Bern 186436

10 January 2024
Initiation
China Semiconductors
China Semiconductors: Survive to Thrive - Initiating with a
CHINA SPOTLIGHT
positive view on domestic substitution
We are initiating coverage on the China Semiconductors sector with a positive long-
Qingyuan Lin, Ph.D.
+852 2918 5759 term outlook, driven by accelerated domestic substitution. We rate NAURA, AMEC,
qingyuan.lin@bernstein.com Piotech, SMIC, Hygon, Cambricon Outperform, Hua Hong and Silergy Market-Perform.
Louis Li, CFA The semiconductor industry in China has been overshadowed by geopolitical tensions,
+65 6230 2350
louis.li@bernstein.com
causing concerns among investors about China's ability to survive with a noticeable
technology gap. Despite this, we see the US sanctions as a double-edged sword. While they
Shirley Yang, CFA may slow China's progress in cutting-edge areas, they also compel China to develop its
+852 2918 5303 supply chain, pursue self-sufficiency, and thrive in segments that benefit from increased
shirley.yang@bernstein.com domestic substitution.
Semicap: China is being forced to look for domestic semicap supply, pushing the sector
towards an acceleration phase, allowing local equipment suppliers to sustain rapid growth
at 33% CAGR from '23-'25. The development of semicap in China perfectly illustrates
the dual impact of the US sanctions. The ban on importing EUV lithography equipment
has hindered China's progress to the most advanced nodes. On the other hand, it has
accelerated domestic substitution in segments where local suppliers can produce
competitive products in matured nodes, such as the Deposition and Dry Etch equipment,
benefiting local leaders such as NAURA, AMEC, and Piotech. We expect the shift from
global suppliers to local suppliers in semicap will continue, with share gain for local players
from '23-'25 (+11%) surpassing the share gain from '21-'23 (+7%). We rate NAURA,
AMEC, and Piotech Outperform.
Foundry: We expect China to achieve ~40% self-sufficiency in foundry by 2023, reaching

a maturation stage in domestic substitution with slower growth (16% CAGR) from '23-'25.
The recent increase in global capacity for matured nodes (especially in China) has resulted
in oversupply, putting pressure on the gross margin for domestic foundries. We believe
SMIC will overcome the current challenges and keep expanding its market share (+2% from
'23-'25), as the demand for 28nm and advanced nodes remains high. Meanwhile, we expect
Hua Hong to maintain its market share with a moderate gross margin of ~16% for 2024.
We rate SMIC Outperform and Hua Hong Market-Perform.
Fabless: Hygon will benefit from the x86 Server CPU substitution; Cambricon will increase
its share in China’s AI Accelerator market; however, Silergy’s further share gain in Analog
beyond its recovery is expected to be limited. Driven by XinChuang (信创), the strong
momentum for Hygon to replace Intel/AMD’s mid to low-tier server CPUs will continue in
'23-'25 with a 9% share gain. The ban on Nvidia's advanced AI chips will allow domestic
players to gain a 50-60% share till 2025. The winner likely will be Huawei, but Cambricon
could benefit as the best alternative to Huawei and achieve a 6% share gain from '23-'25.
Silergy is the leader of domestic Analog suppliers. It suffered greatly from the Analog
downturn in 2023 (EPS expected to drop -85%) and is expected to recover in 2-3 years,
but we believe the recovery story is already priced in with limited potential upside beyond
that. We rate Hygon and Cambricon Outperform, and Silergy Market-Perform.
See the Disclosure Appendix of this report for required disclosures, analyst certifications and other www.bernsteinresearch.com
important information.
First Published: 10 Jan 2024 08:01 UTC Completion Date: 10 Jan 2024 06:54 UTC
Qingyuan Lin, Ph.D. +852 2918 5759 qingyuan.lin@bernstein.com 10 January 2024
BERNSTEIN TICKER TABLE

9 Jan 2024 TTM Reported EPS Reported P/E (x)
Closing Price Rel.
Ticker Rating Price Target Perf. 2022A 2023E 2024E 2022A 2023E 2024E
688012.CH (AMEC) O CNY 136.36 200.00 43.5% CNY 1.90 2.74 3.23 71.8 49.8 42.3
688256.CH (Cambricon) O CNY 119.02 160.00 115.6% CNY (3.14) (1.90) (1.46) (37.9) (62.6) (81.6)
1347.HK (Hua Hong-H) M HKD 18.20 20.00 (26.6)% USD 0.35 0.16 0.09 6.8 14.4 26.4
688347.CH (Hua Hong-A) M CNY 43.21 45.00 NA USD 0.35 0.16 0.09 17.5 37.2 68.5
688041.CH (Hygon) O CNY 69.17 100.00 71.2% CNY 0.38 0.52 0.82 182.0 134.0 84.3
002371.CH (NAURA) O CNY 228.08 370.00 6.2% CNY 4.46 7.11 9.31 51.1 32.1 24.5
688072.CH (Piotech) O CNY 200.60 320.00 42.9% CNY 3.18 2.89 4.24 63.1 69.3 47.4
688981.CH (SMIC-A) O CNY 54.57 62.00 40.2% USD 0.23 0.12 0.10 33.2 65.2 73.0
981.HK (SMIC-H) O HKD 20.45 22.00 27.4% USD 0.23 0.12 0.10 11.4 22.4 25.0
6415.TT (Silergy) M TWD 431.50 460.00 (9.6)% TWD 15.95 2.32 7.47 27.0 186.3 57.8
ASIAX 1,130.31 104.10 87.11 102.67 10.86 12.98 11.01
COVERAGE INITIATION
O - Outperform, M - Market-Perform, U - Underperform, NR - Not Rated, CS - Coverage Suspended
Source: Bloomberg, Bernstein estimates and analysis.
INVESTMENT IMPLICATIONS
We are initiating coverage on the China Semiconductors sector with a positive long-term outlook, driven by accelerated
domestic substitution. Exhibit 1 is a summary of our valuation for the eight stocks in our coverage, we rate NAURA (002371.CH),
AMEC (688012.CH), Piotech (688072.CH), SMIC (981.HK, 688981.CH), Hygon (688041.CH), Cambricon (688256.CH)
Outperform, and Hua Hong (1347.HK, 688347.CH), Silergy (6415.TT) Market-Perform.
EXHIBIT 1: Our Coverage:66 stocks

Our Coverage: stocks Outperform, and 2 stocks
Outperform, and Market-Perform
2 stocks Market-Perform
As of date: 8-Jan-24
Enterprise Consensus ratings Total
Bernstein Market cap Bernstein Upside Current
Sector Company value 52-week range Consensus TP distribution ratings
Rating (USD Bn) TP (downside) price
(USD Bn) Buy Hold Sell (N)
NAURA
(002371.CH) O 16.8 16.2 CNY 370.0 64% 226.2 213.4 - 358.0 340.4 27 1 28
北方华创
AMEC
Semicap 27 31
(Equipment)
(688012.CH) O 11.9 10.8 CNY 200.0 45% 137.7 97.0 - 199.8 194.0 31
中微公司
Piotech
21 2
(688072.CH) O 5.4 5.3 CNY 320.0 55% 206.6 139.2 - 331.1 313.0 23
拓荆科技
SMIC-H
(981.HK) O 27.3 40.7 HKD 22.0 23% 17.8 15.7 - 25.8 21.9 15 10 5 30
中芯国际
SMIC-A
(688981.CH) O 27.3 40.7 CNY 62.0 25% 49.5 40.8 - 66.5 56.8 18 4 1 23
Foundry 中芯国际
(Fabrication) Hua Hong-H
(1347.HK) M 5.3 3.5 HKD 20.0 10% 18.2 16.4 - 38.8 20.4 15 8 5 28
华虹半导体
Hua Hong-A
(688347.CH) M 5.3 3.5 CNY 45.0 13% 39.8 39.8 - 59.9 48.9 5 1 1 7
华虹公司
Hygon
(688041.CH) O 22.2 21.1 CNY 100.0 46% 68.4 40.2 - 102.0 93.6 17 17
海光信息
Cambricon
Fabless 6 1
(IC Design)
(688256.CH) O 7.1 6.9 CNY 160.0 31% 122.1 55.3 - 271.5 131.1 7
寒武纪
Silergy
(6415.TT) M 5.5 4.9 TWD 460.0 4% 441.0 243.0 - 673.0 366.2 9 5 6 20
矽力杰
Source: Bloomberg, Company reports, Bernstein estimates and analysis

