Recently, the semiconductor sector in the A-share market has been consistently active. With the arrival of the mid year reporting season, several semiconductor companies are expected to see a significant increase in performance in the first half of this year. Institutional analysis shows that under the dual drive of AI+innovation cycle and industry recovery, the prosperity of the semiconductor industry has rebounded, and the industry is expected to embark on a new round of upward cycle. As of July 22, the semiconductor sector has shown strong performance. Since July 9, the cumulative increase of the Tonghuashun Semiconductor Industry Index has reached 11.24%. Over 90% of the stocks in the sector have accumulated positive gains, and over 50% of the stocks have accumulated gains of more than 10%. With the arrival of the mid year reporting season, several semiconductor companies are expected to see a significant increase in performance in the first half of this year. According to data from Tonghuashun, as of now, a total of 42 companies in the semiconductor sector of Shenwan's secondary industry have disclosed their performance forecasts for the first half of 2024, of which over 70% of the companies are expected to have good performance, including 17 companies with expected increases, 11 companies with expected losses, and 4 companies with slight increases. It is worth noting that among the 42 companies mentioned above, 21 companies including Changchuan Technology, Quanzhi Technology, and Weir Group are expected to have a year-on-year net profit growth ceiling of over 100% in the first half of this year, accounting for 50%. Semiconductor equipment company Changchuan Technology has become the company with the largest expected performance growth in the sector. It is expected to achieve a net profit attributable to shareholders of listed companies of 200 million to 230 million yuan in the first half of this year, a year-on-year increase of 876.62% to 1023.12%. From the perspective of segmented fields, chip design companies generally performed well in the first half of the year. Among the 21 semiconductor companies expected to double their net profit year-on-year in the first half of the year, 11 companies are all digital chip design companies. Among them, digital chip design company Quanzhi Technology is expected to turn losses into profits in the first half of the year, achieving a net profit attributable to shareholders of the listed company of 112 million yuan to 128 million yuan, an increase of 759.31% to 853.50% compared to the same period last year; Weir Group expects to achieve a net profit of 1.3 billion to 1.4 billion yuan in the first half of the year, a year-on-year increase of 754.11% to 819.42%. Industry recovery and increased customer demand. Based on the disclosed performance forecast for the first half of 2024, when discussing the reasons for the significant increase in performance, multiple companies have stated that it is related to industry recovery and increased downstream customer demand. In the explanation of the reasons for the performance changes, Changchuan Technology stated that during the reporting period, the overall temperature and recovery of the integrated circuit industry, the significant increase in customer demand in segmented fields, the continuous expansion of the company's product coverage in the field of integrated circuit testing, the steady increase in market share, and the significant growth in operating income compared to the same period last year. When analyzing the main reasons for the expected increase in performance, Weir Group stated that in the first half of 2024, market demand continued to recover and downstream customer demand increased. With the company's product introduction in the high-end smartphone market and the continuous penetration of autonomous driving applications in the automotive market, the company's operating revenue achieved significant growth. Quanzhi Technology also stated that during the reporting period, the semiconductor industry has rebounded, and the demand for downstream sub sectors such as intelligent vehicles, industrial control, robotic vacuum cleaners, and intelligent projectors has increased. At the same time, the company's new products and solutions have been successfully mass-produced, driving a year-on-year increase of about 55.00% in operating revenue and net profit growth. Ruixin Micro disclosed that in the first half of 2024, market demand gradually recovered and AIoT saw growth. During the reporting period, relying on the advantages of AIoT product layout, the company continued to penetrate various AIoT product lines and made breakthroughs in fields such as automotive electronics, machine vision, industrial applications, education, and consumer electronics, achieving a significant year-on-year increase in net profit of approximately 543.15% to 686.29%. From the overall trend of the industry, signs of recovery are also quite evident. From a downstream perspective, global smartphones and PCs have shown signs of recovery. According to Canalys' statistics, global PC and Chinese smartphone shipments in the first quarter of 2024 both achieved year-on-year positive growth for the first time since 2022. According to the Semiconductor Industry Association (SIA), global semiconductor industry sales reached $49.1 billion in May 2024, a year-on-year increase of 19.3%, marking the largest growth since April 2022 and a 4.1% month on month increase from $47.2 billion in April of this year. Guotai Junan analyst Shu Di said that the driving factors for the recovery of the semiconductor industry's prosperity come from two aspects: on the one hand, AI+drives a new innovation cycle in the industry, and the market demand for related logic chips and new storage chips is increasing; On the other hand, the semiconductor industry is experiencing a cyclical recovery, with traditional bulk storage experiencing price recovery after controlling production and ensuring prices. The inventory of consumer, industrial, and even automotive chip channels is naturally depleted, and downstream customers' buying pace is normalized. Based on comprehensive data and industry perspectives, the semiconductor industry may embark on an upward cycle as downstream demand continues to recover, driven by the global AI boom. The International Semiconductor Industry Association recently released the "Mid Year Total Semiconductor Equipment Forecast Report", which shows that it is expected that the global total sales of semiconductor equipment will reach a record high of 109 billion US dollars in 2024, a year-on-year increase of 3.4%, and is expected to further reach a new high of 128 billion US dollars in 2025. SIA predicts that global semiconductor industry sales are expected to increase by 16.0% year-on-year to $611.2 billion in 2024, and further increase to $687.4 billion in 2025, setting a new historical high for two consecutive years. We believe that AI increment and industry cycle recovery are the main driving factors for the continuous improvement of semiconductor prosperity this time. The demand for AI computing power drives the growth of chip demand such as HBM, and drives the growth of semiconductor product demand and ASP. The demand for electronic products is recovering, and the semiconductor industry is gradually emerging from the bottom of the industry cycle, ushering in a new round of growth cycle Zou Lanlan, an analyst at Great Wall Securities, summarized as follows. Minmetals Securities stated in its research report that the duration of the semiconductor cycle is usually 3 to 5 years, and it is currently in the upward phase of the 5th cycle (the end of this semiconductor cycle begins in the first quarter of 2023). The semiconductor cycle improvement brought about by AI and advanced computing is gradually becoming clear, and the global semiconductor cycle under the influence of non AI factors has just begun its growth phase. Shanxi Securities analyst Gao Yuyang believes that driven by AI computing power and high-performance computing, the demand for advanced processors and high-performance storage has doubled, driving up the prices of advanced node wafer manufacturing and advanced packaging. Wafer manufacturing and packaging manufacturers with advanced technology accumulation are expected to achieve high performance growth. Combined with the cyclical recovery of the semiconductor industry, upstream material and equipment suppliers have benefited synchronously. China Merchants Securities stated that there is a clear trend of marginal improvement in the current semiconductor sector, and the penetration rate of innovative products such as AI terminals is expected to gradually increase. Under the framework of certainty, prosperity, and valuation, the focus is on three main lines: firstly, seizing the industry chain opportunities brought by new products such as AI terminals, consumer electronics, and smart cars; The second is to focus on GPU, packaging and testing, equipment, materials and other companies that continuously strengthen their autonomous and controllable logic to meet the explosive demand for AI computing power; The third is to grasp the combination of certainty and valuation, and pay attention to design companies that are expected to benefit from the cyclical turning points of the industry. (New Society)