In recent years, the semiconductor industry has emerged as a beacon of high-tech innovation and growth, buoyed by substantial government support and enthusiastic investments from regional administrations. The A-share market, specifically the semiconductor sector, exhibits a discernible uptrend in demand, signaling a return to pre-pandemic activity levels. Industry experts suggest that the global semiconductor landscape is steadily recovering, presenting promising growth opportunities for publicly listed companies across the supply chain.

The recovery trend in demand for semiconductors has become increasingly apparent as we move forward into 2024. According to a report from the World Semiconductor Trade Statistics (WSTS), the global semiconductor market is forecasted to reach $166 billion in the third quarter of 2024, representing a robust increase of 10.7% compared to the previous quarter. This upward trajectory illustrates a significant rebound in the industry and a shift into a favorable business cycle.

Notably, many semiconductor companies have started to reflect these promising signs in their financial results. In the first half of 2024, a remarkable 57 firms reported a nearly 200% year-on-year increase in net profits. For instance, ten companies are projected to report net profits exceeding $400 million, with prominent players like Northern Huachuang and Weir Shares achieving net profits of up to 2.96 billion yuan and 1.408 billion yuan, respectively. Furthermore, Northern Huachuang's latest quarterly report supports this recovery narrative, showcasing a 30.12% year-on-year revenue increase to 8.018 billion yuan and a net profit growth of 55.02% to 1.682 billion yuan. Similarly, SMIC, recognized as the third largest chip foundry globally, reported a significant operational turnaround as well; its third-quarter earnings showed a 32.5% increase year-on-year, amounting to 15.6 billion yuan, with a net profit surge of 56.5% to 1.06 billion yuan.

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Liu Xingliang, a member of the Information and Communication Economic Expert Committee under the Ministry of Industry and Information Technology, observed that the global semiconductor market exhibits early signs of cyclical recovery, characterized by rising demand, growing profits, and an expanding market size. He hinted that as the disruptions caused by the pandemic slowly rectify, semiconductor inventories are being managed better, prompting downstream enterprises to restock and increasing demands in both consumer and industrial electronic sectors.

Geng Zheng, Chief Analyst in the electronics industry at GF Securities, echoed these sentiments, noting that the first half of 2024 showcased a robust recovery in the electronics sector. The rapid growth in artificial intelligence training and inference demands propelled related semiconductor needs. As supply chain destocking nears completion, the overall health of the electronic industry finds itself on an upward trajectory with recovering year-on-year sales figures in the global semiconductor marketplace.

China has established itself as the world’s largest semiconductor market for consecutive years, capturing nearly one-third of the global market share. In the first three quarters of this year, the semiconductor sales in China reached approximately $135.8 billion, accounting for close to 30% of the global semiconductor revenues. The Chinese government has embraced a proactive stance in supporting the semiconductor industry via policies, tax incentives, and talent development strategies aimed at advancing the domestic semiconductor manufacturing and related supply chains toward larger-scale and higher quality.

Several securities firms have adopted a positive outlook towards the semiconductor sector. Guojin Securities reported an end to proactive destocking efforts, heralding signs of a cyclical upturn for the semiconductor industry in 2024. The adjustment of overall supply, coupled with steady demand, could lead to a potential bottoming out and rebound in chip prices, paving the way for an upward trajectory in the semiconductor supply chain.

Moreover, Guosen Securities emphasized a cautiously optimistic view on the sustained momentum of the semiconductor market. As the foundational "policy bottom" takes shape, the hard technology sector balances both economic cyclical characteristics and new productive powers, establishing the semiconductor field as a market favorite.

The strengthening of the semiconductor sector can also be attributed to the growing necessity for technological self-reliance, which is viewed favorably by numerous investment institutions and retail investors alike. As the market shifts toward domestic substitution of semiconductor technology, investors are diverting resources towards this domain, seizing opportunities within the context of global uncertainties and the complexity of the external environment.

The inescapable reality of international supply chain uncertainties has amplified the importance of domestically manufactured semiconductor equipment. The dual pressures of national policymaking and market demand have encouraged a renewed focus on homegrown solutions. Investors are optimistic about the promising long-term growth prospects of domestic alternatives, eager to reap the rewards of technological independence.

CITIC Securities expresses that the direction for the development of China’s semiconductor industry has become clearer, with a growing reliance on domestic demand and self-sufficiency. They further argue that the U.S. grip on advanced technology capabilities is unlikely to alter China’s commitment toward advancing its semiconductor sector; instead, it is catalyzing the push toward enhanced independence.

