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Cutting orders, cutting orders, cutting orders, is the semiconductor industry really going to "change"?

In the past two years, the "chip shortage" has driven the semiconductor industry to sprint. However, under the impact of the pandemic and insufficient product innovation, the demand for electronic products has experienced a comprehensive shrinkage. Nevertheless, TSMC and UMC continue to signal chip price increases. On one hand, there is weakening terminal demand, accompanied by news and an atmosphere of order cuts. On the other hand, prices continue to rise. What stage has the semiconductor cycle entered?

In the current semiconductor industry chain, the turnover speed of semiconductor chip manufacturers, chip foundries, and terminal brand merchants has generally slowed down. Taiwan Semiconductor and United Microelectronics are also facing this problem. However, continuing to raise prices is not sustainable when inventory turnover is gradually slowing down.

Looking at the entire semiconductor market, although the high growth of the semiconductor market in the past two years has ceased, there are still structured opportunities. Traditional electronic product demand is shrinking, but the first quarter still saw 80% high growth in the field of new energy vehicles, providing continued growth momentum in the field of automotive semiconductors. Compared to the situation of semiconductor chip manufacturers, STMicroelectronics NV, NXP Semicon, Texas Instruments, and other automotive semiconductor companies still have historically low inventory turnover days, which also confirms the structured performance in the automotive semiconductor field. Given the trend of "Dolphin", Dolphin's research on semiconductor companies will mainly focus on:

Dolphin's view on the current cycle of the semiconductor industry is as follows:

  1. Retrospect of this round of semiconductors:

Looking back at the strong performance of this round of semiconductors in stock prices, it is closely related to the continuous increase in sales in the semiconductor industry. From a long-term perspective and a medium-term perspective:

  • Long-term perspective: The semiconductor industry has shown continuous growth, mainly driven by technology and new products. The global semiconductor industry has grown from a monthly sales of $15 billion at the beginning of the 21st century to a monthly sales exceeding $50 billion today.

  • Medium-term perspective: The semiconductor industry has certain cyclicality. For example, global semiconductor sales experienced a double-digit decline in 2019, mainly due to the saturation of the smartphone market and a temporary stagnation in product innovation. Subsequently, the emergence of innovations such as 5G smartphones, wearable devices, and automobiles once again stimulated the upward performance of this round of the semiconductor industry.

Looking at the recent global semiconductor sales, monthly sales have stabilized at over $50 billion. Although the growth rate of semiconductor sales has slightly declined due to factors such as local conflicts and epidemics this year, it still maintains double-digit growth.

So, which chips are driving the upward trend in semiconductor sales this round? Let's start with the classification of semiconductors and get familiar with the specific categories of semiconductors. Semiconductors are mainly divided into five categories: digital chips, analog chips, optoelectronic devices, sensors, and discrete devices. Digital chips and analog chips are the most important components of the semiconductor industry. Analog chips are mainly used for analog signals (sound, light, temperature, etc.), including operational amplifiers, linear regulators, power management, etc. Digital chips mainly perform arithmetic and logical operations, including CPUs, microprocessors, memories, microcontrollers, etc.

After understanding the classification of semiconductors, let's take a look at the changes in various types of chips in recent years.

In the past three years, the compound annual growth rate of global semiconductor sales has reached 16.1%, and integrated circuits are the main source of semiconductor growth.

The market still has good growth expectations for the semiconductor industry in 2022. Even under the impact of factors such as the epidemic and local conflicts, according to the latest expectations of WSTS, the global semiconductor market is expected to grow by 16.3% in 2022, reaching $646 billion, with a slightly lower growth rate but still maintaining double-digit growth.

Sources: IC Insights, Chuancai Securities, Dolphin Research Although the semiconductor market in 2022 still maintains a good growth momentum, it is no longer experiencing overall growth, but rather showing characteristics of structured growth. WSTS expects the mainstream chip markets to grow as follows: logic chips by 20.8% YoY, analog chips by 19.2% YoY, memory chips by 18.7% YoY, and optoelectronic chips to remain relatively stable. In the semiconductor industry in 2022, the markets for logic chips, analog chips, and memory chips are expected to maintain a growth rate of around 20%.

Looking ahead to 2023, WSTS predicts that the semiconductor market will achieve a growth rate of approximately 5%.

II. How far along is the semiconductor cycle?

As semiconductors are part of the manufacturing industry, inventory levels become an important indicator for observing the semiconductor cycle. From the perspective of the industry chain, semiconductor chips have chip manufacturers upstream and end-brand manufacturers downstream. By examining the inventory data of major manufacturers, we can observe the current state of the semiconductor industry cycle.

