The Semiconductor Sector Experiences a Surge! Is the Turning Point for Memory Chips Here? Latest Insights

The Semiconductor Sector Experiences a Surge! Is the Turning Point for Memory Chips Here? Latest Insights

The focus on semiconductors is rising again!

On November 3, the semiconductor sector strengthened once more, with the Wind Semiconductor Index rising by 2.96%. Among individual stocks, Yongxi Electronics hit the daily limit of 20%, Huahai Chengke, Changguang Huaxin, and Guoxin Technology rose over 10%, while Kangqiang Electronics, Jinhaitong, and Sida Banfeng also hit the daily limit.

Additionally, several stocks in the memory chip sector performed well this week. On Tuesday, the largest independent DRAM memory chip packaging and testing company in China, Shenke Technology, hit the daily limit, while Jingzhida, which has memory device testing equipment products, also reached a 20% limit during the day. On Wednesday, Yingfang Micro, which has memory chip products, hit the daily limit, and on Friday, Langke Technology, which specializes in the research and production of flash memory applications and mobile storage products, closed at a 20% limit. In terms of news, Samsung has decided to raise the prices of NAND Flash chips by 10% to 20% this quarter and will continue to increase prices by 20% quarter by quarter in the first and second quarters of next year, which far exceeds industry expectations.

What is the current market view on memory chips? What is the outlook for the entire semiconductor cycle?

Memory chips are expected to start rebounding in price in the fourth quarter.

According to reports from the Taiwan Economic Daily citing multiple semiconductor industry insiders, after Samsung’s decision to raise NAND Flash chip prices by 10% to 20% this quarter, it has decided to continue increasing prices by 20% quarter by quarter in the first and second quarters of next year, which far exceeds industry expectations.

Industry insiders pointed out that the NAND chip market is becoming more active, with customers gradually returning. As the global leader in memory chips, Samsung’s leading price increase will help the overall market price trend positively. This week, another insider from the memory supply chain revealed that the enthusiasm for purchasing in the memory industry remains high, and spot prices for DRAM and NAND are still rising.

Currently, the market generally expects that the “turning point for memory chips has arrived.” Samsung’s third-quarter report showed net profits exceeding expectations, with losses in the memory business continuing to narrow, and the memory market is expected to recover, with DRAM demand expected to increase in 2024. Another leader, SK Hynix, also saw a significant reduction in losses in the third quarter compared to the previous quarter, with the DRAM division returning to profitability. Market research firm Yole Intelligence has updated its monitoring data report on the memory chip market, optimistically estimating that the memory chip market will begin to warm up starting in the fourth quarter of this year.

Guojin Securities’ latest report indicates that memory chips are expected to start rebounding in price in the fourth quarter of this year, initiating a new round of upward cycles. As producers of memory chips and the most critical link in the memory market, memory chip manufacturers are expected to benefit the most.

The “2024 Strategy Report on the Semiconductor Industry” by Western Securities states that since 2023, the domestic economy has shown signs of weak recovery. Although the recovery of downstream electronic consumer demand has been slow, it is gradually improving, and some chip design companies are continuously reducing their inventory, indicating that the fundamental turning point for semiconductor design companies is approaching. On the other hand, the market’s pessimistic expectations for capital expenditure by domestic wafer fabs at the beginning of the year have been somewhat repaired, and the semiconductor equipment and materials sector has been performing better than the industry average since February. Mid-year, the market began to worry about the new round of semiconductor export control policies from the United States, and due to the impact of downstream demand for wafer foundries, the overall operating rate of wafer fabs has been relatively low, with fewer equipment tenders from first-tier wafer fabs this year, leading to some adjustments in the equipment and materials sector. At this current juncture, Western Securities believes that the trend of recovery in wafer fab capacity utilization is clear, and the expansion of domestic wafer fabs is becoming increasingly imminent. Meanwhile, the market’s concerns about a new round of export control policies from the United States have been fully priced in, and the trend of domestic substitution in semiconductor equipment and materials is inevitable, making this a valuable window period for positioning in the equipment and materials sector.

Continuously monitor the turning point of the semiconductor cycle.

According to statistics from the research department of CICC, in the third quarter of 2023, the semiconductor positions of public funds increased by 0.36 percentage points to 7.26%. Stocks such as Jinghe Integrated, Zhongke Feice-U, Huadian Co., and Zhuosheng Micro have seen significant increases in holdings. In terms of the Shanghai-Hong Kong Stock Connect, northbound funds increased their holdings in TCL Technology and Weir Shares, while southbound funds mainly bought Huahong Semiconductor-H.

Looking ahead to 2024, CICC believes that a moderate recovery in terminal demand is expected to bring a quarter-by-quarter increase in revenue/profit for sector companies, with driver class/RF front-end/SoC chips showing strong growth momentum. Memory prices have entered a bottom range, panel price declines are continuously narrowing, and the analog and power markets are expected to recover healthily as the tail end clears. Additionally, the supply-demand relationship for components and PCBs is also showing a trend of gradual stabilization. At the same time, CICC believes that the long-term investment logic for the semiconductor manufacturing sector remains unchanged, focusing on the upstream of the semiconductor industry, including equipment, components, materials, and key software, to fill gaps and increase market share, and is firmly optimistic about the improvement in domestic substitution rates.

Guotai Fund believes that from the demand side of the chip industry chain, the demand for PCs and mobile phones is warming up, with new models from Android and Apple being launched in the third quarter, and domestic mobile phone shipments maintaining a year-on-year positive growth for several consecutive weeks. The downstream artificial intelligence industry has a growing demand for computing power, which is expected to open up new growth spaces for chip demand. The chip industry cycle generally lasts 3-5 years, and the current downward cycle is gradually nearing its end. It is expected that a turning point will be reached by the end of this year or the first half of next year, entering the next upward cycle, with upstream semiconductor equipment and materials likely to benefit first.

Zheng Weishan, director of the stock investment department at Galaxy Fund, stated that from the perspective of reviewing the semiconductor industry cycle, the current industry is at the end of active destocking. Due to unclear and weak marginal improvements in downstream demand, some sectors have entered a passive destocking phase, and the overall growth and profitability recovery will still require some time. From a cyclical perspective, destocking has been ongoing for 3-4 quarters, and Zheng Weishan expects that the cycle bottom may last for a while longer, and attention should be paid to subsequent industry development turning points. The recovery of consumer electronics, the pull of new technology applications, and the continuous improvement of domestic substitution rates are still investment opportunities worth looking forward to in the future. Although the industry currently experiences short-term fluctuations, many companies with core competitiveness will still emerge from the trough and, after weathering the storm, will be well-prepared for the next round of the industry cycle.

Lei Tao, fund manager of the Debang Semiconductor Industry Mixed Fund, pointed out in the third quarterly report that the three driving forces of this year’s semiconductor market remain: 1. The turning point of the global semiconductor cycle; 2. The further deepening of domestic substitution; 3. The technological wave of artificial intelligence, bringing new demand to the semiconductor industry. Currently, it appears that the turning point of the semiconductor cycle is expected to be the most significant opportunity in the remaining time of this year. Coupled with the breakthroughs in domestic technology brought about by Huawei, new battlefields for domestic substitution are emerging beyond equipment and materials, and opportunities for domestic substitution across the entire industry chain are gradually becoming apparent. The configuration strategy will still be based on the investment framework, continuously assessing the marginal changes in the fundamentals of various sub-sectors, and selecting the sub-sectors with the most sustainability and the largest space for configuration. Currently, we are optimistic about the fields of memory, equipment materials, and domestic computing power, while maintaining a keen focus on consumer chips with new growth potential.

Leave a Comment