Zhitong Finance APP learned that Open Source Securities released a research report stating that in the "14th Five-Year Plan" of 2020, it was proposed that by 2025, the self-sufficiency rate of domestic chips should reach 70%. In terms of downstream applications, according to data from China Merchants Industry Research Institute, downstream of analog chips include communication, automotive electronics, industrial, consumer electronics, and computers, accounting for 36.2%, 24.3%, 20.5%, 10.5%, 7.2% respectively. In addition, as the main control chip of terminal products, SoC chips in China cover a wide range of downstream applications, which can be used in AIoT, autos, robots, televisions, set-top boxes, headphones, watches, glasses, and many other markets. It is expected that with the domestic substitution of downstream industry chips, there will be additional growth space.

The major viewpoints of Open source Securities are as follows:

Multiple industry associations have spoken out, focusing on the controllable autonomy of the supply chain, and advocating cautious procurement of American chips.

(1) China Semiconductor Industry Association: Calling on companies from relevant countries and regions to strive to become reliable suppliers of semiconductor products, and urging the Chinese government to support the stable development of reliable suppliers of semiconductor products. (2) China Internet Association: Urging domestic enterprises to take proactive measures, carefully choose the procurement of American chips, seek to expand cooperation with chip companies from other countries and regions, and actively use chips produced by domestic and foreign-funded enterprises in China. (3) China Automotive Industry Association: To ensure the safety and stability of the automotive industry chain and supply chain, it is recommended that Chinese automotive companies carefully procure American chips. (4) China Communications Enterprise Association: The arbitrariness of U.S. regulatory measures against China affects the stable supply of American chip products. Companies should be cautious in procuring American chips.

There is still a large room for improvement in the self-sufficiency rate of chips. Domestic chip substitution has a bright future.

In the "14th Five-Year Plan" of 2020, it was proposed that by 2025, the self-sufficiency rate of domestic chips should reach 70%. According to TechInsights data, the size of China's chip market in 2020 was approximately $146 billion. The scale of chips produced in China was about $24.2 billion, and the self-sufficiency rate was about 16.6%. In 2021, the self-sufficiency rate is about 17.6%, and in 2022, it is about 18.3%. However, at the 2023 China Electric Vehicle Hundred People's Forum, the Development Research Center of the State Council's Market Economy Research Institute indicated that in 2023, China's automotive chip external dependence rate is as high as 95%, the self-sufficiency rate of computing and control chips is less than 1%, and the self-sufficiency rate of power and storage chips is only 8%. There is still significant room for improvement in China's chip self-sufficiency, and domestic substitution of chips in China has great potential.

IC design chips: Focus on SoC, analog, and power semiconductors.

(1) Analog chips: According to data from TouRongBang, China's self-sufficiency rate of analog chips was only 15% in 2023, with a large space for domestic substitution. In terms of downstream applications, data from Zhongshang Research Institute shows that the downstream applications of analog chips include communications, automotive electronics, industrial, consumer electronics, and computers, accounting for 36.2%, 24.3%, 20.5%, 10.5%, and 7.2% respectively. Among the four major associations that issued the 'call', there are the China Association of Automobile Manufacturers and the China Communications Enterprise Association, both important downstream associations of analog chips, which are expected to accelerate the process of domestic substitution of communication and automotive-related analog chips.

Recommended symbols: SG Micro Corp (300661.SZ), Awea Electron (688798.SH), 3peak Incorporated (688536.SH), Shanghai Bright Power Semiconductor Co., Ltd. (688368.SH), Maxscend Microelectronics (300782.SZ); Benefiting symbols: NaXun Micro (688052.SH), Nanxin Technology (688484.SH), Dioo Microelectronics (688381.SH), Heide Micro.

(2) SoC main control chips: SoC chips, as the main control chips in terminal products, have a wide downstream coverage of SoC companies in China, which can be applied in various markets such as AIoT, autos, robots, televisions, set-top boxes, headphones, watches, glasses, and many more. It is expected that with the domestic substitution of chips in various downstream industries, there will be additional growth space.

Recommended symbols: Bestechnic (Shanghai) Co., Ltd. (688608.SH), Espressif Systems (688018.SH), Rockchip Electronics (603893.SH); Benefiting symbols: Allwinner Technology (300458.SZ), Shanghai Fullhan Microelectronics (300613.SZ), Amlogic (688099.SH), A.IoT Technologies (688220.SH), Montage Technology (688332.SH).

(3) Power semiconductor chips: According to TrendForce data, in the global semiconductor application field distribution, the automotive sector accounted for 29% in 2021, second only to the industrial sector. The automotive sector represents a significant downstream application for power semiconductors, with China's self-sufficiency rate for power chips in automotive chips being only 8% in 2023, indicating a large space for domestic substitution.

Recommended symbols: China Resources Microelectronics (688396.SH), Hangzhou Silan Microelectronics (600460.SH), StarPower Semiconductor (603290.SH), Wuxi NCE Power (605111.SH), Jiangsu Jiejie Microelectronics (300623.SZ), Yangzhou Yangjie Electronic Technology (300373.SZ); Benefiting symbols: Montage Technology (688261.SH), Wingtech Technology (600745.SH).

Risk warning: Slow recovery of downstream demand; Unanticipated technological innovation; Intensified industry competition.