Note: Market data as of Jan 8, 2024 CHINA SEMICONDUCTORS | 4
CHINA SEMICONDUCTORS BERNSTEIN 2

The eight stocks we covered could be grouped into three sub-sectors, as illustrated in Exhibit 2. NAURA, AMEC, and Piotech
are in the Semicap (Semiconductor Capital Equipment) sub-sector, SMIC and Hua Hong are in the Foundry (Semiconductor
Fabrication)
Our Coverage sub-sector,in
Hygon,
threeCambricon, and Silergy- are
sub-sectors in the Fabless
Semicap, (Integrated Circuit
Foundry, Fabless Design) sub-sector. These sectors
are closely linked. Foundries are customers of semicap while fabless are customers of foundries.
EXHIBIT 2: Our covered stocks in three sub-sectors - Semicap, Foundry, Fabless
Semicap (Equipment)
EDA & Raw
Core IP PVD & ICP Etch CCP Etch CVD
Materials
Front-end Back-end
Assembly,
Fabless Foundry
packaging &
(IC Design) (Fabrication) testing (OSAT)
Server CPU AI Chip Analog Logic Specialty IC
Integrated Device Manufacturer (IDM)

Source: Bloomberg, Company reports, Bernstein analysis
Exhibit 3 summarizes global

Source: Bloomberg, companyleaders in representative
reports, Bernstein analysis industries for our covered stocks. The exhibit displays5 numbers that
CHINA SEMICONDUCTORS |
represent the market cap of the stocks, the multiples represent the size difference between the two companies. The short
sentence on top represents the main business for the stock. The analogies presented in this chart demonstrate pairs of
companies within the same industry. However, it should be noted that these analogies do not necessarily suggest that Chinese
Analogies
companies of global
will eventually reach the semiconductor leaders
same level of competitiveness toglobal
as their ourcounterparts.
covered stocks
EXHIBIT 3: Analogies of global semiconductor leaders to our covered stocks
Semicap (Equipment) Fabless (IC Design)

Etch, PVD, Cleaning, etc. x86 server CPU
8x market cap. 11x market cap.
~$ 17 Bn ~$ 126 Bn ~$ 22 Bn ~$ 236 Bn
Dry Etch equipment AI Accelerator

~$ 12 Bn ~$ 100 Bn ~$ 7 Bn ~$ 1,291 Bn
CVD Deposition equipment Analog (PMIC)

29x market cap.
~$ 5 Bn Acquired by ~$ 6 Bn ~$ 153 Bn
Lam in 2012
Foundry (Fabrication)
Advanced + matured node Matured node specialty IC

~$ 27 Bn ~$ 530 Bn ~$ 5 Bn ~$ 21 Bn
*The analogies presented in this chart demonstrate pairs of companies within the same industry. However, it should be noted that these analogies do not necessarily suggest that
Chinese companies will eventually reach the same level of competitiveness as their global counterparts.
Numbers are market cap as of Jan 8, 2024
Source: Bloomberg, company
Notes: 1) Market reports, Bernstein
Cap data as analysis
of Jan 8, 2024; 2) Applied Material,Lam Research, AMD, Nvidia, Texas Instruments, TSMC,
UMC are covered by Bernstein analysts Stacy Rasgon and Mark Li CHINA SEMICONDUCTORS | 6
Source: Bloomberg, company reports, Bernstein analysis

Semicap (Semiconductor Capital Equipment)
NAURA (002371.CH): Outperform, TP CNY 370 (64% upside potential). Most comparable to Applied Materials1 with
the broadest product portfolio, invests heavily in R&D budgets for equipment innovation to fill in the whitespace in
China.
• As the leader in PVD2 (a sub-sector of Deposition) & ICP-RIE3 (a sub-sector of Dry Etch), we expect NAURA to have a 12%
share gain during 2023-25, accelerating from 7% share gain during 2021-23;
• With a diversified portfolio, NAURA has the largest TAM, covering Deposition, Dry Etch, Cleaning, Thermo Processing, and a
few non-semi segments such as Solar, LED, etc.;
• NAURA has the highest R&D expenditure and R&D ratio despite its largest size in China’s semicap industry, which has led to
(and we believe will continue to lead to) more equipment innovation to fill in the white space in China.
AMEC (688012.CH): Outperform, TP CNY 200 (45% upside potential). Most comparable to Lam Research4, with a
dominant CCP-RIE5 Dry Etch share in China, is highly profitable with globally recognized technology and services.
• As the leader in CCP-RIE (a sub-sector of Dry Etch), we expect AMEC to have a 14% share gain during 2023-25,
accelerating from 6% during 2021-23;
• AMEC is China's most internationally recognized semicap supplier, with products in TSMC’s 5nm fabs and winning high
customer satisfaction;
• AMEC’s GPM/OPM has been increasing and is already on par with global leaders.
Piotech (688072.CH): Outperform, TP CNY 320 (55% upside potential). A rising star specializing in CVD6 with proven
product innovation capability.
• As the rising star in CVD (a sub-sector of Deposition), we expect Piotech to have a 7% share gain in those two sectors during
2023-25, accelerating from 5% during 2021-23;
• Piotech's product development is built on a solid technology foundation, thanks to the expertise of its core tech leaders,
veterans of global semicap leaders;
• The product has a proven innovation track record, with almost one new product every year since 2016, increasing its SAM
every year.
1
AMAT.US, covered by Bernstein analyst Stacy A. Rasgon
2
Physical Vapor Deposition
3
Inductively Coupled Plasma - Reactive Ion Etching
4
LRCX.US, covered by Bernstein analyst Stacy A. Rasgon
5
Capacitively Coupled Plasma - Reactive Ion Etching
6
Chemical Vapor Deposition

Foundry (Semiconductor Fabrication)
SMIC (981.HK, 688981.CH): Outperform, TP HKD 22 (23% upside potential) for H share, CNY 62 (25% upside
potential) for A share. As the only foundry that has the potential to become China’s TSMC7, we expect SMIC to gain
market share with advanced node manufacturing capability, despite short-term gross margin pressure.
• We expect SMIC to gain a 2% market share from 2023-25, as China’s fabless customers continue to seek supply chain
resiliency, while SMIC executes its long-term capacity expansion plan steadily;
• SMIC is the technology leader in China, with advanced node manufacturing capability pre-sanctions (14 nm as publically
announced by the company in 2019). Compared with local foundry peers, we expect it to capture more share in China with
increasing demand for its advanced node capacity;
• Despite recent ASP pressure, inventory levels in China's fabless firms have likely reached a tipping point; we expect the cycle
may come back in late 2024 or 2025.
Hua Hong (1347.HK, 688347.CH): Market-Perform, TP HKD 20 (10% upside potential) for H share, CNY 45 (13%
upside potential) for A share. As the second largest Chinese local foundry focusing on specialty and matured nodes,
Hua Hong has recently faced more overcapacity headwinds in the matured node segment.
• We expect Hua Hong's market share to remain flat during 2023-25 due to fierce competition in the matured node;
• Despite having five specialty platforms to meet diverse customer needs, they are largely commoditized, all facing intense
competition that leads to pricing pressure;
• Hua Hong has been struck harder by cycle headwinds, resulting in a lower gross margin (~16%) than peers in Taiwan (UMC8
~32% and Vanguard9 ~24%) for 2024.
Fabless (Integrated Circuit Design)
Hygon (688041.CH): Outperform, TP CNY 100 (46% upside potential). China’s domestic x86 server CPU leader with
an 11% market share in China as the only credible x86 server CPU challenger to Intel10 & AMD11.
• Hygon is considered as the "domestic AMD" in China, founded on the AMD Zen1 architecture license in 2016. We expect a
9% share gain during 2023-25 as Hygon’s gen-4 products ramp up, accelerating from 7% share gain during 2021-23;
• Hygon has a proven innovation capability from its product roadmap - the company has independently developed and
commercialized its gen-2 to gen-4 products, despite being added to the US BIS’ Entity List12 in 2019 and no longer enjoying
AMD’s technical service;
• We identify Hygon as a key beneficiary from China’s ITAI (XinChuang or 信创13) policy push for server CPU domestic
substitution. Our forecast of domestic server CPU (Hygon’s) share increase from14-23% during 2023-26.
7
Taiwan Semiconductor Manufacturing Company, TSM.US, 2330.TT, covered by Bernstein analyst Mark Li
8
United Microelectronics Corporation, UMC.US, 2303.TT, covered by Bernstein analyst Mark Li
9
Vanguard International Semiconductor Corporation, 5347.TT, covered by Bernstein analyst Mark Li
10
INTC.US, covered by Bernstein analyst Stacy A. Rasgon
11
Advanced Micro Devices, AMD.US, covered by Bernstein analyst Stacy A. Rasgon
12
The Entity List is a trade restriction that imposes license requirements for exporting US technologies. See more from: https://
www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/entity-list
13
信创 (Xinchuang) stands for 信息技术应用创新(Information technology application innovation, ITAI)

