Market survey for automotive analog IC and power device in China – structural re-rating story for selective Chinese fabless
• Chinese players’ story of market share gain should continue in the next 5-10 years - Chinese analog IC and power device vendors should continue to benefit from the localization uptrend and gain more market share in consumer, communication, automotive, industrial and medical segments in 2022-2032.
• Potential long-term winners - We believe Chinese players – SG Micro (SZ.300661), 3Peak (SH.688536), Silan Micro (SH.600460), and Silergy (6415.TW) would likely take the lead in market share expansion in China from global leaders over the next 5-10 years. This could stem from their growing product scope and improved design capability.
• Chinese players’ penetration into the automotive analog markets - 3Peak should see more upside from automotive OP markets in the next 5 years, which could be sustainable growth drivers and drive more structural re-rating for the company. In addition, we expect Silergy’s improved product profile to enable the company to penetrate the automotive PMIC market (smart cockpit) in the near term and more ADAS/electrification markets in the long run. This should drive more re-rating for Silergy over the next 5 years.
• Sustainable GM for the leader in China - 3Peak’s strong design capability in operation amplifier (OP) and analog-to-digital converter (ADC) should lead the company to have 60-70% GM in the long term given relatively high entry barriers for signal chain ICs vs. PMIC.
• Pricing competition - PMIC pricing competition could intensify in the next 2-3 years due to relatively low entry barriers for PMIC vs. signal chain ICs and numerous players.
Market survey for automotive chips and power devices
• Supply/demand outlook – Automotive MCU may see supply/demand balance in 1H22 while automotive power devices (IGBT/MOSFET) and CIS could see shortage in 1H22.
• Pricing trend – Automotive MCU ASP could be stable in 1H22. Automotive power device and CIS ASP may rise 5-10% sequentially in 1Q22 and 2Q22 due to strong demand and continuous shortage
• Competitive landscape – Global leaders may continue to lose market share to Chinese chip vendors in low-end automotive chip and power device markets in the long term.
• Preferred names – We believe Will Semi (603501.SH), NavInfo (002405.SZ), Novosense, and ChipON could continue to see secular growth from their automotive chips over the next 3-5 years. This should be driven by the localization trend for Chinese chip vendors and enhanced product profile/quality.
China foundry market outlook
• Supply/demand outlook – 28nm capacity shortage could continue in 2022. SMIC (688981.SH) could benefit from this and see resilient 28nm GM in 2022. In addition, GigaDevice (603986.SH) may benefit from continuous nor flash capacity shortage in 1H22 thanks to its strong capability to secure capacity while its competitors may have limited capacity support.
• 8-inch capacity shortage to ease from mid-2022 – With new capacity coming on stream, the expert expected 8-inch capacity shortage may start to ease from June/July 2022 and supply/demand balance may occur by end-2022. This could be 6 months earlier than the market expectation of continuous shortage by end-2022.
• ASP trend – 1Q22 wafer price may not be decided until late 4Q21 or early 1Q22. This could stem from 1) weaker-than-expected 5G demand, 2) substantial wafer price increases in 2021; further wafer price hikes could be negative to end demand, and 3) OSAT’s rising die bank level.
• 14nm/10nm/7nm outlook – SMIC should see more 14nm/10nm customers in 2022/23, mainly due to Chinese fabless’ increasing adoption of its advanced nodes. Its 7nm mass production may start from end-2022 or 1H23, subject to its yield rate improvement pace. We believe SMIC's improved outlook for advanced nodes could drive more re-rating for the stock in the long term.
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