Source: Dolphin Research

2.1 Semiconductor Chip Market

Under the influence of the "chip shortage" over the past year, the inventory turnover days of major chip manufacturers worldwide have fallen to historical lows. However, with the slowdown in downstream demand (refer to Dolphin's previous article "Consumer Electronics: Apple Holding Strong, XIAOMI-W Struggling"), the tight supply situation of chips has eased to some extent.

Looking at the inventory situation of major global semiconductor companies, it shows structured characteristics, with some companies already showing signs of inventory turnover days increasing.

① In the high-performance computing market represented by $NVIDIA.US, $AMD.US, and $Intel.US, except for AMD, which has accelerated inventory turnover due to the acquisition of Xilinx, other companies have shown signs of inventory turnover days starting to rise. NVIDIA and Intel's inventory turnover days have clearly increased, mainly due to the decline in the PC market from its peak.

②Represented by Qualcomm.US in the mobile chip market, due to Qualcomm's dominant position in the Android phone market, the overall inventory turnover has remained relatively stable in recent years. However, under the influence of numerous unstable factors this year, the overall sluggishness of the mobile market has led to a year-on-year increase in Qualcomm's inventory turnover days in the first quarter.

③Represented by Texas Instruments, NXP Semiconductors, and STMicroelectronics in the industrial control and automotive market, the inventory turnover days have also increased slightly this quarter, mainly due to the impact of local conflicts and the epidemic on traditional automotive and other markets. However, they are still at historically low levels.

Overall, the inventory turnover days in the semiconductor chip market have shown an upward trend in 2022.

2.2 Upstream: Chip Manufacturing Market

In the case of a overall increase in inventory in the semiconductor chip market, how do the upstream chip foundries perform? For the situation in the semiconductor foundry industry, Dolphin has mainly selected four major foundries: TSMC, UMC, SMIC, and Hua Hong Semiconductor.

From the inventory situation of major global chip foundries, TSMC and UMC have a significantly faster inventory turnover than SMIC.HK and HUA HONG SEMI.HK. Recently, all four companies have experienced a certain increase in inventory turnover days, which is also related to the increase in semiconductor chip market inventory and the sluggish terminal demand.

From the data, the increase in inventory turnover of chip foundries has occurred prior to semiconductor chip manufacturers. As we enter 2022, with the increase in chip market inventory, the inventory turnover days of chip foundries may continue to rise. 2.3 Downstream: Terminal Brand Market

What is the root cause of the recent increase in semiconductor inventory? We need to look at the downstream terminal brand market for answers. For the downstream terminal brand market, Dolphin has mainly selected four major terminal manufacturers: Apple, XIAOMI-W, Lenovo, and Dell Tech.

From a global perspective, the inventory turnover days of these four brand manufacturers have increased compared to the same period last year, especially for XIAOMI-W.HK and Dell Tech.US, where the increase in inventory is more pronounced. After the decline in PC high-growth retreat, the overall downstream demand of Lenovo Group.HK and Dell Tech has started to decline. In the case of weak innovation, XIAOMI-W and Apple.US have also experienced a significant decline in demand in the smartphone and consumer electronics markets. Faced with the downturn in demand, both XIAOMI-W and Apple have seen an increase in inventory turnover days, and both companies have started to reduce orders to varying degrees.

From the data, it can be seen that the sluggish terminal demand directly increases the inventory turnover days of brand manufacturers. Compared to XIAOMI-W and Dell Tech, Apple still has a lower inventory turnover days and a stronger risk resistance.

III. What should we pay attention to in the current semiconductor industry?

After going through this round of upturn cycle, the semiconductor industry will face pressure on growth rate decline, and it is more important to focus on structured opportunities in semiconductor investments. Dolphin believes that the current selection of semiconductor companies should mainly focus on XXX. 1) Structuring of downstream market: Traditional decline, new cars dominate

Lack of product innovation has led to a shrinking demand in the traditional electronics market. The shipment volume of wearable devices, which had high expectations, also stagnated in the first quarter. With the gradual weakening of the traditional market, there is an urgent need for the drive of new markets.

The high growth of new energy vehicles brings new opportunities. According to data from Jiabang Consulting, the global sales volume of new energy vehicles in the first quarter of 2022 reached 2.04 million units. Compared to the declining traditional market, the high growth of new energy vehicles has ignited new hopes for the semiconductor market. The semiconductor market is embracing structured opportunities in the application end, and new energy vehicles are expected to continue driving the growth of the analog chip market.

2) Structuring of leading companies: Innovation brings opportunities across cycles

The continuous growth of the semiconductor industry over the past decades is mainly attributed to innovation. Leading companies with innovative capabilities are expected to continue growing across cycles.

① Position of leading companies: Even in the downward phase of the cycle, leading companies have stronger influence. TSMC's process technology, NVIDIA's computing power, and other advantages and scarcity in the industry.

