Summary of Key Points
In the first half of this year, there has been a significant reversal in pricing power within the semiconductor industry: The traditional structure, where downstream chip designers (such as NVIDIA) and manufacturers (such as TSMC) used to dominate the market, has now shifted in favor of upstream material and equipment companies. Upstream materials, such as tungsten hexafluoride, have seen prices soar due to supply-demand imbalances, leading to record-breaking orders for equipment and soaring stock prices for related companies. These upstream firms have become the biggest winners of this cycle, with profits flowing from the downstream to the upstream sectors.
1. Upstream Materials Become a “Money-Maker”: Tungsten Hexafluoride Prices Double, Company Stock Prices Increase by 7 Times
Tungsten hexafluoride is a crucial component in chip manufacturing, used in processes like ion implantation. This year, its demand has skyrocketed due to limited production capacity from leading Japanese companies and the expansion of domestic chip manufacturers, coupled with the surge in demand for AI chips. Customs data shows that the average export price of tungsten hexafluoride in China increased by 203% year-on-year in April, from 1 yuan per kilogram last year to 3 yuan this year.
- Who Benefits? The stock price of CSIC Special Gas (a company with one of the world's largest production capacities for tungsten hexafluoride) rose from 40 yuan at the beginning of April to 349 yuan by the end of June, a cumulative increase of 766%, making it the highest-performing stock in the A-share market (excluding new listings). Other material companies such as Jinhong Gas and Dongfang Zirconium also saw significant price increases.
2. The PCB Industry Shows New Growth: 60 Billion Yuan in Expansion Driven by AI Demand
PCBs (Printed Circuit Boards) are essential for connecting components like chips and batteries in electronic devices.
- Why the Expansion? New applications such as large AI models, high-speed switches, and optical modules require advanced PCBs that can support fast data transfer. Previously considered a “traditional industry,” the PCB sector has now become highly sought after in the AI ecosystem.
- Scope of Expansion? More than 20 companies have announced expansions this year, with total investment exceeding 60 billion yuan (30 billion yuan were invested in March alone). Leading players like Shanghai Electric and Pengding Holdings are increasing their production capacity.
3. Semiconductor Equipment Sales Soar: Index Increases by 161%, Global Orders Reach Record Levels
Semiconductor equipment is essential for chip manufacturing, with demand exploding this year.
- Sector Performance: The semiconductor equipment index has risen by 161% year-to-date, outperforming all other sectors.
- Demand Drivers: Chip manufacturers worldwide are expanding production. For example, the South Korean government, in collaboration with Samsung and SK Hynix, is investing 800 trillion won (about 4.3 trillion yuan) to build four new chip factories; domestic wafer manufacturers are also increasing capacity. SEMI data shows that global equipment shipments reached a record high of 36.55 billion US dollars in the first quarter.
- Additional Benefits: Rising prices across the entire equipment supply chain provide companies with greater profit margins.
4. Reversal of Pricing Power: Why Can the Upstream Sector Take Control?
Traditionally, the downstream (chip design and manufacturing) had the upper hand in setting prices. However, the current situation is different:
- Bottleneck: The expansion of AI computing power requires a large amount of chips, but the production capacity of upstream materials and equipment cannot keep up, creating a bottleneck.
- Consequence: Upstream companies have gained control over pricing. If you want to manufacture chips, you must buy their materials and equipment, forcing them to raise prices. As a result, profits are flowing from downstream firms like TSMC and NVIDIA to the upstream suppliers.
In Summary
The logic of the semiconductor industry has changed this year: Instead of focusing on downstream chip innovation, attention should now be paid to the production capacity of upstream materials and equipment. Companies that can address these supply bottlenecks will reap the biggest profits. For anyone trying to understand this industry, it’s crucial to monitor trends in upstream material prices and equipment orders.