Driven by the recovery of the memory market, the rise of hot application areas such as artificial intelligence and high-performance computing, and other factors, the global semiconductor industry returned to a growth trajectory in 2024. "The ducks know first when the spring river warms," and the packaging and testing segment, which is close to the end products, saw a comprehensive reversal in performance in the first half of the year, with expectations that the prosperity will remain high in the second half of the year.
The heat of AI chips is spreading outward from NVIDIA and its supply chain, and one of its competitors, AMD, also performed brilliantly. The company's data center division's revenue growth exceeded 100% in the second quarter. Tongfu Microelectronics, one of AMD's suppliers in China, also benefited significantly. Tongfu Microelectronics recently announced its semi-annual report, showing that in the first half of 2024, the company's revenue saw a slight positive growth of 11.83%, and the net profit turned from loss to profit.
Tongfu Microelectronics is not the only one with good performance; two other leading packaging and testing manufacturers in the A-share market, Jiangsu Changdian Technology and Huatian Technology, both achieved high year-on-year growth in performance in the first half of the year. As a capital-intensive industry, from 2021 to 2022, the three companies raised funds through private placements to upgrade their production lines and expand capacity. In the first half of 2024, these advanced capacities正好迎合了AI-driven chip demand recovery.
With the improvement of terminal shipment volumes and the reduction of inventory pressure, the semiconductor prosperity gradually recovers, ushering in a new beginning of growth, and sales are expected to resume the upward cycle. Artificial intelligence has entered a new stage dominated by generative AI, with an increase in innovative applications of terminal products represented by AI phones and AI PCs, which pose higher requirements for packaging and testing technology. High-value-added fields such as automotive electronics, high-performance computing, storage, and 5G communication inject vitality into the industry's development, with packaging and testing manufacturers focusing on high-performance packaging technology, increasing the industry's added value.
The packaging and testing market has fully recovered.
Although the packaging and testing segment is relatively late in the semiconductor industry chain, the products of packaging and testing factories enter the final products of the industry chain into the inventory of design manufacturers, and their revenue is highly correlated with semiconductor sales.
Research shows that when inventory levels are high, the performance of packaging and testing manufacturers will decline significantly due to the reduction of orders from IC design manufacturers; however, if downstream demand improves, IC design manufacturers will prioritize adding orders to packaging and testing manufacturers, processing the accumulated unpackaged wafers, thereby promoting the overall industry chain to reverse from the bottom.
Optimistic guidance from packaging giants, Amkor, indicates that there will be a significant growth stronger than seasonal in the second half of the year, with automotive and industrial semiconductors expected to grow moderately starting from the third quarter. Advanced Semiconductor Engineering's packaging and testing capacity utilization rate was slightly above 60% in the second quarter, and the company expects it to exceed 65% in the third quarter and reach 70% in the fourth quarter. Looking at the revenue of packaging and testing companies in Taiwan's stock market, there has been a continuous year-on-year increase for seven consecutive months in 2024. Founder Securities pointed out that the packaging and testing industry will maintain a recovery trend in the third quarter, and the increase in utilization rate will further repair the profit margin.
Guotai Junan Securities pointed out that the revenue change trend of global leading semiconductor packaging and testing factories is basically consistent with the global semiconductor sales. The quarterly pattern shows that sales are higher in the first and fourth quarters and relatively lower in the second and third quarters, which is in line with the seasonal fluctuations of traditional electronic products and the manufacturing industry. In 2024, downstream demand recovered, and the inventory turnover rate of A-share analog and digital chip design manufacturers in the second quarter was somewhat repaired, with an average of 0.99 times and 0.68 times, respectively. In the second half of the year, the industry will enter the peak season, and it is expected that the annual inventory turnover rate will maintain a recovery trend.
The landing of end-side AI is expected to bring a new round of replacement demand for consumer electronics. Looking at the mobile phone market, in the second quarter of 2024, the global smartphone market once again achieved double-digit growth, with shipments reaching 290 million units, driven by product innovation and improved operating conditions. The global smartphone market has achieved positive growth for three consecutive quarters, and the industry expects 2024 to be the year of AI phone explosion, with the global AI phone penetration rate expected to reach 16%, and by 2028, this proportion is expected to rise to 54%. Looking at the personal computer market, in the second quarter of 2024, the shipments of desktops and notebooks reached 62.8 million units, a year-on-year increase of 3.4%, also achieving growth for three consecutive quarters. With the transition of the PC market to Windows 11 and AI PCs, the shipments of PCs are expected to continue to grow in the next few quarters.In the field of cloud computing, the market is on the rise due to the comprehensive replacement of digital high-performance signal processing chips required for 5G communication network base stations and data centers. It is predicted that the global AI chip market size will increase by 33% in 2024, reaching $71.3 billion, and is expected to further grow by 29% in 2025, reaching $92 billion; the server AI chip market size will reach $21 billion, with a year-on-year increase of about 40%, and is expected to reach $33 billion by 2028, with a compound annual growth rate of 12%.
In the automotive electronics sector, the continuous development towards intelligence and electrification of automobiles is driving the steady growth of the intelligent driving, high-performance computing, and power module markets. By the end of 2024, the market for autonomous driving and in-vehicle high-performance computing semiconductors could reach $25.9 billion, and the market for automotive-grade power semiconductors could reach $16.6 billion.
