Morgan Stanley-Tracking China’s Semi Localization Making progress in AI se...-108419234.pdf

MMValutiTrackingChina’sSemiLocalization|AsiaPacificMakingprogressinAIsemis–ChinaHBMandCPUMorganStanleyTaiwanLimited+CharlieChanEquityAnalystCharlie.Chan@morganstanley.com+88622730-1725DanielYen,CFAEquityAnalystDaniel.Yen@morganstanley.com+88622730-2863RayWu,CFAEquityAnalystRay.Wu@morganstanley.com+88622730-2871MorganStanleyAsiaLimited+DaisyDai,CFAEquityAnalystDaisy.Dai@morganstanley.com+8522848-7310MorganStanleyTaiwanLimited+DylanLiuEquityAnalystDylan.Liu@morganstanley.com+88622730-1723TiffanyYehResearchAssociateTiffany.Yeh@morganstanley.com+88627712-3032GreaterChinaTechnologySemiconductorsAsiaPacificIndustryViewAttractiveWesummarizelocalnewsandourownindustrycheckstoprovidekeyevidenceofChina’sprogressioninsemilocalization.onehMehdgehyMRsek•yVieInSwnIgtIwVlaIrgiaIeVwInyRschAICiIwMICMMnwInSaVcMiagcwMlInScwMlhChina2023semiconductorself-sufficiencyratioonlyroseto20%fellshortofourpreviousexpectationof23%.Nevertheless,Chinahassetupitsthirdplannedstate-backedinvestmentfundtoboostitssemiconductorindustry,witharegisteredcapitalofRmb344bn(US$47.5bn).Keyfocuswillbe:1)leadingnodefoundry,advancedpackaging,2)memory,especiallyhigh-bandwidthmemory(HBM),and3)semiequipmentandmaterials.(Reuters,May27,2024)yVieIh(InSaVI.IO)0IeiaIy3n•MyVieIae/InwelwIwMItlMagcSIIO)07IC/I727UhIChina’slargestDRAMchipmanufacturer,ChangXinMemoryTechnologies,iscollaboratingwithchippackagingandtestingcompanyTongfuMicroelectronicstodevelopHBMchipsamples,.Ontheotherhand,WuhanXinxinSemiconductorManufacturingisconstructinga12-inchplantwithamonthlycapacityof3,000wafers,whichisplannedtomanufactureHBMchips.Perthecorporateregistrationdocuments,theplantisexpectedtocommenceoperationsinFebruarythisyear.Chinasupplyriskislingeringforthememoryindustry(Reuters,May15,2024)•OgeeSVIeiaI$lei5S3VIoegicIiSeIaS6ICMelaIeVwIa/nwSl/Iy3nIeiaIh(ItlMcSnnMlhITheKunpengProdevelopmentboardusesacustomHuaweiKunpengCPUthat"spairedwithanAIFPGAprocessor.TheAIprocessorprovides8TOPSofAIcomputingpower.(Tom"sHardware,May11,2024)vSciMoM5/ISotMlwIcMiwlMonI•-geocMaaIceiIiMIoMi5SlIInVtIwMIOgeeSVhTheUShasrevokedlicensesthatallowedcompaniesincludingIntelandQualcommtoshipchipsusedforlaptopsandhandsetstoHuaweiTechnologies.(Reuters,9May2024).MediaTek"sChinasmartphonecustomers(e.g.,Honor)maygainmarketshareifHuaweicannotgetsufficientchipsupply(seelink).ywMcFIVatoVcewVMin3China"sthirdbigICfundispositiveforallChinasemicompanies.Specifically,ChinaHBMdevelopmentispositiveforequipmentvendors,e.g.,EegleIMorganStanleydoesandseekstodobusinesswithcompaniescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanleyResearch.InvestorsshouldconsiderMorganStanleyResearchasonlyasinglefactorinmakingtheirinvestmentdecision.Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionsoncommunic