Greater China Semiconductors_ MCU_ Expect Self-sufficiency to Rise in 2025

Summary of Conference Call Notes Industry Overview - Industry: Greater China Semiconductors, specifically focusing on the MCU (Microcontroller Unit) market - Market Performance: The China MCU market experienced a revenue decline of 14% in 2024, which is less severe compared to the global MCU market's 19% decline. This is attributed to an earlier correction in the Chinese market starting mid-2022, while the global peak occurred in March 2023 [4][5] Key Insights - Market Dynamics: - Local players in the China MCU market are expected to continue gaining market share in 2025, despite foreign companies implementing "China for China" strategies [5] - Pricing pressure remains significant for foreign MCU players, with STMicroelectronics' 32-bit MCU pricing dropping by 3% to Rmb8.15, while Gigadevice's pricing remained stable at Rmb6.1, narrowing the premium from 61% in October 2024 to 34% [3][5] - Demand for home appliances has decreased compared to Q4 2024, while consumer electronics demand was strong prior to the Chinese New Year due to government subsidies [3] - Future Expectations: - The expectation is that local MCU companies will maintain their competitive edge as foreign partnerships take time to ramp up and cost advantages may not be realized until early 2026 [5] - Analysts have turned positive on the China MCU market since November 2024, indicating a potential recovery [4] Company-Specific Insights - Preferred Stocks: - Espressif (688018.SS) is highlighted as a preferred investment due to its edge AI opportunities and competitive RISC-V MCU offerings [5] - Nuvoton (4919.TW) is also favored due to its new BMC progress and overall MCU market bottoming [5] - Sino Wealth (300327.SZ) is rated Equal-weight amid intense competition in AMOLED driver ICs, but with improving demand for MCU and BMIC [5] - GigaDevice (603986.SS) is rated Equal-weight based on fair valuation [5] Additional Considerations - Consumer Confidence: Consumer confidence in China's economy showed signs of recovery in December 2024, which may influence future spending in the semiconductor sector [14] - Capex Trends: Leading MCU companies are expected to lower their capital expenditures in 2025 compared to 2024, indicating a cautious approach to investment amid market uncertainties [18] Risks and Opportunities - Upside Risks: - Sustained MCU upcycle and faster localization in China could lead to significant market gains [33][41] - Increased traction in automotive and BMC business could enhance margins [42] - Downside Risks: - A potential early end to the MCU upcycle with severe pricing erosion could negatively impact market dynamics [33][41] - Slower-than-expected localization and intensified competition may lead to margin contractions [41][42] This summary encapsulates the key points from the conference call, focusing on the MCU market dynamics, company-specific insights, and potential risks and opportunities within the Greater China semiconductor industry.