The latest financial disclosures for listed companies have unveiled a promising mid-year report for the electronics industry, encompassing sectors such as semiconductors, electronic components, consumer electronics, and optical optoelectronicsThe first half of 2024 has shown a marked improvement, largely influenced by the recovering market conditions within the industryAccording to data from Wind, the overall revenue of the electronics sector has seen a year-on-year increase of 15%, asserting its position as the highest growth sector across all industries; net profits attributable to shareholders surged by 54%, ranking third in the industrySpecifically, in the second quarter of 2024, the electronics industry reported a 17% year-on-year revenue growth and a significant net profit increase of 42%. Analysts suggest that with a robust deflation of inventory and improvements on the supply side, the demand for artificial intelligence capabilities is expected to catalyze the next cycle of growth in the electronics sector.

The financial reports reveal a stabilizing performance across various sub-sectors of the electronics industry

For instance, 245 electronic companies listed on the Shenzhen Stock Exchange collectively generated revenues amounting to 857.33 billion yuan during the first half of 2024, reflecting a year-on-year growth of 13.51%. Furthermore, net profits attributable to shareholders surged remarkably, reaching 35.116 billion yuan, which represents a staggering 74.94% increaseAfter adjusting for non-recurring income, the net profit attributable to shareholders escalated to 29.057 billion yuan, demonstrating an exceptional 160.74% increase.

Delving deeper, the semiconductor segment has exhibited unprecedented performance, achieving 29.60% revenue growth and a 74.67% profit increase in the first half of 2024. A case in point is Northern Huachuang, a leading semiconductor equipment manufacturer, which reported a staggering 46.38% increase in revenue, totaling 12.335 billion yuan, with a net profit increase of 54.54% reaching 2.781 billion yuan

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Analysts attribute this growth to the overall recovery of the semiconductor industry, which has significantly boosted orders related to semiconductor equipment, alongside Northern Huachuang's focus on core segments such as semiconductor equipment, vacuum and lithium battery equipment, and precision electronic components.

Alongside semiconductors, the electronic components industry has also shown impressive growth, with total revenues climbing by 19.01% and profits soaring by 33.33%. Notably, Shenzhen South Circuit Co., a prominent printed circuit board company, achieved total revenue of 8.321 billion yuan, reflecting a year-on-year growth of 37.91%, while net profits soared by 108.32% to 987 million yuanThe demand for products in sectors like telecommunications and automotive electronics has played a significant role in driving this growth.

Consumer electronics have similarly exhibited an upward trend, with a 10.77% increase in total revenue and a 29.44% rise in profitability in the same period

For instance, Lantech Technology reported a remarkable revenue of 1.665 billion yuan, marking a 79.49% year-on-year growth, while net profits jumped by an astonishing 624.63% to 593 million yuan, primarily spurred by the recovery of the storage industry and increasing demand for AI servers.

The optical optoelectronics industry has also rebounded with a total revenue increase of 7.58%, leading to a net profit turnaround to 3.299 billion yuan from a loss of 3.116 billion yuan the previous yearBOE Technology Group achieved an impressive revenue of 93.386 billion yuan, reflecting a year-on-year growth of 16.47%, with a net profit of 2.284 billion yuan, showcasing a significant increase of 210.41% compared to the same period last year.

As the electronics sector capitalizes on a new upswing, it becomes crucial to establish a modern production system that adapts to local conditions

The support for policies fostering the development of new-generation information technologies, especially artificial intelligence, is critical in guiding the industry’s healthy and orderly growthThis legislative support serves as a solid foundation for enhancing the long-term value and sustainability of the Chinese electronics industry.

An essential characteristic of the electronics sector is its cyclical nature, which is particularly reactive to demand fluctuationsAs inventories continue to normalize and with an increasing demand for consumer electronics like PCs and smartphones, the sector is witnessing an enhancement in performance across the boardGeng Chen, Deputy Director of Huachuang Securities Research Institute, notes that a sustained inventory clearance and price adjustments alongside the growing expectations surrounding AI technology innovations are leading the sector into a robust growth cycle.

Throughout this year, the domestic smartphone market has maintained a positive trajectory, with phone shipments in China reaching 171 million units from January to July, representing a year-on-year growth of 15.3%. With several new models set to hit the market post-September, an additional surge in purchasing is anticipated

The maturation of generative artificial intelligence technologies further fuels demand, especially within applications that rely on substantial computational power, continuously elevating the needs of the industry.

The semiconductor landscape is also witnessing improved performances, with an anticipated 27% increase in global chip sales for the second quarter of 2024, further swelling to a projected 29% increase in the third quarterIn light of these trends, Geng Zheng, Chief Analyst at GF Securities, underscores the cyclical growth depicted within the electronics sector, opining that the rapid recovery observed is a testament to the products and capital cycles within the industry.

One significant highlight in this transformation is the innovation in hardware forms, particularly in the domain of foldable screensSales have skyrocketed, reflecting a doubling of figures year-on-year, with supply chain firms consistently delivering robust performances

According to Shudi, Chief Analyst of the Electronic Sector at Guotai Junan, sales of foldable smartphones reached 1.857 million units in the first quarter and 2.570 million units in the second quarter, yielding year-on-year growth rates of 83% and 104.6%, respectivelyThe financial affirmations from manufacturers indicate a thriving sector that is poised for even greater advancements with the introduction of new models anticipated in the latter half of the year.

The ongoing process of domestic substitution in semiconductors presents vast opportunities for growthAs local firms bolster research investments to achieve technical breakthroughs, from consumer electronics to industrial products, the potential for domestic replacements, cutting across chip production to manufacturing, is immenseAnalysts assert that the domestic semiconductor sector is well-positioned to reap benefits from these ongoing transitions.

China stands as the global leader in both terminal electronics consumption and semiconductor sales, playing a critical role in the global semiconductor landscape

The country’s midstream capacity in wafer fabrication has the potential to become a dominant global manufacturing base, demanding enhanced capabilities from the domestic equipment and manufacturing sectorsThe governmental strategies aimed at fostering domestic manufacturing in semiconductors are paving the way for significant growth, reinforced by supportive policies in taxation, education, and research.

Recent statistics from the National Bureau of Statistics reveal that in August 2024, China's integrated circuit output reached 37.3 billion chips, reflecting a 16% year-on-year increaseThis production leap signifies a fourfold expansion over the last decade, with exports of integrated circuits also surging to 13.3 billion USD, marking an 18% increase year-on-year.

In light of the sustained growth of domestic wafer fabrication capacity, coupled with advancements in semiconductor manufacturing technologies and intensified domestic substitution, the semiconductor equipment market in China continues to expand rapidly