Lyon: Demand for semiconductors in China remained stable in the third quarter, but tight upstream supply dragged down delivery

The Zhitong Finance App learned that in the third quarter of this year, China's semiconductor industry continued to be driven by AI demand and continued localization trends. Orders from AI PCBs, foundry, equipment and AI computing chip companies grew steadily, capacity utilization was high, and profits continued to improve; however, the supply of upstream components continued to be tight, and delivery times were lengthened, dragging down short-term delivery progress. The bank expects that as we enter the fourth quarter and 2027, upstream supply constraints will gradually ease, which is beneficial to corporate revenue growth, and favors stocks with strong fundamentals, high AI exposure, high profit visibility, and potential to replace domestic production.

The bank believes that PCB/copper-clad board fundamentals are the strongest in all segments, benefiting from the acceleration of AI PCB shipments, as well as cost transfer of traditional mainstream products, product mix optimization and production capacity climbing, and profitability improvements in the third quarter; wafer foundry is driven by AI-related chip demand, the return of overseas orders, and domestic manufacturing, and capacity utilization rates remain high, and average sales prices continue to rise quarterly. However, investment in additional production capacity and increased depreciation in advanced manufacturing processes will limit profit margin improvement.

In terms of individual stocks, the bank expects the outlook for SMIC (00981) to continue to improve under strong demand. Growth in the third quarter was mainly driven by pricing, product portfolio adjustments, and production yield improvements. Huahong Hongli (01347)'s revenue guide for the third quarter is 770 million to 780 million US dollars. The backlog of orders is about 1.5 to 2 times the current production capacity. The average sales price of products is expected to increase by another 10% to 15% by the end of 2026, and the price increase will continue next year. Nanochip (02676)'s revenue for the third quarter is predicted to rise 72% to 84% year over year, reaching 1.45 billion to 1.55 billion yuan. Benefiting from downstream recovery and the release of products related to artificial intelligence server power supplies, the price increase is expected to be felt in the fourth quarter and 2027.