② Ability for product innovation: Product innovation can stimulate the outbreak of new demand. The launch of Apple's iPhone 4, a groundbreaking product, led to the surge in demand for semiconductor chips from end products.

Dolphin's research on the semiconductor industry

Automotive Semiconductors

June 14, 2022 - TIMES ELECTRIC in-depth analysis: "Dancing on the Safety Mat, IGBT Creates a New TIMES ELECTRIC?"

May 16, 2022 - TIMES ELECTRIC in-depth analysis: "TIMES ELECTRIC: Racing on Rail Transportation, or Riding the IGBT Wind?"

March 7, 2022 - SiC industry in-depth analysis: "Behind the New Energy Sprint, Who Will Be the Next King in the Silicon Carbide Race?"

January 18, 2022 - IGBT industry in-depth analysis: "A Dual Performance of New Energy and Photovoltaics, How Attractive Is IGBT?" 2022 年 1 月 6 日 Automotive Semiconductor Industry Deep Dive "Taking the New Energy Fast Track, Does IGBT Become the Hardcore Track of Automotive Semiconductors?"


Earnings Season

May 13, 2022 Conference Call "Limited Impact from the Epidemic, Semiconductor Shortage Becomes Structural (Summary of SMIC Conference Call)"

May 12, 2022 Earnings Review "Epidemic Kneels, Market Kneels? SMIC's Performance Doesn't "Kneel""

February 11, 2022 Conference Call "Alpha Beyond Industry Price Increases, SMIC Expands Production Again"

February 10, 2022 Earnings Review "SMIC: Continuous Growth in Performance Amidst "Rising" Voices | Reading Financial Reports"

November 12, 2021 Conference Call "After Exceeding Expectations, Why Did SMIC's Management Experience a Sharp Decline?"

November 11, 2021 Earnings Review "Stop Questioning Whether the Cycle Has Peaked, SMIC Still Going Strong!"

August 6, 2021 Conference Call "How Does SMIC's Management View the 21Q2 Financial Report?"

August 5, 2021 Earnings Review "SMIC: Rising Force of China's "Chip" Power"


July 16, 2021 "SMIC (Part 2): The Undervalued Chinese "Chip""

July 9, 2021 "SMIC (Part 1): The Strategy of the Leading "Chip""


Earnings Season

April 14, 2022 Earnings Call: "Tight Capacity, No Price Cuts, 2nm on Schedule (TSMC Earnings Call)"

April 14, 2022 Earnings Review: "TSMC: Strong 'Belief', Irrelevant to the Cycle"

January 13, 2022 Earnings Review: "After Providing Strong Quarterly Guidance, What Did TSMC Management Discuss?"

January 13, 2022 Earnings Review: "TSMC Packs a Punch, Avoids the 'Cycle'"

October 14, 2021 Earnings Review: "TSMC: Leading the Pack, Still in the Limelight"

In-Depth Analysis

April 8, 2022: "TSMC (Part 2): Discounted Prices, Unwavering Belief"

March 16, 2022: "After the Market Plunge, Let's Talk About the Supreme Foundry King TSMC Again"


In-Depth Analysis

February 28, 2022: "NVIDIA: High Growth is Real, But Cost-Effectiveness is Still Lacking"

December 6, 2021: "NVIDIA: Valuation Can't Rely Solely on Imagination"

September 16, 2021: "NVIDIA (Part 1): How Did the Chip Bull with 20x Growth in Five Years Come to Be?"

September 28, 2021: "NVIDIA (Part 2): No Longer Driven by Dual Engines, Will Davis Deliver Another Blow?"

Earnings Season

May 26, 2022 Earnings Call: "Lockdowns and Pandemic Impact, Gaming Decline Weighs Down Q2 Performance (NVIDIA Earnings Call)" 2022 年 5 月 26 日财报点评《 No more "epidemic fat", Nvidia's performance is still damaged

2022 年 2 月 17 日电话会《 Nvidia: Advancing Multi-Chip, Data Center as Company Focus (Conference Call Summary)

2022 年 2 月 17 日财报点评《 Nvidia: Hidden Worries Behind Better-than-Expected Performance | Reading Financial Reports

2021 年 11 月 18 日电话会《 How does Nvidia build the Metaverse? Management: Focusing on Omniverse (Nvidia Conference Call)

2021 年 11 月 18 日财报点评《 With Computing Power and Metaverse Boost, Will Nvidia Continue to Thrive?

United Microelectronics Corporation

Financial Report Season

2022 年 4 月 28 日财报点评《 United Microelectronics Corporation: Continuous Price Increases, Still Going Strong

2022 年 1 月 25 日财报点评《 United Microelectronics Corporation: "Price Hike" Seen from Core Indicators

2021 年 7 月 29 日财报点评《 Insights into United Microelectronics Corporation and Semiconductor Manufacturing International Corporation: Wafer Manufacturing is Awesome!

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