2025-06-02 15:44Summary of Conference Call on China Semiconductor Industry Industry Overview - The conference call focused on the China Semiconductor industry, highlighting the performance and outlook for 2025, particularly the first half and the anticipated challenges in the second half of the year [1][4]. Key Points and Arguments 1. Sales Performance: - China semiconductor companies reported better-than-seasonal sales in 1Q25, with a sequential sales decline of 8% for fabless and IDMs, compared to a normal seasonal decline of approximately 15% [3][4]. - The gross margins for fabless and IDM subsectors increased by 1 percentage point (ppt) and 2 ppts respectively, marking significant recoveries since 2021 [3][7]. 2. 2Q25 Expectations: - Most companies expect sales growth in 2Q25 to align with seasonal trends, projecting an increase of 10-15% sequentially [3][4]. 3. Demand Concerns for 2H25: - There are rising concerns regarding demand in the second half of 2025, with expectations of flat sales compared to normal seasonality due to fading pull-in demand and diminishing subsidy effects [1][3][22]. - Factors contributing to this concern include: - Potential expiration of the 90-day tariff truce affecting export orders [23]. - Limited growth in smartphone sales, indicating a fading subsidy effect [23]. - Anticipated demand weakness for solar systems post-subsidy cut-off [23]. - Elevated inventory levels leading to potential price pressure [24]. 4. Subsector Preference Order: - The preferred investment order within the semiconductor subsectors is: WFE > OSAT > Foundry > IDM > fabless [1][3]. - AMEC is identified as the top pick in the WFE sector, while JCET is favored among OSAT players due to elevated utilization and acquisition strategies [1][3][37]. 5. Market Share Projections: - Local WFE suppliers are expected to capture 50% market share by 2030, up from approximately 20% in 2024 [3]. 6. Investment Strategy: - The report suggests a selective approach towards fabless players due to demand uncertainty and potential margin pressures in 2H25 [3][37]. - A cautious stance is recommended for Android smartphone component suppliers like Maxscend, given limited unit growth and potential price pressures [37]. Additional Important Insights - The A-share semiconductor index has declined by 1% year-to-date, outperforming the tech index and CSI 300 by 3% and 1% respectively, currently trading at a 47x forward P/E, which is around the average historical valuation [37]. - The report emphasizes the importance of monitoring inventory levels and pricing strategies as they could significantly impact the market dynamics in the latter half of 2025 [24][25]. This summary encapsulates the critical insights from the conference call regarding the current state and future outlook of the China semiconductor industry, highlighting both opportunities and risks for investors.