Text: Tianfeng
Source: Bowang Finance
From ZTE, which started with the trade war in 2018, to 2023, when NVIDIA cut off the supply of advanced computing chips to the mainland, chips and the entire semiconductor industry have become the forefront of industrial competition. In recent years, the rapid development of the semiconductor industry has continuously promoted the expansion of the semiconductor equipment market.
Global semiconductor manufacturing equipment sales hit a record of $107.6 billion in 2022 and will still be $106.3 billion in 2023, although it will decline. Among them, Chinese mainland, South Korea and Taiwan are the top three regions in global chip equipment spending, accounting for 72% of the global equipment market. Global sales of wafer processing equipment increased by 1 percent, while sales in other front-end areas increased by 10 percent. However, sales of packaging equipment fell by 30 percent and sales of test equipment by 17 percent. It is worth noting that the operating income of mainland semiconductor equipment manufacturers will increase by 20% in 2023, especially the leading North Huachuang, which will increase its operating income by more than 50%, reaching 22 billion yuan, and it has become a force to be reckoned with in the entire global semiconductor industry chain.
So, in the context of the global semiconductor equipment market shifting to East Asian countries, can semiconductor equipment manufacturers, especially mainland semiconductor manufacturers, seize this wave? Carrying the banner of domestic semiconductor equipment manufacturers? Who can grow into "applied materials" in the field of semiconductor equipment in China?
01
The performance reached a new high
Looking at the semiconductor manufacturers in the mainland, although most of the semiconductor manufacturers in the mainland have a short history of development, they are growing rapidly. NAURA was established in September 2001 by the strategic merger of Seven Star Electronics and the former North Microelectronics. After the completion of the reorganization, NAURA has four business groups: semiconductor equipment, vacuum equipment, new energy lithium battery equipment and precision electronic components, and is a leading enterprise of high-end semiconductor equipment in China. According to the announcement released by NAURA on April 30, the operating income in the first quarter of 2024 reached nearly 5.9 billion yuan, a year-on-year increase of 51%, and the net profit rose by 90% to 1.1 billion yuan.
Catalyzed by domestic substitution and demand expansion, the semiconductor industry is hot.
According to NAURA announced its 2023 annual report. In 2023, it will achieve operating income of 22 billion yuan and net profit attributable to the parent company of 3.9 billion yuan, with a significant year-on-year increase of nearly 66%. The explosion of this performance is mainly due to the large and comprehensive business areas of NAURA Huachuang, which can provide products covering the whole process of semiconductor equipment in addition to lithography machines, as well as some lithium battery equipment and electronic components.
From the perspective of the composition of the company's operating income, the revenue mainly comes from the semiconductor equipment field, accounting for more than 80% of the company's total revenue.
Among them, semiconductor equipment involves four categories: etching machine, thin film deposition (PVD, CVD), cleaning machine, furnace tube, which is the largest sales scale of etching machine and cleaning agent, in terms of etching technology, to achieve full coverage of 12-inch silicon, metal, and dielectric etching machine, forming a more complete etching solution, realizing a key breakthrough in the field of dielectric etching equipment, and releasing a full range of plasma degumming products to meet the different process needs of customers. In 2023, the revenue of etching equipment will be nearly 6 billion yuan.
Thin film deposition equipment is a critical part of the semiconductor manufacturing process. Thin film deposition equipment is primarily used to grow, deposit, or coat very thin layers of substrate materials, which play an important role in chips. In 2023, the company's thin film deposition equipment revenue will exceed 6 billion yuan. Etching machines and thin film deposition equipment account for more than 60% of the company's operating income, making a huge contribution to the growth of NAURA operating income.
02
The gap is not small
NAURA has a revenue of more than 20 billion yuan, which is also reasonable to a certain extent, because the production cycle of semiconductor equipment is long, from the production, assembly to commissioning of parts and components, as well as the commissioning cycle of downstream semiconductor manufacturers such as SMIC, which makes NAURA have an operation cycle of more than 500 days for a long time. The current growth of NAURA's current orders and contract liabilities largely determines the future performance.
