Taiwan PA foundry_ Downcycle in 2025, with high inventory level and limited technology upgrade; DG AWSC_Win to Neutral_Sell

Summary of Taiwan PA Foundry Conference Call Industry Overview - The Cellular PA foundry industry is entering a downcycle starting from Q4 2024, expected to continue through 2025 due to high inventory levels and limited technology upgrades [2][11][21] - The total addressable market (TAM) for PA foundries has been revised down by 20% for 2025 and 21% for 2026, with a projected CAGR of only 15% from 2024 to 2030, down from 21% [11][19] Key Company Insights AWSC (Advanced Wireless Semiconductor Company) - AWSC's revenue growth has been strong, with a 124% YoY increase YTD, but is expected to face a 20%+ YoY revenue decrease in the coming quarters due to weak demand [11][41] - Earnings estimates for AWSC have been cut by 36% for 2024, 55% for 2025, and 38% for 2026, reflecting a more cautious outlook on smartphone PA demand [41][42] - Despite short-term challenges, AWSC is viewed positively for long-term market share gains due to its favorable cost structure [11][41] Win Semi - Win Semi's revenue growth has been more modest at 25% YoY YTD, but is also expected to decline significantly in 2025 [11][53] - Earnings estimates for Win Semi have been reduced by 11% for 2024, 44% for 2025, and 24% for 2026, reflecting a bearish outlook on the smartphone PA market [53][54] - Win Semi faces challenges due to high product costs and slow technology upgrades, which may hinder its ability to gain market share [11][41] Market Dynamics - The industry is experiencing a shift towards shorter inventory cycles, with smartphone OEMs and PA design houses adopting more conservative inventory strategies since 2023 [7][11] - Key design houses in China and the US have cut orders by over 30% and 20% QoQ, respectively, indicating a significant reduction in demand [11][16] - The rush order portion of total shipments has increased to over 30%, leading to inefficiencies in production and lower gross margins for foundries [11][33] Financial Projections - AWSC's 12-month target price has been cut to NT$112 from NT$168, and it has been downgraded to Neutral from Buy [9] - Win Semi's 12-month target price has been reduced to NT$93.5 from NT$138, with a downgrade to Sell from Neutral [9] - Both companies are expected to suffer from low gross margins due to the unfavorable demand and inventory conditions [11][41] Conclusion - The Taiwan PA foundry industry is facing significant headwinds with a projected downcycle in demand and profitability challenges for key players like AWSC and Win Semi. The outlook remains cautious, with potential recovery only expected in 2026 if demand conditions improve [3][4][11]