Cinda Electronics: Morgan Stanley's one-sided view is not afraid of market noise and is firmly optimistic about semiconductors

 On September 15, Morgan Stanley (MS) released a report bearish on semiconductors. In response, Xinda Electronics said: "We are not afraid of market noise and are firmly optimistic about semiconductors."

According to Fang Jing, chief analyst of Cinda Electronics, the semiconductor sector had a large correction on the 16th, mainly because MS was bearish on the economic cycle. We believe that MS's views are too one-sided and lack industry chain verification and data support, so we refute them one by one and reiterate our views as follows:

1. Supply side: MS believes that the lifting of the ban on Malaysian packaging factories will help alleviate the chip shortage, but we believe that the ultimate bottleneck of this round of chip shortage lies in the manufacturing end rather than the packaging end, and in mature processes rather than advanced processes. Although the current packaging capacity is still tight, the three major domestic packaging factories have increased their production significantly, so in the medium and long term, it is not the core contradiction of tight chip supply.

MS believes that TSMC's high capex expansion can ease the tight supply situation, but TSMC's expansion focuses more on 12-inch advanced processes, while the more scarce 12-inch mature processes (corresponding to IOT demand) and 8-inch capacity (corresponding to automotive demand) are currently in short supply. We expect the global FAB capacity increase to be around 7% next year, still lower than the 10% increase in global demand, and the shortage will continue throughout next year.

2. Demand side: MS described the weakening demand for mobile phones and PCs at great length, but ignored the driving force of domestic substitution. Taking mobile phone simulation as an example, we learned that manufacturers such as Texas Instruments have transformed into the automotive industry on a large scale and have given up a large amount of analog shares in the mobile phone field. This is a historic opportunity for domestic substitution for manufacturers such as Shengbang.

Moreover, we believe that mobile phones and PCs are traditional demands, and the long-term changes and fluctuations are not large. In the long run, we believe that we should focus more on incremental demands such as automobiles and IOT. In August 2021, the sales volume of domestic new energy vehicles continued to rise against the trend and broke a new high, once again highlighting the high prosperity of new energy vehicles.

3. Price: Recently, some experts have come out to communicate and said that the channel prices of some chips are falling, and MS also mentioned this in the report.

Our industry research revealed that the recent price cuts were mainly from distributors targeting white-label customers. The weakening demand for white-label products was due to Amazon’s ban on cross-border e-commerce and a temporary slowdown after 618.

However, we should note that although the channel prices have been reduced, the original factory prices remain strong. Moreover, the above are all time-sensitive factors. After 618, will there be no Black Friday or Double 11? Will Amazon continue to check cross-border e-commerce? The demand is always there, and there is no need to worry about it in the long run.

4. Domestic substitution: In the past year, chip shortages and price increases have become the main theme of the semiconductor industry. But we must always remember that the core driving force of the domestic semiconductor industry is still domestic substitution.

In this round of chip shortage, many European and American semiconductor leaders have chosen to give priority to supporting domestic manufacturers, forcing domestic electronic terminal manufacturers to turn to domestic chip design companies. Many Chinese semiconductor companies have made breakthroughs in different products and fields, and the comprehensive breakthrough of domestic products is an indisputable trend.

Whether it is Silan and CRRC in the IGBT field, Sanbon and SiRuiPu in the analog field, or GigaDevice in the MCU industry, they are all accelerating forward in their respective tracks.

We are optimistic about the related opportunities in the domestic semiconductor industry chain in the long term. At present, we focus on recommending large tracks with domestically produced alternative hard logic, such as equipment materials, automotive semiconductors, and analog.