department and automotive department. Broadcom surpassed Nvidia and AMD to rank second through high-end Netcom chips. Nvidia and AMD fell to third and fourth respectively due to weak demand for personal computers and mining.
data shows that despite repeated epidemics, my country's integrated circuit design side will achieve 16.5% growth in 2022, which is significantly lower than the previous two years, but the overall growth rate is still excellent. "The dividends China's integrated circuit design industry has brought from this global core shortage cannot be replicated. In the long term, this core shortage will have an extremely profound impact on the global supply system. Under the influence of the core shortage, countries and regions are dissatisfied and worried about the status quo. They hope to take the initiative in their own hands and pay more attention to the security of the supply chain." A senior person in the semiconductor industry told a reporter from China Business News. : "It is also important to note that the performance of some major head design manufacturers is not ideal, and there is even some regression. The reason is that the core competitiveness of these major design manufacturers is not strong enough. When the scale of demand has significantly shrunk, their technology research and development capabilities have not been able to keep up, and their ability to grasp market demand is still insufficient." According to statistics from
reporters, 30 A-share IC design manufacturers have seen their share prices fall by more than 40% during the year. Vail Shares (603501.SH) plunged 66.2% during the year, falling below 100 billion in market value. Last year, Jingfeng Mingyuan (688368.SH), the "star stock" of power management chip , fell 64%. Awinic Electronics (688798.SH), Mingwei Electronics (688699.SH), Goodix Technology (603160.SH), and Goke Microelectronics (300672.SZ) all fell by more than 50%. Judging from the inventory turnover days, in the third quarter of this year, the inventory turnover days of most domestic companies increased significantly, and some mobile phone chain companies even reached more than 400 days.
How will incremental markets such as new energy promote semiconductor interpretation in 2023?
Changes in demand and supply have led to cyclical changes in the semiconductor industry. The explosion of new products and new applications brought about by technological innovation has led to a shortage of supply and driven the industry into an upward cycle. The excess of products has led to oversupply, pushing the industry into a downward cycle of destocking.
The good news is that TSMC has previously pointed out to the entire industry the time when inventory in the industry chain will peak, which means that the pace of inventory depletion is gradually approaching, and the dawn is gradually emerging.
Since TSMC announced in mid-October that industry chain inventories had peaked in the third quarter of this year and began to gradually deplete in the fourth quarter, the U.S. semiconductor sector has taken the lead. Leading stocks including TSMC, Micron , and TI have all rebounded since October. The stock price trend has diverged. The equipment side and the analog chip track are more resilient. The former mainly benefits from the increase in demand driven by the expansion of wafer fabs, while the latter shows stronger resilience when downstream demand is weak.
After inventory is eliminated, the volume of market demand becomes the key to cycle interpretation. The semiconductor industry is mainly divided into stock and incremental markets. The stock market is represented by mobile phones. From the perspective of global smartphone development trends, long-term continued slowdown is the general trend. Folding screens may become a demand highlight in some periods. The development of the semiconductor industry ultimately depends on the incremental market. Representative downstream areas include new energy, high-end industry and some special chips. These highly prosperous segmented tracks are also considered to be major growth opportunities for domestic chip manufacturers.
An electronics industry analyst told China Business News that in 2023, attention should be paid to the inflection point of consumer electronics recovery and the direction of incremental market demand. "Consumer electronics has been in a downturn for more than a year, and the prices of most products have dropped to reasonable levels. The key to the next step is demand. A certain recovery in demand is expected to support the valuation of relevant manufacturers to repair first." He said, followed by the incremental market. In the past two years, the demand for analog chips and power semiconductors in emerging markets such as new energy is still very good."Analog chips are rich in categories, and their downstream products are spread across vast markets such as consumer, industrial, and automotive. They are highly resistant to risks and mainly test the ability of analog manufacturers to grasp market demand and technology research and development. In addition, the functional realization and differences of power semiconductors are more derived from different device structures. The manufacturing process is the core of power devices, and manufacturers mostly focus on the IDM model. The incremental market for power semiconductors brought about by new energy, 5G, and industrial manufacturing continues to grow and is expected to become a highlight in the next three years." He said.
Coincidentally, many people in the semiconductor industry interviewed by reporters believe that the increase in automotive electronics driven by new energy vehicles is expected to become the "most golden" growth track for the semiconductor industry in the next three years.
On the one hand, after two years of rapid development, the penetration rate of of electric vehicles is still improving in small steps. From January to November this year, the penetration rate of of new energy vehicles was only 24.9%. On the other hand, under the twin main lines of electrification and intelligence, the demand for automotive electronics will grow exponentially. According to Gartner data, the global semiconductor market will reach US$676 billion in 2022 and will increase to US$790.4 billion in 2026. Among them, the demand for automotive chips is growing the fastest, and the average annual compound growth rate of cockpit + self-driving chips is expected to reach 163.1%.
"Generally speaking, after the penetration rate of new energy vehicles exceeds 25%, it is a key node for the industry to mature. It is still difficult to see how fast the future growth rate will be, especially because many technologies for intelligent electric vehicles are not yet fully mature, and the industry structure is unstable. From the release of concept cars to the implementation of intelligent upgrades, product volume may even take 2-3 years. Any model or product may become a hit, driving related demand for automotive electronics." The aforementioned industry insider added.
