According to the Financial Associated Press, the graphics processing chip giant Nvidia (Nvidia) issued an announcement that the company has received official notification from the United States that if it exports two high-end GPU chips to customers in China (including Hong Kong, China) and Russia - A100 and H100, A new export license is required.

Recently, the United States has continued to restrict "small moves" on China's high-end chip industry, and the demand for domestic substitution in my country's semiconductor industry has become increasingly strong. At the same time, with the saturation of the consumer electronics market, the demand for semiconductors has also declined. How will China break through as the largest semiconductor consumer market? Which investment opportunities are worth paying attention to? This article will focus on analysis.

The prosperity of the consumer electronics market has not bottomed out, and the "small actions" of the United States may make it worse

U.S. President Biden signed the "Chip and Science Act" on August 9, deciding to spend $52.7 billion on U.S. semiconductor production and research. The main purpose of the bill is to address the continuing shortage of chips worldwide. At the same time, the bill also stipulates that recipient companies cannot invest more than 28nm process chips in the Chinese market within 10 years, otherwise the subsidy will be fully refunded.

Originally, this bill was of great benefit to chip manufacturing in the United States, but on the day the bill was signed, semiconductor stocks in the United States plummeted collectively. The market capitalization of the three major chip giants Qualcomm, Nvidia, and Broadcom are all around $30 billion. This kind of non-market behavior seems to be a good thing on the surface, but in fact, it is a country involved in the specific link of global chip research and development and sales. Once the chip is out of globalization, its market will undergo great changes. China is the world's largest chip market, and the introduction of the bill has reduced its market share in disguise. At the same time, this bill will also encourage chip manufacturers from other countries to enter the US market.

Judging from Nvidia's latest performance, affected by factors such as weak downstream game demand and supply chain shortage, the company's revenue, gross profit margin, and net profit have declined to a certain extent in the current quarter. The FY23Q3 performance guidance is 5.9 billion US dollars, which is significantly lower than the market. billion-dollar consensus forecast. The company expects to actively reduce the supply of GPU gaming graphics cards in the next few quarters in order to restore the downstream channel inventory level to a healthy state. Restricting the export of high-end graphics cards to China has obviously had a negative impact on its destocking progress.

And Nvidia previously announced that it will use the DRIVEOrin computing platform in the customer models of its partners Weilai, Lixiang, Jidu and Human Horizons. At present, the company's automotive business has more than US$11 billion in orders (6-year contract period), which is higher than the US$8 billion in the same period last year. If the Chinese market is stripped off in this way, the loss to high-end chip companies such as Nvidia will be very large.

In short, the United States' behavior of restricting chip exports is harmful to others and not beneficial to itself. Although it can be considered that they will not stop supply for the sake of my country's huge market, it is necessary for my country to take a long-term view of domestic substitution and prevent it before it happens.

Domestic substitution of semiconductors is the new blue ocean, and domestic companies are striving to advance

When it comes to domestic substitution, the most "stuck" link at present is the upper and middle reaches of the semiconductor industry chain, that is, the material and equipment link.

According to the calculation of CITIC Securities, from 2016 to 2022 (as of July 4th), the accumulative localization rate of equipment purchased by three typical fabs is generally around 17% (according to the proportion of equipment, the same below), among which Yangtze Memory, Hua Hong The localization rates of Wuxi and Huali integrated equipment are 18%, 18% and 13% respectively. In terms of horizontal comparison, Yangtze River Storage is more active in the localization of equipment, partly because the equipment selection autonomy of the IDM model is relatively higher than that of the fab foundry; The localization rate of various types of equipment is mostly higher than that of Huali Integrated, or it is mainly due to the fact that Hua Hong Wuxi's mature process of 90nm~55nm is easier to promote the localization of equipment compared with Huali Integrated's relatively advanced 28~14nm process.

In terms of semiconductor materials, according to SEMI report data, the global semiconductor materials market revenue will reach US$64.3 billion in 2021, a year-on-year increase of 15.9%. From the perspective of industrial structure, North American countries occupy a leading position in the fields of silicon wafers and polishing materials, Japan and South Korea occupy a leading position in the fields of silicon wafers and photoresists, and European countries occupy a leading position in electronic gases. It is relatively late, and the localization rate is extremely low. According to SIA data, domestic manufacturers will only account for 13% of the global market for semiconductor materials in 2020, and the importance of domestic substitution of semiconductor materials has become increasingly prominent.

Against the backdrop of continued industry prosperity and deepening domestic substitution, it is expected that semiconductor equipment companies will continue to have fundamental performance support. It is recommended to give priority to leading equipment manufacturers with large track space, comprehensive product layout, and strong technical strength, as well as segmented track growth companies with a low market share and promising rapid growth benefiting from domestic substitution. Fab process equipment companies can pay attention to North Huachuang, Zhongwei Company, and Shengmei Shanghai. It is recommended to pay attention to Yitang, Tuojing Technology, Huahai Qingke, Xinyuanwei, Zhichun Technology, Jingce Electronics, etc. In terms of testing equipment/packaging equipment, Huafeng Measurement and Control is recommended, and CITIC Securities recommends paying attention to Changchuan Technology, Guangli Technology, etc.

As the world's largest semiconductor market, China accounts for more than 1/3. However, due to the late start of my country's semiconductor industry, local semiconductor material manufacturers only account for 13% of the global market. Under the background of Sino-US trade frictions, domestic substitution is imminent. With the active expansion of downstream fabs, related semiconductor material manufacturers have ushered in a valuable certification window period, which is expected to help local manufacturers grow rapidly. Huachuang Securities recommends focusing on Red Avenue New Materials, Yake Technology, Dinglong Stock, Anji Technology, Shanghai Silicon Industry, Huate Gas, Jiangfeng Electronics, etc.