Gindar Securities posited that this realignment of international semiconductor markets is compelling domestic enterprises to refine their supply chains and reinforce the demand for advanced production capacity within China, thereby driving technological advancements in upstream semiconductor equipment and materials.

Liu Xingliang adds that China's current international semiconductor supply chain adjustments offer domestic companies an opportune moment for accelerated growth. The worldwide shift towards risk mitigation and localized manufacturing is leading various nations to reinforce their investments into local semiconductor industries. In line with robust initiatives undertaken by China to stimulate domestic demand and rejuvenate relevant industrial chains, one can anticipate an upsurge in semiconductor requirements overall.

Looking ahead, the pathway for domestic semiconductor alternatives remains vast, and local companies are positioned to benefit as the domestic substitution process continues to materialize. Geng Zheng elaborated that the trajectory of semiconductor domestic replacement is gaining momentum; this evolution progresses gradually, from basic consumer electronics to industrial applications, and spans the intricate technical challenges of chip production, manufacturing, and equipment sectors. Homegrown manufacturers are committed to expanding research and development investments while consistently achieving technological breakthroughs and broadening their growth frontiers.

Industry insiders project a sustained growth momentum for the semiconductor sector in the foreseeable future. Liu Xingliang commented that the innovation-centric nature of the semiconductor industry aligns well with the evolving demands for knowledge-intensive, technologically advanced, and resource-efficient outcomes, presenting it as a vital component of emerging productive forces reshaping economic structures. The industry not only enhances efficiency in traditional sectors but also spurs the emergence of innovative economic forms such as smart manufacturing, autonomous driving, and smart cities. As the demand for artificial intelligence chips, automotive electronics, and smart devices continues to expand, the growth potential of the semiconductor sector is anticipated to be further unlocked.

According to predictions from WSTS, the global semiconductor market size is anticipated to expand to $611.2 billion in 2024, with a projected growth of 12.5% in 2025 that would push the market valuation to $687 billion. Over the long haul, the optimistic outlook for the semiconductor industry is expected to persist.

Industrial analyst Ande Securities notes that the government’s continuous reinforcement of policies supporting technological innovation provides substantive backing for innovation-driven enterprises. The semiconductor industry, recognized for its high-tech attributes, represents a core pillar of emerging productive forces. With the recovery trend in the semiconductor sector becoming increasingly pronounced, bolstered by constant policy support, it holds considerable prospects for long-term investment opportunity. Recent reports from SMIC illustrate an additional monthly capacity of 21,000 12-inch wafers, contributing to a further optimization of their product structure and an increase in average selling prices. The overall capacity utilization rate has climbed to 90.4%, with a gross margin rising to 20.5%. For the upcoming fourth quarter, management forecasts stable to marginal growth in revenue alongside a gross margin estimation fluctuating between 18% to 20%.

Tianfeng Securities anticipates that the semiconductor industry will enter its traditional high season in the second half of the year, driven by new releases of consumer electronics and the rising prominence of AI smartphones and PCs, alongside breakthroughs in domestically produced servers, further invigorating semiconductor demand. SMIC's quarterly report underlines significant improvements in both revenue and net profit primarily due to increased sales volumes and product mix alterations. Notably, in the third quarter of 2024, the revenue from their Chinese operations surged over 6% compared to the previous quarter as capacity expansion progresses hand in hand with a rising utilization rate, now peaking at 90.4%, a significant increase from 77.1% observed during the same timeframe last year.

As for CITIC Securities, they foresee continuous growth in the global semiconductor industry scale by 2025, particularly with high demand for cloud computing power expected to persist. They also look forward to edge AI playing a pivotal role in uplifting semiconductor growth in the coming years. The domestic semiconductor sector, serving as a foundational pillar for novel technological productivity, is newly bolstered by favorable policies, cyclical rebounds, innovation increments, and the resurgence of local substitution strategies. Involvement in edge AI will further amplify its performance in the upcoming stages.

Looking ahead to 2025, a poised recovery in semiconductor demand is projected, driven by both domestic and global economic upturns. According to a senior economic analyst and chief advisor at Zhi Fan Coast Institutions, the enduring commitment of Chinese semiconductor firms towards independent innovation aligns harmoniously with the long-term development trajectory. As continuous advancements in research and development unfold, they collectively foster an integrated development across various segments of the industrial chain.