Cambricon (688256.CH): Outperform, TP CNY 160 (31% upside potential). China’s leading AI accelerator substitute,
ranked #2 in overall AI competence in China supported by its persistent R&D, is the best alternative to Huawei14 for
domestic AI chip substitution.
• The AI accelerator is the fastest-growing sub-sector among our fabless company coverage. In addition to exponential
worldwide growth in the coming years, we expect the impact of the latest US sanctions15 will significantly reduce Nvidia's16
supply to China, creating room for domestic players to grow. Cambricon is the leading AI fabless company benefiting from
China’s domestic AI chip substitution, and we expect it to deliver ~4x revenue expansion in the coming 2 years from a low
base - driven by a significant share shift from 1%-7% during 2023-25;
• Cambricon has maintained a solid and persistent R&D investment (130-220% of revenue) regardless of volatility and market
cycles. It’s still like a startup, with revenue only 1/500 of Nvidia, but the R&D expenses have reached 1/50 of Nvidia, we
believe the R&D investment should give it an edge over other domestic AI chip suppliers;
• Cambricon is the best “Huawei alternative” in China to capture the Nvdia void in the domestic market - we believe its next-
generation AI training chip (Siyuan 590) will deliver comparable single-chip performance to Huawei's (Ascend 910B). Its
overall AI competence has been #2 in China (supply chain, GPU programming, and scalable interconnects) and is only behind
Huawei.
Silergy (6415.TT): Market-Perform, TP TWD 460 (4% upside potential). China's largest analog chip supplier and
leader in Power Management ICs (PMICs). We like the company’s market positioning, product portfolios, and R&D
competence, but remain conservative on its valuation and long-term growth prospects.
• The Analog cycle hit Silergy harder than the global leaders (such as TI17), recovery is coming up, but we believe the recovery
might be slower than the drop, and its share in 2025 might still be lower than the 2021 level;
• We anticipate a ~150% EPS CAGR (2023-25) from a low base in 2023; however, the stock has also gone up significantly
from the low point, and we believe the recovery story is already priced in with limited upside potential;
• Silergy has succeeded in the Chinese and global markets by replacing global Analog leaders with their products. However,
we expect going beyond this initial substitution range (we call it 0-1) to pose a more significant challenge, as further share
gain (we call it 1-10) won’t be supported by the growth driver from supply chain resiliency consideration to be slower.
14
A private company, not covered
15
The US BIS' Oct'23 export control regulations on advanced AI chips. See more from: https://www.bis.doc.gov/index.php/
documents/federal-register-notices-1/3353-2023-10-16-advanced-computing-supercomputing-ifr/file
16
NVDA.US, covered by Bernstein analyst Stacy A. Rasgon
17
Texas Instruments, TXN.US, covered by Bernstein analyst Stacy A. Rasgon

VALUATION COMPS TABLE
EXHIBIT Key financials and

Key 4:financials and market consensus
market summary
consensus summary
As of date: Semicap (Equipment) Foundry (Fabrication) Fabless (IC Design)
8-Jan-24
NAURA AMEC Piotech SMIC-H Hua Hong-H Hygon Cambricon Silergy
(002371.CH) (688012.CH) (688072.CH) (981.HK) (1347.HK) (688041.CH) (688256.CH) (6415.TT)
北方华创中微公司拓荆科技中芯国际华虹半导体海光信息寒武纪矽力杰
Bernstein rating OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM MARKET-PERFORM OUTPERFORM OUTPERFORM MARKET-PERFORM
Current price CNY 226.18 CNY 137.73 CNY 206.60 HKD 17.82 HKD 18.22 CNY 68.41 CNY 122.09 TWD 441.00
Bernstein 12-month
CNY 370.00 CNY 200.00 CNY 320.00 HKD 22.00 HKD 20.00 CNY 100.00 CNY 160.00 TWD 460.00
target price
Upside/Downside 64% 45% 55% 23% 10% 46% 31% 4%
Market cap (USD Bn) 16.8 11.9 5.4 27.3 5.3 22.2 7.1 5.5
Enterprise value (USD Bn) 16.2 10.8 5.3 40.7 3.5 21.1 6.9 4.9
Daily liquidity (USD Mn, 3M avg) 172 134 59 106 22 268 219 51
Revenue (Reporting ccy) RMB Mn RMB Mn RMB Mn USD Mn USD Mn RMB Mn RMB Mn TWD Mn
2022A 14,688 4,740 1,706 7,273 2,475 5,125 729 23,511
2023E 21,004 6,328 2,890 6,313 2,271 5,904 842 15,413
2024E 27,419 8,764 4,337 7,482 1,970 9,243 1,875 19,743
2025E 34,879 11,676 5,979 9,364 2,762 12,606 3,232 27,034
2023E-2025E CAGR 29% 36% 44% 22% 10% 46% 96% 32%
2023E vs. consensus 3% 3% 1% 0% -2% -4% -4% -1%

2024E vs. consensus 4% 10% 5% 1% -12% 8% 16% -1%
2025E vs. consensus 6% 14% 10% 7% 1% 12% 20% 5%
Net Income (Reporting ccy) RMB Mn RMB Mn RMB Mn USD Mn USD Mn RMB Mn RMB Mn TWD Mn
2022A 2,353 1,170 369 1,818 450 804 -1,257 6,039
2023E 3,764 1,701 542 904 235 1,202 -791 885
2024E 4,930 2,025 793 847 139 1,907 -620 2,853
2025E 6,400 2,761 1,171 1,283 283 2,486 -106 5,558
2023E-2025E CAGR 30% 27% 47% 19% 10% 44% NA 151%
2023E vs. consensus 4% 8% 7% 2% -4% -1% -8% -4%

2024E vs. consensus 3% 10% 2% 6% -3% 15% -31% 3%
2025E vs. consensus 6% 14% 10% 10% 3% 12% 16% 4%
Target price valuation P/E P/E P/E PBx PBx P/E EV/Sales P/E
2022A 83x 105x 101x 1.2x 0.6x 263x 85x 29x
2023E 52x 73x 111x 1.1x 0.6x 194x 74x 199x
2024E 40x 62x 76x 1.1x 0.7x 122x 34x 62x
2025E 31x 45x 51x 1.1x 0.6x 93x 20x 32x
Consensus rating
Outperform 91% 87% 96% 50% 54% 100% 86% 45%
Market-Perform 9% 10% 4% 33% 29% 0% 14% 25%
Underperform 0% 3% 0% 17% 18% 0% 0% 30%
Source: Bloomberg, Company reports, Bernstein estimates and analysis CHINA SEMICONDUCTORS | 10

