1. Recent Changes in the Industry
Impact of Tariff Policies:Currently, the volume of customs declarations is low. In the face of strong uncertainty, both customers and manufacturers are conducting internal business analyses, with only urgent goods being declared. Chips defined as originating from the United States are subject to a25% tariff, such as some isolation chips used in automobiles, leading overseas manufacturers to raise prices significantly. End customers bear the tariff costs, prompting them to actively seek domestic alternatives and backups while awaiting official responses from Texas Instruments.
Responses from Overseas Manufacturers: Overseas manufacturers are negotiating with customers to find solutions, but there is no definitive strategy. Two temporary solutions are available: one is internal capacity coordination, asTI has foundry capacity in Germany, and overseas capacity utilization is low; the second is to increase outsourcing, prioritizing TSMC’s mature capacity, as its production lines are often certified for automotive applications, which can shorten certification times, while domestic manufacturers are considered alternatives.
Trend Towards Localization:Recent market trends indicate a strengthening of localization substitution. Within a 3 to 6 month timeframe, the localization rate of some pin-to-pin directly replaceable components is likely to increase, but for automotive and industrial applications, some components will require a longer cycle. The overall localization rate is about 20%, with some consumer scenarios reaching 50% – 60%, and even some consumer electronic simulation components can be supplied by Chinese companies, while the localization rate for B-end automotive components is less than 10%. Companies with significant exposure in B-end investments are more favorable.
Price Situation:There have been no significant changes in original manufacturer prices. Different handling methods by distributors have emerged, with some halting quotes, while others are offering discounts of10% – 30% due to end customer inventory demands.
2. Fundamental Situation of the Sector
First Quarter Performance:Chipone Microelectronics reported strong performance in the first quarter, with a double-digit revenue growth quarter-over-quarter and nearly50% year-over-year, reaching a three-year high. The company is competitive in the home appliance chip market, with rapid growth in fast-charging business, and server and base station businesses also beginning to contribute revenue. This quarter’s performance exceeded seasonal expectations, with companies like Silead, Awinic, and Naxin Microelectronics showing high growth either quarter-over-quarter or year-over-year, with B-end companies performing even better.
3. Comparison with 2021 Market Conditions and Current Judgments
2021 Market Factors:The simulation chip market in 2021 was unique, with demand starting to grow from the second half of 2020. The consumer end reacted first, as Huawei phones were banned, leading terminal manufacturers like OPPO, Vivo, and Xiaomi to stockpile. The pandemic affected both supply and demand sides, with IDM manufacturers lacking motivation to expand production, foundries having no outsourcing capacity, and some factories shutting down or being damaged; the demand side saw an increase in consumer electronics due to remote work, leading to a mismatch in supply and demand, with automotive chips being extremely scarce, resulting in price increases for three to four consecutive quarters, first for consumer products and then for automotive products. Domestic simulation chips saw both volume and price increases due to localization, with average performance growth of 80% or even doubling.
Current Certainties:Texas Instruments’ cost advantage has been compromised. Its 12-inch factory in the U.S. has low costs, and if it cannot supply from the U.S. factory, other older factories have low cost-performance ratios, and outsourcing costs are high; the pace of localization is accelerating, and after the industry has undergone tariff scrutiny, companies will increase their share of domestic companies to cope with uncertainties; domestic simulation companies will increase capacity reserves.
Price Trend Judgments:Some specific components and channels may see localized price increases, but the likelihood and timing of large-scale price increases are further down the line. Current demand is weakly recovering, and Texas Instruments will take measures to address supply-demand mismatches. There have been no large-scale price increases or orders from major foundries; if large-scale price increases occur, it would damage long-term cooperation with customers, so only minor price increases for specific components are expected in the near term. Large-scale price increases would require demand to significantly exceed supply, and repeated price increases from foundries and design companies would be necessary.
Orders and Fundamental Reflections:Downstream companies are actively placing orders with domestic companies for localization substitution, but large-scale orders have not significantly occurred in the past week, and will gradually increase. The fundamental reflection in the second quarter is not obvious, as April is about to end, and there is a buffer period for tariff policies, with domestic companies having production cycles, but the second quarter is expected to perform better than the first quarter, with potential upward adjustments in June.
4. Market Dynamics and Recommendation Logic
Market Dynamics Stage:It is certain that Texas Instruments’ cost advantage is weakening, and the pace of localization is accelerating. Current price adjustments and halting quotes are occurring at the distributor level, and original manufacturers will receive increased orders in the future. Ultimately, the price adjustments by original manufacturers will depend on downstream demand, Texas Instruments’ response strategies, and consensus among all parties, and the extent will not be as significant as in2021.
Recommended Sectors and Companies:From a marginal change perspective, the automotive sector will reflect changes first, as the supply-demand gap for automotive components is difficult to fill in the short term. The introduction and validation of domestic automotive certification products will accelerate, and the localization rate will steeply increase; the industrial sector has a long product introduction cycle and a low localization rate, but will also accelerate the introduction of domestic manufacturers; the consumer sector has a high localization rate, but end customers are sensitive to prices and will be the first to switch suppliers. Recommended companies include DiAo Microelectronics, Shengbang, and others.
5. Industry Changes and Market Rhythm
Focus on Variable Transmission: External tariff variables are core variables for the industry, and their changes are the key to tracking the subsequent transmission to the mid-level industry. Attention should be paid to the impact of domestic share and price changes on the degree of market dynamics.
Market Rhythm Considerations:The current simulation sector shows significant divergence. The market in the past week has reacted to external variables, and the transmission of macro variables to the mid-level industry and then to micro-enterprises has a time process. By the time fundamental changes are observed, the market may be nearing its end.
Characteristics of Sub-sectors: The simulation sector is highly segmented with a wide range of application scenarios, each sub-sector has its own growth potential. For example, the automotive sector has a low localization rate, good demand, and a short destocking cycle, which should be noted when selecting targets. Some companies have already shown changes in their first-quarter performance, and subsequent changes in this sector are worth monitoring.
Core Targets: