There is a huge space for domestic substitution of semiconductors. How to tap opportunities?

As we all know, in the past two years, due to ZTE and Huawei incidents, the domestic substitution of domestic semiconductors has intensified. Of course, it is true. After all, semiconductors are the most indispensable high-tech in the field of science and technology. Once you get stuck in your own hands, you can't get stuck in your neck. So where are the opportunities for domestic substitution? It can be seen from two aspects.

Start with the development with low technical difficulty, such as sealing and testing.

We know that semiconductors, especially chips, mainly have three processes, namely packaging, testing, manufacturing and design. Among them, the sealing test threshold is the lowest, and the domestic performance is also good.

Therefore, I think the domestic substitution should start with the sealing test, because the threshold is low and the sealing test is relatively labor-intensive, which gives China an advantage. In addition, there are the top three sealing and testing enterprises in mainland China, and Sunmoon in Taiwan Province Province is the first sealing and testing enterprise in the world.

Second, re-develop the manufacturing industry, which is the foundation.

After the sealing test, the manufacturing industry will develop. After all, manufacturing is the foundation. At present, the most backward technology in China is actually manufacturing. For example, in the field of seal testing and design, it is not bad compared with the international level, but the manufacturing is much worse.

Take TSMC as an example. At present, it has entered 7nm, and it will be 5nm this year, but SMIC is only 14nm, and it is at least 3-5 years away from 5nm. TSMC is still making progress. After 3-5 years, SMIC will definitely not catch up and can only reach the current level of TSMC.

At present, there are the most enterprises in the field of design in China. After all, there are high and low design thresholds. After using ARM, RISC-V and other frameworks, the design threshold is much lower and the investment is less, so the design is directly handed over to the OEM. This will do.

So generally speaking, the domestic substitution of semiconductors is actually an opportunity in all aspects. After all, at present, it is relatively backward in all fields, even the upstream and downstream materials and equipment. Enterprises with a solid foundation in any field will usher in great development.

20 19 semiconductor industry has a hard time. The performance of companies in the whole industry is not very good. South Korea's per capita GDP, which relies heavily on the semiconductor industry, has also declined. The demand for semiconductors is sluggish, and the shipments of various chips have fallen sharply, which has significantly affected all links in the industrial chain.

However, with the acceleration of the 5G era, it will become a catalyst for the turning point of the semiconductor industry. 5G network needs the support of the whole industry chain, including 5G base stations, high-speed PCB and related components. The construction period of 5G is about three to five years, which will first bring about the recovery of demand in related industries. The technological upgrading brought by 5G and related new applications will bring about the turning point of the semiconductor industry.

In the next few years, the semiconductor industry will re-enter the boom cycle. In this process, the whole industrial chain is expected to recover, which will bring opportunities to repair the expected difference. For leading companies in various sub-sectors, it is more likely to share the dividend of industry growth, which will bring double bullish expectations of performance-driven and valuation improvement.

Explore opportunities in the semiconductor industry, mainly from the following perspectives:

The first is the chip design industry, which belongs to the high value-added part of the chip industry chain, including Qualcomm, Huawei Hisilicon, Samsung, ARM, Intel and other companies. Mainly to seize the commanding heights of chip design and maximize the industry dividend through accumulated technology patents. Among A-share listed companies, there are also some chip design companies. Although it can't compete with international technology giants, it has obvious monopoly advantages in its respective segments.

Second, it is domestic substitution. Although some domestic semiconductor companies still have a certain gap with advanced American companies in strength, judging from the situation in the past few years, the semiconductor industry will fully implement domestic substitution in the future. Only in this way will it not be stifled by western countries, which provides a very good market opportunity for many competitive domestic chip companies. For example, in terms of video chips, domestic SOC chip companies can replace chips from NVIDIA.

Third, we need to make up the shortcomings. In the semiconductor industry, we have powerful companies such as Hisilicon in chip design, but we have no advantage in production. At present, the most competitive company is SMIC, which has been able to mass-produce 14nm process chips, but the wafer foundry with higher technology needs the help of mask aligner in ASML, the Netherlands. In the future, China will invest more technology and funds to support it, so companies with R&D in mask aligner are expected to get support.

Fourth, companies with leading links have advantages, although there are still some links in the semiconductor industry chain that China still needs to catch up with. For example, in the semiconductor packaging industry, several listed companies in China are among the top ten packaging and testing companies in the world. Although the gross margin and net interest rate of the sealing and testing industry are not high, it is a necessary part of the final semiconductor products. These companies have a high market share, and once the industry recovers, they will obviously benefit.

Starting from these four aspects, we are looking for companies with the strongest profitability and the highest market share in the industry and have been continuously investing in development. These companies will further consolidate their position in the industry. In the new rising cycle of the semiconductor industry, their performance will be significantly improved, and they will get the opportunities brought by the recovery of the semiconductor industry and the comprehensive localization.

Last year, the United States boycotted the Huawei incident, and then to the Sino-US trade war, the status quo of "lack of core and soul" in the domestic integrated circuit industry became increasingly obvious! In fact, as early as 2065438+June 2004, the State Council issued the Outline for Promoting the Development of the National Integrated Circuit Industry, making arrangements to give full play to the advantages of the domestic market, create a good development environment, stimulate the vitality and creativity of enterprises, promote the coordinated and sustainable development of the industrial chain, accelerate the pace of catching up and catching up, and strive to realize the leap-forward development of the integrated circuit industry. With the increase of policy support in recent years, integrated circuits and domestic chips are also in full swing! In the middle of June this year, 65438+ 10, SMIC 14nm production line was officially put into production, and mass production was realized one year ahead of schedule, and 12nm was also introduced to customers. According to SMIC official website, SMIC Southern Integrated Circuit Manufacturing Co., Ltd. has successfully mass-produced the first generation 14 nm FinFET process in the third quarter of 20 19, which is the first 14 nm process production line in China and has become the most advanced integrated circuit production base in China. It is reported that SMIC has been developing 14nm since 20 15, and the current yield has reached 95%, which means that the National Outline for the Promotion of Integrated Circuit Industry Development has achieved important development goals one year ahead of schedule.

Status: China has been the largest integrated circuit market in the world for many years, and the demand ratio is increasing year by year. In 20 14, it exceeded half of the global market, and reached 56.2% in 20 17. Integrated circuits are the largest single imported commodity in China, exceeding $200 billion for the sixth consecutive year from 20 13 and $300 billion in 20 18, making them the most valuable imported commodities. Not only that, among the top 20 IC companies in the world, one-third of them have more than 50% performance from China, and two-thirds have 30% performance from China. Therefore, China is an irreplaceable important market for the vast majority of IC enterprises in the world, which shows that there is huge domestic substitution space for semiconductors!

The following is the chart of mining semiconductor industry of Guo Xin Securities:

In the semiconductor industry, the semiconductor packaging and testing industry is the most likely to grow into the international mainstream industry at present, because it is closest to the characteristics of manufacturing industry and needs large-scale investment and a lot of equipment, land and capital, and China has the most advantages in these aspects. In terms of technology, the development of semiconductor packaging and testing technology is not as fast as that of semiconductor design industry, and the equipment can be purchased, developed and upgraded quickly, so it is easy to expand the production scale and market share under the huge domestic market demand. Therefore, focusing on the semiconductor packaging and testing industry with a huge production base and market base in China may produce a world-class enterprise like TSMC as soon as possible. SMIC and Changdian International are the leading enterprises in the current market, with the greatest development potential!

The future prospect of China packaging and testing industry, advanced packaging and testing will eventually become the mainstream.

In recent years, overseas mergers and acquisitions have made China packaging and testing enterprises rise rapidly, gained technology and market, and made up for some structural defects. However, the Matthew effect in the packaging and testing industry is obvious, and the overseas high-quality M&A standards are obviously reduced. It is unlikely that M&A will gain advanced packaging technology and market share in the future, and independent research and development+technology upgrade will become the mainstream. The future development direction of packaging and testing industry in China should change from "quantitative growth" to "qualitative breakthrough"

Increase in quantity: the traditional packaging industry is characterized by attaching importance to labor costs and ignoring capital and technology. Among the three links in the semiconductor industry chain, design has the highest requirements for technology accumulation and talents; Manufacturing needs high capital investment; The packaging industry has relatively low requirements for capital and talents, but it is most sensitive to labor costs in the three links. The added value of final design and manufacturing is the highest, and the added value of sealing and testing is the lowest. In 20 18, Chinese mainland's design and manufacturing accounted for 66% of semiconductor sales, and packaging and testing accounted for 34%. Enterprises in Taiwan Province Province have the highest share in the global packaging and testing market, but in 20 18, the revenue of the packaging and testing industry only accounted for 19% of the total revenue of the semiconductor market in Taiwan Province Province, and more profits came from manufacturing and design. The packaging industry is most sensitive to labor costs. 20 18 the number of employees per million income of listed companies in the packaging and testing industry in mainland China is 2.06. The average number of employees in the first four packaging and testing companies (Changdian, Huatian, Tongfu and Fang Jing) is 1.59, while the number of employees in IC design industry and manufacturing industry (SMIC and Hua Hong) is 0.75 and 0.74 respectively in the same period.

In the post-Moore era, when the physical size is about to reach the limit and the process technology cannot bring about effective cost reduction, the breakthrough of semiconductor hardware will rely more on advanced packaging technology. Because advanced packaging is more flexible, not limited to the reduction of transistor size, it can be flexibly combined with existing packaging technology to reduce costs; R&D investment and equipment investment are not as high as the capital expenditure of semiconductor manufacturing, which will be the key to continue Moore's Law.

"qualitative breakthrough": the traditional packaging and testing industry has little room for profit improvement because of low technical barriers and fierce competition in the same industry. In the future, the packaging and testing industry in China will be transformed into an advanced packaging and testing industry with higher added value, and capital expenditure will replace labor costs as a new driving force. The next semiconductor development cycle will depend on emerging applications such as AI, 5G, IOT and smart cars. These applications all have the same requirements for electronic hardware: high performance, high integration, high speed, low power consumption and low cost. Advanced packaging technology is the perfect choice to solve various performance requirements and complex heterogeneous integration requirements.

Because advanced packaging involves the technology and equipment used in wafer manufacturing, the added value of profits increases, and the investment of capital and technology is much higher than that of traditional packaging and testing. The capital expenditure of advanced packaging is similar to "wafer manufacturing". Advanced packaging involves wafer grinding and thinning, rewiring, bump making, 3D TSV and other processes. In this process, front-end equipment such as etching and deposition is needed, which inevitably means large-scale capital expenditure, and also means that the business boundaries in the middle and lower reaches of the semiconductor industry chain are blurred, infiltrating and expanding each other. For example, TSMC's InFO integrated fan-out advanced packaging and CoWoS's wafer-based chip packaging technology provide a business model for contracting the entire IC manufacturing except IC design business, which successfully enabled TSMC to get orders from Apple for three generations; Intel and AMD also introduced embedded multi-chip interconnect bridge (EMIB) technology, which was successfully applied to commercial mass production, namely Intel's eighth generation Core G series processors. TSMC's InFO capital investment in 20 16 years reached 950 million US dollars, while Sun Moon's capital expenditure in 2016 years is expected to be only about 800 million US dollars. Different from traditional packaging, advanced packaging capital expenditure is the core driving force.

Introduction of A-share core target

(a) Long-term technology: a leading company in sealing and testing, and the optimization of management and the transfer of orders from major customers promote the company's growth.

As the first echelon enterprise of IC packaging and testing in the world, Changdian Technology has covered major semiconductor customers in the world, and its packaging and testing business of discrete devices and integrated circuits has been approaching the international advanced level in advanced packaging. In 20 19, the company made drastic management optimization and integration, and the experienced SMIC team was responsible for the company's capacity optimization and business integration. From September 2065438 to September 2009, Mr. Zheng Li took over as CEO and director of the company. Prior to this, Mr. Zheng Li served as Senior Vice President and President of Greater China at NXP and held various senior management positions. With nearly 30 years of experience in the field of integrated circuits, he will lead Changdian technology to a new level.

In addition, since 20 19, due to Sino-US trade friction, Huawei Hisilicon's related orders have accelerated to flow to Chinese mainland. As the largest semiconductor packaging and testing enterprise with the richest technical route in China, Changdian Technology will undoubtedly be the biggest beneficiary of this round of Huawei transfer.

(2) Huatian Technology: CIS+ storage +RF, multi-dimensional layout takes the lead.

As the top three and top ten local semiconductor packaging enterprises in the world, Huatian Technology has a comprehensive business scope, from traditional packaging testing to advanced packaging testing. Huatian Technology has steadily expanded in recent years, with good financial structure and stable gross profit margin. With the overall recovery of the industry since the third quarter of 20 19, orders have increased month by month, and the capacity utilization rate of each factory has gradually increased.

? Tianshui Waterworks is mainly based on low-end traditional packaging, including lead frame, some BGA, MCM and FC services. 20 19Q2 capacity utilization rate rebounded to 90%, and the profit was stable.

? Xi 'an Plant mainly adopts mid-range sealing and testing technologies such as QFN and BGA. The utilization rate of Q 1 capacity is about 70%, and the capacity of 20 19Q2 is full.

? The main business of Kunshan Factory includes 2.5D-3D high-end packaging and testing technologies such as WLP, bump, MEMS and TSV. At present, the orders for CIS packaging of front lens and CIS packaging of safety lens of mobile phones are full. With the recovery of the global market, the domestic market is recovering faster with the blessing of Huawei's order transfer, and the demand for advanced packaging testing is expected to increase significantly.

In addition, the capacity expansion of the new Nanjing factory and the expansion of overseas advanced packaging and testing business will be the most anticipated profit growth points of Huatian Technology. The Nanjing base of the company mainly deploys advanced sealing and testing production lines such as memory, MEMS and artificial intelligence, which started construction in early 20 19 and is expected to be put into production in 2020. Unisem is an overseas M&A company with complete advanced packaging technologies, such as Bumping, SiP, FC and MEMS. The company's financial position is good, and the integration is smooth at this stage. Unisem's main customers include Broadcom, Qorvo, Skyworks and other companies, and it is expected to benefit significantly from the chip packaging of 5G RF.

Judging from the main business layout of Huatian Technology, stable and solid traditional packaging is the core ballast stone of the company's performance. In recent years, the advanced packaging actively deployed is also bearing fruit with the upsurge of CIS, storage and 5G radio frequency, and the company's performance is accelerating.

(c) Tongfu Microelectronics: All major bases are working together, and AMD's cooperation is getting better and better.

After years of development strategy of endogenous growth and extension of M&A, the company now has six production bases, with production capacity and revenue in the forefront of the global semiconductor packaging and testing industry, and downstream applications are all over mobile phone terminals, memory chips, automotive electronics, CPU, GPU and many other fields. In 20 18, the company's revenue increased by 10.79%, ranking second among the top ten packaging and testing companies in the world, and its revenue scale rose from the seventh in the world in 20 17 to the sixth in the world, further enhancing its position in the industry.

In the first half of 20 19, Tongfu Suzhou, Wei Chao, and Tongfu Penang, Wei Chao achieved remarkable growth of 32. 16%; At the same time, Tongfu Wei Chao Suzhou became the first factory to provide sealing and testing services for AMD's full range of 7-nanometer products. At the end of the second quarter, the total shipment of 7-nanometer products exceeded AMD's expectation of 8%, which indicated that the two factories in Penang, Suzhou, became more and more mature after being merged into Tongfu's company. On August 8, AMD launched the world's first 7-nanometer chip, and Google and Twitter also announced that they will adopt AMD core processor products in the CPU part of the data center in the future. Tongfu, Suzhou, Wei Chao and Penang, as two bases providing sealing and testing services for AMD 7nm products, are expected to benefit significantly from AMD's future revenue growth.

(d) Crystal science and technology: The Commonwealth of Independent States (CIS) has continued to prosper and achieved fruitful results after years of deep cultivation.

Fang Jing Science and Technology is one of the leading enterprises of WLP advanced packaging and testing technology in China, mainly focusing on the advanced packaging and testing business in the sensor field. Products are used in consumer electronics, security, biometrics, automotive electronics and many other fields. At present, the company is the second largest service provider in the world that can provide wafer-level packaging services for image sensor chips. On June 20 19, the company acquired Anteryon, an overseas company. Its complete wafer-level optical module manufacturing capability and technology have formed a good synergy with the company's existing WLCSP packaging and testing.

Driven by the "Safe City, skynet project and Eye Project", the growth rate of video surveillance market in China is about 15%, and it is expected to reach168.3 billion in 2020. The company's high-end CMOS packaging products are expected to continue to benefit from the growing demand for video surveillance. In addition, in the automotive field, the huge demand for the number of lenses in ADAS system is also the main driving force to promote the growth of the company's packaging test piece shipments. According to his data, with the increasing popularity of ADAS, the number of global car cameras will reach 83 million in 2020, with a compound growth rate of 20%. It is predicted that other applications such as automotive electronics, medical health and security will be the new kinetic energy for market growth in the next five years. As a major downstream packaging test manufacturer, Fang Jing Science and Technology will benefit first. Camera, fingerprint identification and 3D sensing still occupy a large share of the sensor packaging and testing market. At present, the penetration rate of mobile phone camera, fingerprint identification and 3D sensing is getting higher and higher, which accelerates the development of image sensors. The rapid growth of CIS chip packaging demand will be a point worth looking forward to in the future.

Affected by the economic boom, the company's current production capacity is in short supply. 20 19, 19 In February, Fang Jing Science and Technology released a plan to increase the income, and the funds to be raised were not more than1400 million, which was used for the integrated circuit 12 inch TSV and heterogeneous integrated smart sensor module projects. After the project is completed, it will have an annual production capacity of180,000 pieces. It is estimated that the annual net profit will increase by 654.38+0.6 billion. With the landing of fundraising projects, the company's performance will be greatly improved.

(e) Changchuan Technology: greatly benefited from the promotion of Capax in the sealing and testing link during the boom cycle.

As a professional semiconductor equipment company, Changchuan Technology mainly provides test equipment for integrated circuit packaging and testing enterprises, wafer manufacturing enterprises and chip design enterprises. Integrated circuit test equipment mainly includes tester, sorter, probe station, automatic production line, etc. At present, the company's main products include testers, sorters and automated production lines. With the bottom of the current semiconductor boom cycle, the wafer fab headed by TSMC has increased its capital expenditure and greatly expanded its production to meet the strong market demand. According to the conduction law of the semiconductor industry chain, the capacity expansion of the wafer factory will inevitably affect the packaging manufacturers in the middle and lower reaches. In addition, in the process of the global semiconductor industry transferring to China, for Chinese mainland, the business cycle of the wafer factory and the packaging factory will be stronger than that of the global industry. At the same time, we also see that with the full capacity of Changdian/Huatian/Tongfu/Crystal, its willingness to expand production is more and more urgent. Therefore, we believe that Changchuan Technology, as a leading supplier of semiconductor packaging and testing equipment in China, will be expected to benefit significantly from this round of semiconductor industry boom cycle+localization trend.

Capital proposal

Since the second half of 20 19, a new round of semiconductor craze in the world has basically been established and kicked off. For mainland IC practitioners, Huawei's logic of transferring orders and industries will further strengthen the current business cycle and make its interpretation in Chinese mainland more incisive. As the most mature field in the local semiconductor industry chain, the packaging and testing link has more certainty in its ability to accept orders. In terms of targets, we are optimistic about Changdian Technology, Fang Jing Technology, Tongfu Microelectronics, Huatian Technology and Changchuan Technology, a manufacturer of sealing and measuring equipment.

There is a huge space for domestic substitution of semiconductors. How to tap opportunities?

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