Core Viewpoint - The company highlights the growth potential in the semiconductor testing sector driven by demand from AI, smart driving, and data centers, alongside a trend of local chip design companies and overseas IDMs returning testing orders to mainland China due to external regulations and the "China for China" strategy [1][3]. Group 1: Business Structure and Market Dynamics - The company reviews the evolution from IDM integration to a specialized "design-manufacturing-testing" model, asserting that the professionalization and third-party testing will remain a long-term trend despite some re-integration among firms due to national strategy and security concerns [3]. - The company aims to lead in the third-party testing sector in mainland China, emphasizing the need for specialized third-party testing firms to define standards and expand the market through scale effects and technological accumulation [3]. Group 2: Product Focus and Testing Trends - Currently, the company focuses on Nor Flash for memory testing due to the high concentration of clients and significant investment in specialized equipment for other types of memory chips, while Nor Flash offers more general equipment compatibility [3]. - The company is concentrating on high-performance CPU/GPU/AI chips and automotive electronics, predicting that the share of these high-end products in domestic design companies will continue to rise alongside global AI computing demand and increasing penetration of new energy vehicles [3][4]. Group 3: Revenue Model and Profitability - The company's revenue is primarily from wafer testing (CP), with final testing (FT) being more affected by the utilization rates of testing facilities, which tend to prioritize in-house capacity during downturns [4]. - Testing prices faced pressure during the industry downturn from 2022 to 2023, but the overall average price is recovering as low-priced old products exit the market and new products and clients are introduced [4]. Group 4: Equipment and Capacity - The company notes a high domestic replacement ratio for mid-to-low-end testing equipment, but there remains a gap in the mid-to-high-end sector compared to international leaders, with high-end equipment typically having a lead time of around six months [4][5]. - The company emphasizes that high-end testing platforms can have a lifespan extended to over 20 years through upgrades, with actual retirements often due to efficiency and economic factors rather than physical damage [5]. Group 5: Future Development and Strategy - The company plans to continue expanding its production capacity in mainland China, focusing on high-performance chips and automotive-grade reliability, with no current plans for overseas expansion [5]. - The rise of local chip design companies and the concentration of manufacturing and testing in mainland China, combined with external uncertainties, will provide ongoing advantages in cost, safety, and localized services for domestic third-party testing [5].

Investment Rating - The industry investment rating is "Positive" [2] Core Viewpoints - Short-term fluctuations do not affect the long-term growth logic of the industry, with a focus on the "China for China" strategy potentially realizing performance in 2026 [3][26] - The first quarter of 2025 saw revenue for SMIC reach $2.25 billion, a year-on-year increase of 28.4%, while gross profit margin was 22.5%, up 8.8 percentage points year-on-year [7][9] - The first quarter of 2025 for Huahong Semiconductor reported revenue of $540 million, a year-on-year increase of 17.6%, with a gross margin of 9.2% [13][17] - TSMC's revenue in April 2025 reached NT$349.57 billion, a significant year-on-year increase of 48.1%, indicating strong recovery in downstream demand [21][22] Summary by Relevant Sections SMIC - Revenue for Q1 2025 was $2.25 billion, with a gross margin of 22.5% and a net profit of $188 million, reflecting a year-on-year increase of 161.9% [7][8] - The company indicated a revenue guidance for Q2 2025 of $2.14 billion, with a gross margin expected to decline to 19% [9][10] - Production capacity increased to 973,000 wafers per month, with a utilization rate of 89.6% [9][10] Huahong Semiconductor - Q1 2025 revenue was $540 million, with a gross margin of 9.2% and a significant drop in net profit [13][14] - The company expects Q2 2025 revenue to be between $550 million and $570 million, with a gross margin forecast of 8% [13][14] - The company maintains a high capacity utilization rate of 102.7% in Q1 2025 [17][19] TSMC - TSMC reported record revenue of NT$349.57 billion in April 2025, with a cumulative revenue of NT$1,188.82 billion for the first four months of 2025 [21][22] - The company expects Q2 2025 revenue to be between $28.4 billion and $29.2 billion, with a gross margin forecast of 58% [21][22]

Investment Rating - The industry investment rating is "Positive" [2] Core Viewpoints - Short-term fluctuations do not affect the long-term growth logic of the industry, with a gradual recovery in downstream demand expected to reflect in performance by 2026, particularly under the "China for China" strategy [3][26] - In Q1 2025, SMIC reported revenue of $2.25 billion, a year-on-year increase of 28.4%, while gross margin was 22.5%, up 8.8 percentage points year-on-year [7][9] - Hua Hong Semiconductor achieved revenue of $540 million in Q1 2025, a year-on-year increase of 17.6%, with a gross margin of 9.2% [13][17] - TSMC reported record revenue of NT$349.57 billion in April 2025, a year-on-year increase of 48.1%, indicating strong recovery in downstream demand [21][26] Summary by Sections SMIC - Q1 2025 revenue was $2.25 billion, with a gross margin of 22.5% and a net profit of $188 million, reflecting a significant year-on-year increase [7][8] - The company expects Q2 2025 revenue to decline by 4% to 6%, with a gross margin forecast of 18% to 20% [9][26] - Production capacity increased to 973,000 wafers per month, with a utilization rate of 89.6% [9][10] Hua Hong Semiconductor - Q1 2025 revenue was $540 million, with a gross margin of 9.2% and a net profit of $3.75 million, despite a significant year-on-year decline in net profit [13][14] - The company anticipates Q2 2025 revenue between $550 million and $570 million, with a gross margin forecast of 7% to 9% [13][17] - Production capacity reached 413,000 wafers per month, maintaining a high utilization rate of 102.7% [17][19] TSMC - TSMC's April 2025 revenue reached NT$349.57 billion, marking a historical monthly high and a year-on-year increase of 48.1% [21][26] - The company projects Q2 2025 revenue between $28.4 billion and $29.2 billion, with a gross margin forecast of 57% to 59% [21][26] - The strong revenue growth reflects a clear recovery in downstream demand and a trend of inventory replenishment in the supply chain [21][26]