2025-12-01 03:18Summary of Conference Call Notes Industry Overview - Industry: Semiconductor and Technology - Outlook for 2026: Upstream sectors are favored while downstream sectors face challenges due to demand uncertainty, particularly in consumer electronics and automotive applications in the first half of 2026 [1][3][4] Key Insights - End Demand Uncertainty: The primary concern for 2026 is the uncertainty in end demand, especially for consumer electronics and automotive applications, attributed to a high base and unfavorable memory costs [1][3] - Preference for Upstream Supply Chain: Focus on upstream sectors such as Wafer Fabrication Equipment (WFE) and foundry sub-sectors due to: - Sustainable capital expenditure (capex) driven by China's indigenous AI supply chain - "China-for-China" demand from international semiconductor clients [1][3] - Selective Downstream Investment: Caution advised for downstream sectors like fabless and OEMs, which may experience margin squeezes due to weakening demand and rising costs. Preference for high-end market share gainers [1][4] Financial Performance Expectations - WFE Sector Growth: Anticipated benefits from sustainable fab capex supporting indigenous AI demand, with localization expected to increase from 20% in 2024 to 50% by 2030 [3] - Foundries and IDMs: Expected to operate at elevated utilization rates with potential price increases into Q1 2026, driven by demand from international clients [3] - High-End Consumer Electronics Resilience: Demand for high-end products (e.g., Apple, DJI) expected to remain strong, while low-end products (e.g., Android smartphones) may face significant challenges [3][4] Stock Recommendations - Top Picks: - NAURA - AMEC - OmniVision - Luxshare - Zhongji Innolight - Investment Strategy: Maintain a pecking order favoring WFE > Foundry > IDM > OSAT > Fabless, with a cautious stance on downstream OEMs and ODMs [4][1] Additional Considerations - Valuation Re-rating: Limited re-rating expected for the downstream sector, with potential performance reliant on upward revisions in earnings per share (EPS) rather than valuation expansion [4] - Market Dynamics: The report highlights the importance of understanding the shifting dynamics in the semiconductor market, particularly the impact of AI and localization trends on future growth [1][3][4]