Table of Contents
Sector Thesis: Accelerating Domestic Substitution.................................................................................................................................................... 9

The controversy over domestic substitution...........................................................................................................................................................9
Acceleration in share-shift with or without technology breakthrough....................................................................................................... 10
Investment implications for our coverage.............................................................................................................................................................11
Semicap (Semiconductor Capital Equipment)............................................................................................................................................................ 12
China WFE market outlook.........................................................................................................................................................................................12
NAURA: China's largest semicap platform with the broadest portfolio..................................................................................................... 16
AMEC: China's CCP Dry Etch leader with global recognition........................................................................................................................ 20
Piotech: China's WFE rising star specializing in CVD....................................................................................................................................... 24
Foundry (Semiconductor Fabrication)............................................................................................................................................................................29
China foundry market outlook...................................................................................................................................................................................29
SMIC: China's foundry leader in technology and scale.................................................................................................................................... 31
Hua Hong: China's leading specialty IC provider............................................................................................................................................... 35
Fabless (Integrated Circuit Design).................................................................................................................................................................................39
Overview of three industries we cover in fabless.............................................................................................................................................. 39
China x86 server CPU market outlook...................................................................................................................................................................40
Hygon: China’s x86 server CPU leader..................................................................................................................................................................44
China AI Accelerator market outlook......................................................................................................................................................................50
Cambricon: China's leading AI chip substitute....................................................................................................................................................53
China analog market outlook.....................................................................................................................................................................................59
Silergy: China's largest analog supplier.................................................................................................................................................................60
ESG Considerations..............................................................................................................................................................................................................67
ESG scores.......................................................................................................................................................................................................................67
Key ESG topics and materiality matrix................................................................................................................................................................... 68
DETAILS
Our semiconductor colleagues Mark Li (covering Asia ex-China), Stacy Rasgon (covering the US), and Sara Russo (covering
Europe) have published numerous in-depth industry analyses on the global semiconductor market. Here are some reports as a
reference for investors who want to learn more about the global semiconductor industry or study primers:
• Semiconductor Equipment Primer, 2020 Edition
• U.S. Semiconductor Capital Equipment: End of the bullwhip to tip of the spear
• European Semiconductors: They get knocked down, they get up again
• Chinese Semiconductors: Think Global, Expand Local
Our coverage in the China Semiconductors sector will focus on the recent development of the semiconductor industry in the
Chinese mainland (excluding Taiwan, Hong Kong, and Macau).

SECTOR THESIS: ACCELERATING DOMESTIC SUBSTITUTION
THE CONTROVERSY OVER DOMESTIC SUBSTITUTION

We are initiating coverage on China Semiconductors sector in light of the recent controversy surrounding the impact of
geopolitical tensions between China and the US on the industry. As the US and its Western allies continue to impose increasingly
stringent sanctions on China's semiconductor industry, some may think this will stop or slow down the sector's growth, making
China Semis unattractive for investment. We disagree because we think this is an oversimplification. We believe the sanctions
forced China to seek domestic alternatives, creating a significant market potential for domestic companies to grow. This
trend of substituting foreign products with domestic alternatives, called Domestic Substitution, presents a unique investment
opportunity for select Chinese semiconductor companies.
The Domestic Substitution investment thesis has been famous in China's semiconductor industry for several years. Still, the
debate over how each sub-sector/company will benefit from the trend has remained contentious. We believe it is crucial
to analyze sub-sectors individually and ask two critical questions for each: what is the current ratio of self-sufficiency, and
how quickly will it grow in the next three years? Exhibit 5 shows that the answers can be plotted on a Domestic Substitution
Maturity Curve to identify the sub-sectors with the highest investment potential. The Y-axis of the curve represents the share
of domestic suppliers in domestic demand, or the self-sufficiency ratio, while the X-axis illustrates the timeline for sector
Ourdevelopment. Depending on the maturity of each sub-sector, the curve can be divided into three phases: initiation, acceleration,
sector investment thesis: Accelerating Domestic Substitution
and maturation. Investors should prioritize the five industries we identified in the acceleration phase: Dry Etch and Deposition
(Semicap, or Semiconductor Capital Equipment), Advanced Node Fabrication (Foundry, or Semiconductor Fabrication), x86
Server CPU, and AI Accelerators (Fabless, or Integrated Circuit Design). We identify the following companies as leaders in these
industries and thus should benefit from the domestic substitution trend: AMEC, NAURA, Piotech, SMIC, Hygon, and Cambricon.
 Tech maturity and market potential define the position of each sub-sector
 Investors should prioritize the sub-sectors in the acceleration phase of domestic substitution
EXHIBIT 5: Our sector investment thesis: Accelerating Domestic Substitution
Illustration
China Semis Domestic Substitution Maturity S-Curve
Initiation Acceleration Maturation
Matured
Dry Etch Analog Cleaning Node Fab.
Deposition
Semicap
Advanced
Process Node Fab. x86 Server
Litho- PC CPU Foundry
graphy GPU Control
AI Accelerator
Fabless
Source: Bernstein analysis
Note: Illustration only, the scale of X and Y axis could be very different for different sub-sectors
Source: Bernstein analysis CHINA SEMICONDUCTORS | 7

ACCELERATION IN SHARE-SHIFT WITH OR WITHOUT TECHNOLOGY BREAKTHROUGH

Exhibit 6 illustrates three critical drivers for a Chinese semiconductor company's growth: TAM, SAM, and Share-shift. The first
driver is an increase in the Total Addressable Market (TAM), driven by growing demand from clients in the mainland. The second
driver is the expansion of the Serviceable Addressable Market (SAM), as the company continues to innovate and introduce
new products, increasing the share of SAM within TAM. The third driver, currently the most important for the China Semis
sector, is the shift in market share from global players to local players, even without technological breakthroughs. This may
seem counterintuitive, as smaller companies usually rely on product innovation (superior performance or lower pricing) to gain
market share in semiconductors. However, in sub-sectors within the acceleration phase in China, such as semicap, where US
The unique
sanctions acceleration
have a direct driver:
impact, local suppliers Share-shift
can gain significant from
market share due to global to local
domestic substitution. Under the threat
of additional sanctions, local customers prioritize supporting local suppliers, allowing them to gain market share quickly, even
without new product launches. This market presents an attractive investment opportunity for those who can identify the timing
of the shift early, as it has unique dynamics compared to other sectors, and the substitution speed may surprise most investors.
 Local customers prioritize supporting local suppliers, allowing them to gain market share quickly even without
EXHIBIT
new 6: The unique
product acceleration driver: Share-shift from global to local
launches
Market Sizing & Growth Drivers Illustration 110 Illustration

100 1.1X Driver 1: TAM
TAM * 1.1, driven by
Total Addressable Market (TAM): China demand growth
Overall demand in China
SAM:60% Driver 2: SAM
1.5X SAM * 1.5, driven by
TAM SAM:40%
new product launch
Serviceable
Addressable
Market (SAM): Driver 3: Share-shift
SAM The portion of 30% Share shift from global
TAM companies’ 10% players to local players
commercialized 2023 2026
Share product covers
TAM SAM Share-shift

1.1x X 1.5x X 2.0x
Domestic Share:
Share of domestic suppliers in TAM =
Company Growth 3.3x
Source: Bernstein analysis and estimates CHINA SEMICONDUCTORS | 8

