We have the following 10 points for the electronics industry in 2024**:
1. The investment in the electronics industry will be mainly driven by supply in the first half of 2024, with small caps and growth styles dominating, and supply and demand will resonate in the second half of 2024, and the style will return to equilibrium;
2. The global consumer electronics semiconductor inventory will be reduced to below the historical average in 24Q1, the replenishment will be restarted, and the cycle will switch from recovery to prosperity; 3. Global industrial and automotive semiconductor inventories will peak in 24Q1, and industrial and automotive semiconductors will switch from depression to recovery; 4. Semiconductor foundry will bottom out in 24Q1, and semiconductor materials and components with lower localization rate and lower concentration will outperform equipment; 5. Storage **24H1 is dominated by **, and will enter the right ** trend in the second half of 2024; 6. The capital expenditure of global logic and storage foundries will increase significantly after 24Q4, and the capital expenditure of advanced processes and storage in mainland China will maintain high growth; 7. The replacement cycle of consumer electronics will last at least until 24Q3, and varieties with low inventory and upgraded products will have obvious excess returns, such as copper clad laminates and CIS;
8. The innovation of device-side AI operating systems and apps will greatly boost consumers' demand for mobile phones and PCs at some point in the next two years, mainly driving the growth of storage value.
9. Apple's MR products will drive a significant increase in XR usage time, and domestic Android manufacturers will successively launch headset products and OST AR products that benchmark Apple's MR, and the penetration rate of 3D**-related hardware such as DTOF will increase; 10. The penetration rate of PCs equipped with domestic CPUs has accelerated.
From the perspective of the valuation margin of safety, as of November 27, the 10-year median valuation of the electronic (Shenwan) index PB was 95%, below 10-year -1 standard deviation, historically, this valuation level will have a positive index return in the next 1 year, and the overall winning rate of the electronics industry in 2024 will be high. Referring to 2019, if the PB valuation of the electronic (Shenwan) index returns to the historical average in 2024, it corresponds to about 35% of the current index point.
From the perspective of cyclical demand, as consistent in our strategy at the end of 2022, global consumer electronics has entered a recovery from 23Q3, mainly driven by the restart of smartphone replacement demand and the high demand for HPC driven by large language models. The cycle adjustment of communications, industrial and automotive electronics lags behind consumer electronics 2 3 quarters, and is still in the cycle depression stage, and we expect the related ** chain to enter the recovery from 24Q2.
From the perspective of technology supply, global investment in electronics innovation in 2024 will be extended around AI and XR. We believe that there are opportunities in four directions for AI, namely AI mobile phones, PCs, intelligent driving, humanoid robots, and advanced packaging. Localizing large language models on smartphones and PCs will significantly increase the value of SoC, DRAM, and Flash, and the evolution of AI operating systems and apps will greatly boost consumers' demand for replacement at some point. In 2024, intelligent driving and intelligent cockpit represented by Huawei's ** chain will usher in a period of rapid penetration, bringing significant performance flexibility to SoC, CIS and other ** chains. AI training and inference with increasing parameter scale will put forward higher and higher requirements for computing performance, which will continue to increase the penetration rate of on-chip interconnection and 3D advanced packaging, and drive the value of related IP, HBM, TSV, packaging materials, and packaging foundries.
We believe that the current most promising form of electronic terminal "next big thing" is MR and AR, 24H1 mainly observes the sales data of Apple's MR products and the changes in the second generation of products, 24H2 pays attention to the response of domestic MR and AR products, and the XR OEM, Micro OLED, equipment and the **value of the parts related to the ** chain are worth paying attention to.
From the perspective of the competitive landscape, Chinese mainland's electronic investment will continue to focus on industrial upgrading and localization. We believe that the main lines of localization in 2024 include: upstream and downstream of server computing power, upstream and downstream of storage, upstream and downstream of lithography machines, semiconductor materials, industrial and automotive analog ICs, upstream and downstream of OLED, and localization of MLCC. We believe that in the medium term, the global computing power investment required for AI training has come to an end, and the AI computing power investment in 2024 will mainly focus on end-side investment and the localization of the first chain, including the localization of computing power chips, interface chips, switch chips, optical chips, carrier boards, high-speed copper clad laminates, and high-speed PCBs. We expect that at least before 24H2, the CAPEX investment in domestic storage will be significantly higher than that of logic, and the expansion of Changcun and Changxin will drive the performance of related equipment and upstream materials to the top chain. We believe that in 2024, the domestic lithography machine will achieve phased mass production results, and the relevant parts and components will have a high valuation premium. From the perspective of permeability, semiconductor materials and industrial and automotive-related analog ICs are still at a low level, and we are optimistic about the high growth of related ** chains after passing through the trough of the cycle. Finally, the OLED panel and driver IC industry will accelerate the transfer from South Korea to Chinese mainland, and related packaging and material ** chains will also benefit from this.
From the perspective of global semiconductor inventory, as of 23Q3, the absolute inventory of storage and analog power ICs and the number of inventory turnover days are still significantly higher than the historical average, and the semiconductor inventory related to mobile phones has basically returned to normal levels, such as CIS and RF, we expect that the mobile phone semiconductor inventory will continue to go below the normal level in the next two quarters, and the replenishment time is approaching, and the storage, analog power semiconductor companies will continue to take the initiative to destock in the future. and profitability will resume the upward trend in the second half of 2024.
Risk warning: the risk that the demand recovery is less than expected, the risk of supply deterioration, macroeconomic risk, and geopolitical risk.