The total amount of new orders signed by NAURA in 2023 will exceed 30 billion yuan, and as of the end of the first quarter of 2024, the company's contract liabilities will reach 9.25 billion yuan, a year-on-year increase of nearly 20%. The increase in contractual liabilities reflects a steady increase in the company's orders. In its interactions with investors, the company said that the increase in inventory is matched by the increase in orders, and that the current orders in hand are sufficient, the inventory turnover is smooth, and the risk of unsalable goods is low.
Although NAURA has made great progress, there is still a certain distance to reach the global semiconductor equipment leader Applied Materials. According to the annual report of Applied Materials, the operating income of Applied Materials in 2023 will be $26.5 billion, accounting for 25% of the total global semiconductor equipment market. NAURA is only about one-eighth of the volume of applied materials.
Not only that, Applied Materials' gross profit margin is as high as 46.7%, of which the operating revenue from China will account for more than 50% of Applied Materials in 2023. In addition to Applied Materials, in the regional revenue of Ram Research, the world's leader in etching machines, in the first three quarters of 2023, the revenue from China also exceeded 30%. Therefore, although NAURA has grown rapidly in revenue, the gap ahead is still not small.
However, at present, the global semiconductor industry chain has been transferred to the mainland, although there is still a certain gap between North Huachuang and SMIC, and the international advanced semiconductor manufacturing level. However, in the field of chip use, whether it is the application of artificial intelligence in the industrial field, the demand for chips in consumer electronics and automotive electronics, the downstream market stimulus will inevitably reshuffle the upstream, so can NAURA take over this task?
03
Heavy responsibilities
At present, the global semiconductor industry equipment and consumables market is as high as 180 billion US dollars, and the mainland has obvious shortcomings in the localization of equipment and consumables, which also means great room for growth.
Domestic substitution has also become the "mission" of NAURA Huachuang. However, in order to accomplish this "mission", NAURA also needs to continuously strengthen R&D and expand production scale and quality.
From the perspective of R&D investment, from 2020 to 2023, NAURA R&D expenses will be about 1.608 billion yuan, 2.892 billion yuan, 3.566 billion yuan, and 4.4 billion yuan respectively, accounting for nearly 20% of operating income.
The company's R&D effect is also growing rapidly, based on the latest disclosed annual data and combined with previous data, NAURA will apply for more than 1,100 patents in 2023 and obtain more than 800 authorized patents, an increase of nearly 30% compared with 2022, and R&D personnel account for nearly 30% of more than 10,000 employees, which is in an advantageous position among semiconductor companies. If only from the perspective of employees, NAURA has one-third of the level of applied materials.
However, the technical level of NAURA with large R&D investment needs to be continuously improved, and it will continue to catch up with the world's advanced level. Taking the etching machine as an example, the company's main product, NMC 612D 14nm FinFET etching machine, can meet the requirements of 28/14 nm, a variety of silicon etching processes, and also has 10/7 nm process extension capabilities, but with the same type of application materials and Ram research has been able to meet the 3nm or even higher chip process technology, even compared with the domestic etching machine manufacturer AMEC, the technical level of NAURA needs to be improved.
In addition to scientific research and technical support, production capacity is also very important. The expansion project of the semiconductor equipment industrialization base currently under construction is an important semiconductor equipment industrialization project, with a total investment of more than 3.8 billion yuan and a total construction area of about 240,000 square meters. The project officially started in April 2023 and completed the full topping out of the underground structure in October of the same year. Judging from the first quarter report, the company's current construction project of 2.163 billion yuan is basically the production base project.
According to the project plan, it is expected to become the largest equipment manufacturing base of NAURA after completion, further improving its production scale and product production capacity in the field of semiconductor equipment. Specifically, it will form an annual production capacity of 500 integrated circuit equipment, 500 semiconductor equipment, 300 LED equipment and 700 photovoltaic equipment. This will greatly break through the bottleneck of North Huachuang's production capacity.
From the current point of view, it is still too early for NAURA to grow into China's "applied materials" in a short period of time, but as the traditional lithography machine is getting closer and closer to the physical limit, chip production will gradually focus on the mature process technology of 14nm-5nm, so it may be a good time for domestic semiconductor manufacturers to catch up.