Numbers in this example are illustration only
Source: Bernstein analysis

INVESTMENT IMPLICATIONS FOR OUR COVERAGE

By analyzing the maturity of domestic substitution for each sub-sector and the three key growth drivers for each company,
we determine the valuations of the companies covered. We have summarized our analysis in Exhibit 7, and our ratings are as
follows: AMEC, NAURA, Piotech, SMIC, Hygon, and Cambricon are rated as Outperform, Hua Hong and Silergy are rated as
Market-Perform. The valuation process can be broken down into two steps. First, we determine whether the sub-sector is in
the initiation, acceleration, or maturation phase by assessing its self-sufficiency ratio. For the sub-sector experiencing domestic
substitution acceleration, Chinese companies should have made technological breakthroughs to produce commercially
available products, leading to a large SAM. Yet, if the current share is still tiny, it creates ample headroom for growth. As
customer adoption increases, companies in the sub-sector can quickly gain more market share. Second, we evaluate the
company's three key growth drivers: TAM growth, SAM expansion, and share gain from global competitors. Beyond domestic
substitution, if the industry is experiencing a surge in demand that leads to TAM growth or new technological innovation that
leads to SAM expansion, it is likely to achieve even higher growth rates. Supported by all these growth drivers, we derive
the Revenue and EPS CAGR as the foundation for the stock valuation. More details of the analysis will be discussed in the
subsequent few sessions.
EXHIBIT
Linking7: Linking sector thesis
sector thesisto company valuation: rationale
to company for our rating
valuation: rationale for our rating
Domestic Substitition Growth Drivers Implication
Substitution 2021-2023E 2023E-2025E SAM Substitution 2023E-2025E 2023E-2025E
Sub-Sector Company Rating Stage Share Gain Share Gain TAM Growth Expansion Share Shift Rev. CAGR EPS CAGR
NAURA
12%=>18% 18%=>30%
(002371.CH) O Acceleration
+7% +12%
29% 30%
北方华创
AMEC
10%=>16% 16%=>30%
Semicap (688012.CH) O Acceleration
+6% +14%
36% 27%
中微公司
Piotech
3%=>8% 8%=>15%
+5% +7%
44% 47%
拓荆科技
SMIC-H
14%=>18% 18%=>20%
(981.HK) O Acceleration
+5% +2%
22% 15%
中芯国际
Foundry
Hua Hong-H
5%=>7% 7%=>7%
(1347.HK) M Maturation
+2% 0%
10% 5%
华虹半导体
Hygon
4%=>11% 11%=>19%
+7% +9%
46% 44%
海光信息
Cambricon
4%=>1% 1%=>7%
Fabless (688256.CH) O Acceleration
-3% +6%
96% NA
寒武纪
Silergy
1.9%=>1.1% 1.1%=>1.6%
(6415.TT) M Maturation
-0.8% +0.5%
32% 151%
矽力杰
Primary driver Secondary driver
Note: Share gain only calculates the most critical sub-sector for each company
CHINA SEMICONDUCTORS | 9
Share gain only calculates
Source: the mostSEMI,
Gartner, critical sub-sector
Mercury, forreports,
Company each company
Bernstein estimates and analysis
Source: Gartner, SEMI, Mercury, Company reports, Bernstein estimates and analysis

SEMICAP (SEMICONDUCTOR CAPITAL EQUIPMENT)
CHINA WFE MARKET OUTLOOK
TAM and Domestic Share

WFE (wafer fabrication equipment) refers to the machinery and tools used in the manufacturing process of integrated circuits.
WFE is a subset of Semicap (semiconductor capital equipment) that specifically relates to the machines and tools used in the
manufacturing process of semiconductor wafers, i.e., Front End of chip manufacturing (including part of advanced packaging
where the equipment is also used to process wafers). In contrast, Semicap or semiconductor capital equipment refers to the
broader category of equipment used in the semiconductor industry, including WFE, assembly and packaging equipment, and
testing equipment. Usually, WFE is used to process wafers in an automated wafer fabrication facility. According to Gartner, to be
included in this category, all systems must be capable of accepting wafers in a standard front-opening unified pod (FOUP) for
300-millimeter (mm) wafers, or a standard cassette for 200 mm and smaller wafers.
As the fabrication of smaller and smaller transistors requires WFE that has higher and higher precision, only a few industry
leaders can afford the high R&D cost, making it very challenging for smaller players to get into the game. It’s also important for
WFE suppliers to work with the fabs and co-develop the equipment when they move on to the next-generation nodes; the lack
of opportunity to participate makes it harder for smaller players to accumulate on-the-ground experience that is necessary to
improve their technical capability. Lack of sufficient scale and technology accumulation can make fabs hesitant to work with
smaller players, as they may have concerns about their survival that is needed for long-term equipment maintenance. Together,
all these factors lead to a vicious cycle that hinders the growth of small players.
As the complexity and importance of WFE for manufacturing advanced semiconductor chips grows, China's technology gap
in this field also widens. As a result, China has to rely fully on imported WFE to develop its semiconductor manufacturing
capability. This makes WFE an ideal target for the US semiconductor sanctions. The first WFE sanction imposed by the US on
China in 2019 limited the import of extreme ultraviolet (EUV) lithography equipment to China, aimed at preventing China from
producing state-of-the-art chips and slowing the development of the Chinese semiconductor industry. It was effective - the ban
on importing EUV lithography equipment has hindered China's progress to the most advanced nodes.
However, on the other hand, the sanctions have also accelerated domestic substitution in segments where local suppliers can
produce competitive products in matured nodes, such as the Deposition and Dry Etch equipment, benefiting local leaders
such as NAURA, AMEC, and Piotech. The logic behind the situation is simple. If the local fabs cannot ensure the import of
the WFE from top global suppliers, which are all from the US or its allies, then they have to change their strategy to support
local suppliers. We believe the shift in domestic fabs’ attitude towards domestic suppliers is crucial. Before the sanction, the
domestic WFE suppliers were only treated as “backups” by fabs. They would allow the WFE suppliers to test their equipment
in fabs, but not more than that. After the sanctions, domestic WFE suppliers are the only options, and supporting them is the
most critical strategic action. Fabs started to invest significant time and resources to verify all kinds of domestic equipment,
benefiting the leaders in each equipment type. The performance of domestic equipment (such as yield, stability, uptime, etc.)
starts to improve quickly, catching up with global leaders in matured and, in the future, advanced nodes. The financial market
has recognized the potential for domestic WFE players, and as a result, they are investing significant amounts of funds into the
industry, creating numerous startups and new IPOs in the segment. The fabs are no longer concerned about these startups'
sustainability as they know sufficient funds will support them until their technology improves. Therefore, they are becoming
more open to working with smaller players. All these positive factors create a golden age for the domestic WFE suppliers to
grow.
As illustrated in Exhibit 6, there are three drivers for domestic semicap suppliers to grow; the domestic substitution factor
discussed above is the key rationale behind driver 3, which leads to the fast share gain from domestic suppliers. Next, we
believe it is essential to understand the outlook for WFE TAM growth (drive 1) in China first. Exhibit 8 summarizes our China WFE
demand and supply analysis.
We anticipate robust growth in China's WFE demand in 2023, with a year-on-year increase of 31%, despite a global WFE
demand downturn. This growth will be driven by local foundries' apprehension of facing further sanctions and their need
to stockpile when global suppliers are able to ship their products to China. This demand surge occurred when geopolitical

