Tracking China’s Semi Localization_ Subsidizing domestic demand, amid limited tariff impact

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the semiconductor industry in China, particularly the progress in semiconductor localization and the impact of domestic demand subsidies amid limited tariff effects [1][2]. Core Insights 1. Price Competition in Foundries: Ongoing price competition in mature node foundries is noted, with some inventory digestion and China's subsidies for consumer electronics purchases contributing to this dynamic [2][3]. 2. IC Design Sector Performance: China's integrated circuit (IC) design sector is expected to reach CNY646 billion (approximately US $90 billion) in 2024, reflecting a ~12% year-over-year increase, but this growth lags behind the global semiconductor industry growth estimated at 19% [2][3]. 3. **Company Closures**: Over 14,600 Chinese semiconductor companies closed in 2024, primarily in consumer electronics, semiconductor component distribution, and analog sectors, indicating a normalization in the growth of China's chip design industry [2][3]. 4. **Price Reductions by Chinese Foundries**: Prices for 12-inch wafers from Chinese foundries have decreased by up to 40% compared to Taiwanese companies, with 20-30% discounts on 8-inch wafers. This pricing pressure has been ongoing since mid-2024 [2][3]. 5. **US Trade Investigation**: The Biden Administration has initiated a trade investigation into older Chinese-made "legacy" semiconductors, which may lead to increased tariffs. However, the direct impact on Chinese mature node chip companies is expected to be limited due to low export volumes to the US [2][3]. 6. **Stock Implications**: Caution is advised regarding mature node foundries like UMC and Vanguard due to competition from China, while a positive outlook is maintained for Chinese wafer fabrication equipment (WFE) companies like NAURA and AMEC due to aggressive capital expenditure plans [2][3]. Additional Insights 1. **Semi Equipment Imports**: China's semiconductor equipment imports were valued at US$ 29 billion from January to November 2024, marking a 20% year-over-year increase, although growth is decelerating [6][7]. 2. High Bandwidth Memory (HBM) Development: China is still behind in HBM technology, with local vendors only able to produce 4-8 layer HBM, while CXMT targets volume production in the second half of 2025 [7][8]. 3. Self-Sufficiency Projections: China's semiconductor self-sufficiency ratio is projected to reach 25% by 2026, up from 20% in 2023, driven by weak consumer demand and limited breakthroughs in advanced logic chips [28][29]. 4. Market Dynamics: The semiconductor market is experiencing a divergence in stock performance, with notable outperformance from companies like Espressif and GigaDevice, attributed to demand from AI applications [10][11]. Conclusion The conference call highlights the challenges and opportunities within China's semiconductor industry, emphasizing the impact of domestic policies, competitive pricing, and the ongoing transition towards greater self-sufficiency in semiconductor production. The insights provided are crucial for understanding the current landscape and future trends in the industry.