Performance Turnaround
JCET Group is the industry leader in the domestic packaging and testing field, with a market share of 10.27% in the global outsourced packaging and testing market. In the first half of 2024, the company achieved a revenue of 15.49 billion yuan, a year-on-year increase of 27.2%; in the first quarter, it increased by 16.8% year-on-year, and in the second quarter, it increased by 36.9% year-on-year, with a sequential increase of 26.3%. In the first half of 2024, the company achieved a net profit attributable to the parent company of 620 million yuan, a year-on-year increase of 25.0%; in the first quarter, it increased by 23.0% year-on-year, and in the second quarter, it increased by 25.5% year-on-year, with a sequential increase of 258.0%.
In the first half of the year, most business segments of JCET Group achieved positive growth. The company's revenue for the first half of the year is divided into communication electronics, consumer electronics, computing electronics, industrial and medical electronics, automotive electronics, etc.; in the second quarter, the revenue of each application category achieved double-digit growth sequentially, with automotive electronics revenue increasing by more than 50.0% sequentially; in the first half of the year, communication electronics revenue increased by more than 40.0% year-on-year, consumer electronics revenue increased by more than 30.0% year-on-year, and computing electronics ended the adjustment trend since the first half of 2023, with an increase of more than 20.0% year-on-year in the first half of 2024.
Tongfu Microelectronics, ranking second, is also the case. In the first half of 2024, Tongfu Microelectronics achieved a revenue of 11.08 billion yuan, a year-on-year increase of 11.83%, and the net profit attributable to the parent company after deducting non-recurring gains and losses was 316 million yuan, turning from a loss to a profit compared to the same period last year.
The year with the highest profit in Tongfu Microelectronics' history was 2021, with a net profit attributable to the parent company after deducting non-recurring gains and losses of 363 million yuan in the first half of that year. This performance is not far from the first half of 2021, indicating a significant recovery in performance. The company expects the consumer market to continue to recover in the second half of the year, while the demand for computing power will continue to grow, and the industrial and automotive markets have gradually bottomed out, with considerable growth potential.
In the first half of 2024, Huatian Technology's revenue was 6.718 billion yuan, a year-on-year increase of 32.02%, and the net profit attributable to the parent company was 223 million yuan, a year-on-year increase of 254.23%. Among them, the company's operating income in the second quarter was 3.612 billion yuan, an increase of 506 million yuan compared to the first quarter, and the net profit attributable to the shareholders of the listed company in the second quarter was 166 million yuan, a sequential increase of 190.53% compared to the first quarter.
Advanced Packaging Drives Industry Upgrade
The demand in fields such as AI chips and memory chips continues to rise, showing a strong development momentum. Major manufacturers such as TSMC and Intel have increased their investment in advanced packaging, bringing more opportunities and challenges to semiconductor packaging companies.Domestic manufacturers are also striving to catch up. Changdian Technology, Tongfu Microelectronics, and Huatian Technology successively raised funds through non-public offerings in 2021-2022 to upgrade their production lines and expand capacity, with fundraising scales reaching 5 billion yuan, 2.693 billion yuan, and 5.1 billion yuan, respectively. The investment progress of the funded projects is over 80%, around 50%, and close to 100.00%, respectively. In the first half of 2024, the fixed asset turnover rate of the three companies has increased.
Changdian Technology's sales expense ratio has remained basically stable, while the R&D expense ratio has been rising slowly. The company's XDFOI® Chiplet high-density multi-dimensional heterogeneous integration series process has entered the stable mass production stage as planned. This technology is a very high-density, multi-fan-out type packaging high-density heterogeneous integration solution for Chiplet, achieving the integration and testing of chip finished products in one, covering 2D, 2.5D, 3D integration technologies, and the company is continuously promoting the development and production of its diversified solutions. In the semiconductor storage market field, Changdian Technology has 16 NAND flash stacking, 35um ultra-thin chip process capability. In the power and energy application field, the company has improved power density and thermal management efficiency through vertical integration technology, reducing energy loss, and has completed the packaging technology innovation and mass production of the 2.5D vertical Vcore module based on SiP packaging technology.
With the surge in demand for AI chips, advanced packaging capacity has become one of the bottlenecks in AI chip shipments. TSMC, ASE Technology, and Amkor have all indicated that advanced packaging capacity is tight and related order demand is strong.
Tongfu Microelectronics is committed to large-size high-computing power products in the server and client markets in the advanced packaging market. Due to years of cooperation with industry leaders such as AMD, based on the continuous growth of high-end processor and AI chip packaging and testing demand, the company has expanded its Penang factory in Malaysia to meet the requirements of the opportunity period for artificial intelligence development of leading customers such as AMD. In the first half of the year, Tongfu Microelectronics' high-performance packaging business maintained steady growth, and 16-layer chip stacking packaging products were shipped in large quantities. AMD revised its 2024 data center GPU revenue to $4.5 billion, up from $4 billion.
In the automotive electronics field, Changdian Technology has established an automotive electronics production factory in the Shanghai Lingang New Area, creating an advanced packaging base for large-scale highly automated production of automotive-grade chip finished products. Huatian Technology's automotive electronics packaging product production scale continues to expand, 2.5D, FOPLP projects are progressing steadily, double-sided plastic encapsulated BGA SiP, ultra-high integration uMCP, 12-inch laser radar products and other mass production capabilities, based on TMV process uPoP, high heat dissipation HFCBGA, large size high-density QFN, Bluetooth low-energy tire pressure products and other mass production. The capacity layout of domestic packaging manufacturers is heading towards the high-light moment driven by AI.