tensions temporarily eased, causing a significant increase in WFE imports to China from global leaders such as ASML18, Applied
Materials19, TEL20, etc. We expect the China WFE TAM to increase slightly at a CAGR of 3% from 2023 to 2026, while the global
WFE TAM will recover from the dip. The slower growth in China over the next three years is due to an abnormally high 2023
base caused by stockpiling. In 2024, although DUV import to China will be smaller due to the sanctions, we expect total demand
in China to remain flat, as fabs will need to purchase other equipment to build the production lines using the DUV lithography
equipment imported in 2023. Beyond 2024, likely the demand would be weaker, as the matured node is already overcapacity
while further sanctions could still impact the import of advanced node equipment.
However, we expect that the growth of domestic suppliers in China will still be strong. Domestic suppliers have been growing
faster than global players in recent years, with a CAGR of 62% during 2017-22, compared to 30% for global suppliers.
According to our bottom-up analysis, China's local suppliers are expected to grow by 50% in 2023, compared to 28% for global
suppliers. We expect this trend to continue, with China's domestic WFE suppliers projected to grow at a 33% CAGR from 2023
to 2026 as more domestic equipment is verified in fabs, while global players would experience a 3% decline due to tighter
restrictions. Thus we predict the share gain for local players in 2023-26 to accelerate. We project China's WFE self-sufficiency
to more than double from 14% in 2023 to 29% by 2026.
There are three key drivers for domestic semicap suppliers to maintain high growth for the next three years:
• Local customers will continue to push for supply chain resiliency by co-development with local WFE suppliers, especially for
advanced node WFE that is already banned by the US;
•Many matured node domestic equipment have been optimized to have a limited performance gap compared to global
leaders, according toof
Acceleration our channel
Wafer checks
Fab withEquipment
fabs. Previously the (WFE)
local WFE’sdomestic
customers were mainly large fabs; as the
substitution
performance gap is eliminated, the adoption in smaller fabs will also rise in the next few years;
will continue, doubling the domestic share to 29% in 2026
• Government subsidies incentivize fabs to adopt an increasingly higher localization ratio. For example, Nexchip21 explained
 that the government
Local guidance
fabs push for is 50%
supply chainshare for local by
resiliency equipment in 120nm orwith
co-development olderlocal
nodes & 25%
WFE in 40 & 28nm nodes.
suppliers
 Many matured node domestic equipment has been optimized with fabs with a limited performance gap
EXHIBIT 8: Acceleration
 Government of Wafer
subsidies Fab Equipment
incentivize (WFE) an
fabs to adopt domestic substitution
increasingly higherwill continue,ratio
localization doubling the domestic
share to 29% in 2026
China Wafer Fab Equipment (WFE) TAM and Domestic Share
USD bn
+3%
+31%
38 China ’17-’22 ’22-’23 ’23-’26
+32% 36
34 34 TAM CAGR YoY CAGR
26 26 Global
supplier 30% 28% -3%
share
17
14
12
7 Domestic
25% 29% supplier
20% 62% 50% 33%
4% 3% 4% 6% 7% 12% 14% share
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E
Source: Gartner, SEMI, Company reports, Bernstein estimates and analysis
Source: Gartner, SEMI, Company reports, Bernstein estimates and analysis CHINA SEMICONDUCTORS | 13
18
Originally standing for Advanced Semiconductor Materials Lithography, ASM.US, covered by Bernstein analyst Sara Russo
19
AMAT.US, covered by Bernstein analyst Stacy A. Rasgon
20
Tokyo Electron Limited, 8035.JP, covered by Bernstein analyst Mark Li
21
Nexchip Semiconductor Corporation, not covered

SAM Sizing
The analysis of SAM for China’s semicap suppliers, i.e. the driver 2 illustrated in Exhibit 6, is also essential to determine the
headroom for domestic players to grow. Due to differences in technological maturity of domestic companies, each WFE
sub-sector has a varying level of self-sufficiency; we summarize our analysis in Exhibit 9. We would like to highlight two WFE
segments in the exhibit: Dry Etch and Deposition. Together, These two segments comprise 43% of the TAM for WFE and have
the most significant SAM for local players to grow. This is because domestic WFE suppliers have been investing in this field
for over 20 years, and have already achieved high levels of technological maturity. Despite this, the current market share is still
relatively
TotallowSAM due to barriers
will growto customer adoption.
from 46% Givento
the59%,
current self-sufficiency
Deposition ratio ofand
14%/17%
Dryvs.EtchSAM of 53%/63%
have
in Deposition / Dry Etch, we expect companies leading in these two sectors to have ample room for growth. We expect the
theSAM
overall largest headroom
of the China within
WFE market to increase fromSAM for growth
46% in 2023 to 59% in 2026, supporting our domestic market share
projection.
 Domestic suppliers still pushing for product innovation that will expand the SAM share by 1.3X by 2026
EXHIBIT 9: Total SAM will grow from 46% to 59%, Deposition and Dry Etch have the largest headroom within SAM
for growth
China WFE SAM by Equipment Type, 2023E SAM growth
Share of WFE total 2% 3%
22% 21% 18% 13% 6% 3% 4% 7% 100% 100%
82% 82%
73%
63%
59%
53% 53% 1.3x
46%
44% 43%
33%
41%37% 40%
10% 29%
14% 17% 6% 13% 9% 10% 14%
0% 4%
2023E 2026E
CMP
processing
Others
Cleaning
Photoresist
Deposition Dry Etch Lithography Process
Doping
Total Total
Control
TAM SAM Domestic Share
Processes
Thermal
SAM share
Source: Gartner, SEMI, company reports, Bernstein estimates and analysis

Source: Gartner, SEMI, company reports, Bernstein estimates and analysis CHINA SEMICONDUCTORS | 14

Competitive Landscape
Our coverage in China’s WFE industry, NAURA, AMEC, and Piotech are the dominant Dry Etch and Deposition leaders, as
illustrated in Exhibit 10. Although the competitive dynamics suggest a duopoly market in both segments, a further deep dive
suggests limited competition among the three companies. In the deposition segment, NAURA specializes in PVD while Piotech
specializes in CVD. In the Dry Etch segment, AMEC dominates in CCP-RIE, while NAURA is stronger in ICP-RIE. The glossary
of techniques can be found in Exhibit 38. As there is plenty of room to take share from global suppliers or whitespace in other
equipment
NAURA, types, head-to-head
AMEC, competition
and Piotechamong thearethreethe
should be limited inin
leaders the Deposition
next few years. As the
andself-sufficiency
Dry of
Deposition and Dry Etch is in the acceleration phase (10-20%), we can expect these players to continue investing in technology
Etch, benefiting the most from domestic substitution acceleration
innovation to accelerate their market share gains and enjoy high growth in the next few years.
EXHIBIT DryNAURA,
 10: Etch andAMEC, and Piotech
Deposition are largest
are the two the leaders in Deposition
segments and Dry
with 43% TAM, bothEtch,
in thebenefiting thephase
acceleration most from
domestic substitution
 NAURA acceleration
is a well-round player while AMEC leads in Dry Etch. Piotech is a rising star in deposition
Process Thermal Photoresist

2023 Deposition Dry Etch Lithography Cleaning Doping CMP
Control Processes Processing
% of China WFE TAM 22% 21% 18% 13% 6% 3% 2% 3% 4%
China TAM (USD mn) 7,587 7,257 6,219 4,646 2,235 1,018 821 1,007 1,277
Domestic supply (USD mn) 1,082 1,198 26 189 913 373 104 401 116
% Self-sufficiency 14% 17% 0.4% 4.1% 41% 37% 13% 40% 9%
Share of domestic supplier in China WFE supply, 2023E, USD mn

AMEC 中微公司 (688012.CH) NAURA
NAURA 北方华创 (002371.CH) 16%
Piotech 拓荆科技 (688072.CH) NAURA AMEC Kingstone
Skyverse 41%
ACMR 盛美半导体 (688082.CH) 52% 49%
50% NAURA
(573) (586) ACMR
Mattson 屹唐半导体 (Private) 67%
Kingsemi
38% Hwatsing
Hwatsing 华海清科 (688120.CH) 74%
81%
SMEE
Kingsemi 芯源微 (688037.CH)
100%
PNC 至纯科技 (603690.CH)
NAURA Mattson
Skyverse 中科飞测 (688361.CH) Piotech 22% CETC
37% 42% 55%
Kingstone 凯世通 (600641.CH) (501) Kingsemi Mattson
(409)
SMEE 上海微电子 (Private) 6% 24%
CETC 烁科中科信 (Private) ACMR Mattson PNC 12%
Other suppliers 8% 4%
Notes: 1) Market share is calculated with each company’s forecasted WFE revenue excluding services and parts
2) AMEC, NAURA and Piotech are covered by Bernstein; all other companies are not covered
Market share is calculated with each company’s forecasted WFE revenue excluding services and parts

NAURA: CHINA'S LARGEST SEMICAP PLATFORM WITH THE BROADEST PORTFOLIO
Investment Thesis
NAURA is the largest semicap company in China, founded in 2001, with business covering a wide range of types of equipment,
including WFE, LED/OLED equipment, photovoltaic equipment, SiC crystal growth equipment, flat panel display equipment,
high precision electronic components, etc. WFE represents about half of NAURA’s total revenue and has been the primary driver
for NAURA’s revenue and gross profit growth for the past few years. Within WFE, NAURA has equipment covering Deposition,
Dry Etch, Cleaning, and Thermal Processes. We rate NAURA Outperform.
We compare NAURA as China's Applied Materials, with a broad product portfolio and a strong focus on "zero to one" equipment
innovation. Three highlights for NAURA as illustrated in Exhibit 11:
• We expect NAURA to benefit from the WFE domestic substitution trend and gain an 12% share in PVD and ICP-RIE during
2023-25, accelerating from 7% during 2021-23. We expect its domestic substitution share shift to be its primary revenue
driver for Deposition and Dry Etch, in total allowing NAURA to grow by 1.7x during 2023-25;
• NAURA’s diversified product portfolio in WFE and other equipment allows it to capture a large TAM. For WFE, NAURA covers
Deposition, Dry Etch, Cleaning, and Thermal Processes, with a total TAM of USD 18bn in 2023E;
Outperform
• NAURA: Most
Despite its large comparable
size, NAURA to expenditure
has the highest R&D AppliedandMaterials
R&D ratio, whichwith theis essential
we believe broadest for NAURA to
continue expanding its portfolio due to "zero to one" equipment innovation. In 2022, NAURA’s R&D ratio reached 24% with
portfolio, leading R&D investment for 0=>1 equipment innovation
RMB 3.6bn R&D expenditure, leading among Chinese peers.
EXHIBIT 11: NAURA investment thesis
#1 PVD & ICP subs. beneficiary #2 Wide portfolio & large TAM #3 Leading R&D investment
Accelerated share gain in PVD Diverse portfolio in semi and Largest R&D with the highest
(Deposition) & ICP (Dry Etch) electronics with larger TAM ratio, leads 0=>1 innovation
NAURA PVD+ICP share in China NAURA’s product portfolio Domestic semicap R&D
WFE sub
comparison (2022)
+12% Tech
Equip. type
segment maturity
+7% 30% PVD 24%
5,000 22% 25
18% PECVD
Deposition LPCVD 20%
R&D Expenditure (RMB mn)
12%
(TAM: $7.5Bn) SACVD 4,000 20
3,566
ALD
R&D Ratio (%)

2021 2023E 2025E Epitaxy 3,000 15
Dry Etch ICP-RIE
(TAM: $7.2Bn) CCP-RIE
Rev. growth drivers, '25E over '23E Cleaning 2,000 10
Other WFE Thermal
TAM SAM Ratio Share shift
(TAM: $3.3Bn) Processes 929
1,000 5
1.1x X 1.1x X 1.5x Electronic components, 379
Non WFE biz equipment for Solar, LED,
= Panel etc. 0 0
NAURA AMEC Piotech
1.7x
TAM: Total Addressable Market in 2023E R&D Spending R&D Ratio (RHS)
Main Driver: domestic substitution share shift Mass production:
Under verification:
Notes: 1) For portfolio breadth, only major WFE products are listed; 2) Glossary of equipment type can be found in appendix;
3) Rev. in #1 refers to PVD+ICP Rev. CHINA SEMICONDUCTORS | 16
For portfolio breadth, only major
Source: Gartner,WFE products
Bloomberg, are listed;
Company Revenue
reports, in #1
Bernstein refersand
estimates to Naura's
analysis PVD+ICP revenue estimated by Bernstein
Source: Gartner, Bloomberg, Company reports, Bernstein estimates and analysis

Financial Performance and Projection

A visual illustration of NAURA’s income statement using the Sankey Diagram can be found in Exhibit 12.
NAURA's financial performance and projection are illustrated in Exhibit 13, Exhibit 14, Exhibit 15, Exhibit 16:
• Revenue: While its exposure to non-WFE business will slightly drag down the overall growth, we expect NAURA to have a
share gain in the WFE segment and have more WFE revenue contribution going forward. Overall We expect the company to
grow at a lower rate than the WFE industry, mainly due to non-WFE businesses. However, we forecast it can still achieve a
CAGR of approximately 30% during 2023-2025.,
• Gross profit and gross profit margin: The current GPM of NAURA is comparable to other international companies, and we
anticipate that maintaining the current pricing strategy would be sufficient to retain existing customers and attract new ones.
Therefore, we can expect the GPM to remain stable in the future.
• Operating profit and operating profit margin: We have modeled a stable SG&A ratio, implying that SG&A expenses
will increase proportionally with the revenue. Despite the potential of increased margins due to operating leverage as the
company scales up, we have reflected the anticipated expense increase related to exploring new products. Additionally, we
NAURA income statement illustrated in Sankey Diagram
expect NAURA to continue investing in R&D and maintain the R&D ratio at ~10% marginally. Overall, we expect NAURA to
have an OP margin increase in 2023 due to SG&A savings achieved in 1H23 and maintain a steady OP margin thereafter.
• EPS: With a relatively stable margin, our forecasted EPS growth trend is broadly aligned with the revenue growth trend.
EXHIBIT 12: NAURA income statement illustrated in a Sankey Diagram
NAURA 2022 Income Statement Illustration, % of Total Revenue

2022 Revenue: RMB 14.7 bn
*The revenue breakdown is estimated, not official disclosure
Notes: The Sankey diagram is produced with RAWGraphs

The Sankey diagram is produced with RAWGraphs
Source: Company reports, Bernstein estimates and analysis CHINA SEMICONDUCTORS | 18
Source: Company reports, Bernstein estimates and analysis

EXHIBIT 13: We expect NAURA to grow at a similar rate as EXHIBIT 14: We can expect NAURA’s GPM to remain
the industry stable in the future
Revenue and YoY growth Gross profit and GPM

45 42.5 70% 20 18.7 50%
44% 43% 44% 44%
60% 18 45%
40 41% 39%
34.9 60% 15.3 44%
52% 16 37% 40%
35
50% 14 35%
43% 27.4
RMB bn
30 49% 12.0
12 30%
25 40%
21.0 31% 10 9.0 25%
RMB bn
20 27%
30% 8 20%
22% 14.7 22% 6.4
15 6 15%
9.7 20% 3.8
10 4 10%
6.1 2.2
4.1 10% 1.6
5 2 5%
- 0%
0 0%
Gross Profit Gross profit margin

Revenue YoY growth
Source: Company reports, Bernstein analysis and estimates Source: Company reports, Bernstein analysis and estimates
EXHIBIT 15: We expect NAURA to have an OP margin EXHIBIT 16: Our forecasted EPS growth trend is broadly
increase in 2023 and maintain a steady margin aligned with the revenue growth trend
thereafter
EPS and YoY growth
Operating profit and OPM
12 23% 23% 25% 16.0 14.84 120%
22% 22% 108%
20% 9.7 14.0 96%

10 100%
20% 12.08
7.9 12.0
8 80%
RMB bn
15% 10.0 9.31

13% 6.1 63%
59%
11%
RMB
6 10% 8.0 7.11 60%

4.6
10%
4 6.0
2.9 31% 4.46 31% 40%
4.0 23%
5%
2 1.2 2.15
0.7 30% 20%
0.4 2.0 1.09
0.67
0 0%
0.0 0%
Operating profit Operating profits margin

Basic earnings per share EPS YoY growth
Source: Company reports, Bernstein analysis and estimates


Valuation
NAURA’s 1-year forward P/E is trading at 25x, even lower than the one standard deviation (S.D.) below the recent 2-year
average (Exhibit 18). We think the company has been misprised recently.
Our model compared to consensus is summarized in Exhibit 19:
• We value NAURA at a moderate 30x NTM+1 P/E to reflect 30% EPS CAGR in 2023-25 with 1.0x PEG. The PEG and P/E
multiple we adopted is lower than its peers (AMEC and Piotech), reflecting the discount for SOE and the lack of transparency
in disclosure;
• Our top-line and bottom-line forecasts generally align with the consensus. We are slightly more optimistic about its ability to
achieve operating leverage when scaling up.
EXHIBIT 17: NAURA outperformed EXHIBIT 18: NAURA is trading lower

market in last year than one standard deviation (S.D.)
140
below the recent 2-year average
130
1Y Forward P/E of NAURA
120
140x
110
120x
Rebased to 100
100
100x
90
85 80x
80 82 80x
57x
70 60x
60 40x
33x 25x
50 20x
Feb-22
Aug-22
Nov-22
Feb-23
Aug-23
Nov-23
May-22
May-23
0x
1Y Forward P/E Average

NAURA MXAPJ Index
Average + 1S.D. Average - 1S.D.
Source: Bloomberg, Bernstein analysis

EXHIBIT 19: NAURA: Company model forecast vs. Consensus

Revenue (CNY mn) 2022 2023E 2024E 2025E
Bernstein 14,688 21,004 27,419 34,879
Growth YoY 52% 43% 31% 27%
Consensus 14,688 20,415 26,486 33,005
Growth YoY 52% 39% 30% 25%
Bernstein vs. consensus 3% 4% 6%
Gross profit
Bernstein 6,438 8,982 11,983 15,301
GP Margin 44% 43% 44% 44%
Consensus 6,438 8,709 11,401 14,255
GP Margin 44% 43% 43% 43%
Bernstein vs. consensus 10bps 66bps 68bps
Operating profit
Bernstein 2,867 4,586 6,067 7,876
OP Margin 20% 22% 22% 23%
Consensus 2,867 4,081 5,439 6,970
OP Margin 20% 20% 21% 21%
Net income attributable to shareholders
Bernstein 2,353 3,764 4,930 6,400
Growth YoY 118% 60% 31% 30%
Consensus 2,353 3,624 4,795 6,017
Growth YoY 118% 54% 32% 25%
Source: Bloomberg, Bernstein analysis and estimates

AMEC: CHINA'S CCP DRY ETCH LEADER WITH GLOBAL RECOGNITION
Investment Thesis
AMEC was founded in 2004 by WFE veteran Dr. Gerald (Zhiyao) Yin at 60. AMEC is broadly recognized as the WFE supplier with
the best technology capability in China, thanks to its 20 years of dedication to developing high-quality WFE independently. Their
primary WFE product is CCP22 Dry Etch equipment, but they also develop and sell MOCVD23 equipment for LED. We rate AMEC
Outperform.
We see AMEC as China’s Lam Research, the dominant CCP Dry Etch equipment supplier gaining market share with its globally
recognized technology and services. Three highlights for AMEC as illustrated in Exhibit 20:
• We expect AMEC to benefit from the CCP Dry Etch domestic substitution, gaining a 14% share in the CCP sector between
2023 and 2025, accelerating from 6% during 2021 to 2023. The company's strong market position and innovative
technology will accelerate this growth. We expect domestic substitution to drive its WFE revenue growth by 2.0x from
2023-25.
• AMEC is among the most internationally recognized players in China's WFE market. International advanced fabs, including
TSMC, have verified AMEC's CCP technology; specifically, it has been used in TSMC's 5nm advanced logic line. AMEC has
also received high customer satisfaction ratings, which is a testament to its quality and reliability.
Outperform
• AMEC:
AMEC's GPMMost
/OPM has increased over the past
comparable to few
LamyearsResearch,
and is comparabledominant
to global leaders.CCP
This growth
Dry is primarily
Etch
driven by product innovation in advanced nodes and the shift of revenue share from LED equipment to Wafer Fabrication
supplier gaining share with globally recognized tech and service
Equipment. As a result, AMEC has continued fueling R&D spending, supporting sustainable long-term growth.
EXHIBIT 20: AMEC investment thesis
#1 CCP substitution beneficiary #2 Globally recognized tech #3 Highly profitable

Leader in CCP (Dry Etch), Products sold to TSMC 5nm Increasing GPM/OPM% on
accelerated share gain fabs with high satisfaction par with global leaders
AMEC CCP share in China AMEC CCP installed in int’l AMEC’s GPM/OPM vs. peers
advanced node fabs
+14%
GPM%
+6% 50
30%
>550 45
16%
10% >230 40
35
Total CCP For >5nm node For <=5nm
2021 2023E 2025E installed node 0
2019 2020 2021 2022
OPM%
WFE Rev. growth drivers, '25E over '23E AMEC earned high recognition in 40
TAM SAM Ratio Share shift customer satisfaction survey
20
1.1x X 1.1x X 1.7x
= 0
2019 2020 2021 2022
2.0x -20
NAURA Piotech
Main Driver: domestic substitution share shift
AMEC Global Top 5 Avg.
Note: Global Top 5 WFE companies include TEL, AMAT, LAM, ASML, KLA; Rev in #1 refers to AMEC’s CCP Rev
Source: Gartner, Bloomberg, AMEC 1H23 earnings presentation, Bernstein estimates and analysis CHINA SEMICONDUCTORS | 20
Global Top 5 WFE companies include TEL, AMAT, LAM, ASML, KLA; Rev in #1 refers to AMEC’s CCP Rev
Source: Gartner, Bloomberg, AMEC 1H23 earnings presentation, Bernstein estimates and analysis
22
Capacitively Coupled Plasma
23
Metal-organic Chemical Vapor Deposition


A visual illustration of AMEC’s income statement using the Sankey Diagram can be found in Exhibit 21.
AMEC’s financial performance and projection are illustrated in Exhibit 22, Exhibit 23, Exhibit 24, Exhibit 25:
• Revenue: We expect that AMEC's Dry Etch business will continue to experience significant growth over the next 3-5 years.
However, due to low visibility in MOCVD (which is used in LED), the overall growth rate may be slightly affected. Despite this,
we expect the revenue contribution of Dry Etch to increase from approximately 70% in 2023 to about 80% in 2026. We
estimate its overall growth rate to be on par with the industry.
• Gross profit and gross profit margin: The current GPM of AMEC is comparable to other international companies. Since the
company has moved beyond the stage of offering discounts to attract new customers, we anticipate that GPM will remain
steady in the future.
• Operating profit and operating profit margin: We expect the SG&A ratio to remain stable as accounted for anticipated
expense increases related to exploring new products. As AMEC scales up, we also modeled a slight decrease in the R&D
ratio, while the absolute value of such spending continues to grow rapidly.
AMEC income statement illustrated in Sankey Diagram
• EPS: With a relatively stable margin, our forecasted EPS growth trend is broadly aligned with the trend of revenue growth
trend. Note that 2023 EPS is boosted by a one-off investment gain, which created a high base for 2024.
EXHIBIT 21: AMEC income statement illustrated in a Sankey Diagram
AMEC 2022 Income Statement Illustration, % of Total Revenue


The Sankey diagram is Source:
produced with RAWGraphs
Company reports, Bernstein analysis
Source: Company reports, Bernstein analysis

EXHIBIT 22: We forecast AMEC to experience suistained EXHIBIT 23: We expect AMEC’s GPM to remain stable
high growth in 2023-26, mainly driven by CCP business
Gross profit and gross profit
Revenue and YoY growth margin
16 15.1 60% 47% 47%
52% 8 46% 47% 47% 50%
43% 7.0
14 7 45%
50% 38%
11.7 35% 40%
12 6
RMB bn
38% 5.4
37% 40% 35%
RMB bn
10 34% 5
8.8 30%
3.9
8 30% 4 25%
6.3 33%
29% 2.9
6 19% 3 20%
4.7 20% 2.2
15%
4 17% 3.1 2 1.3
10%
1.9 2.3 10% 0.7 0.9
2 1 5%
0 0% - 0%
Revenue YoY growth Gross Profit Gross Profit Margin
Source: Company report, Bernstein estimate and analysis Source: Company report, Bernstein estimate and analysis
EXHIBIT 24: We expect AMEC’s OPM to improve in 2023 EXHIBIT 25: We forecast AMEC’s EPS to grow at 26%
due to one-off investment gain, then return to normal CAGR in 2023-25
and remain stable
EPS and YoY growth
Operating Profit and margin
6 149% 5.65 160%
5 36% 40%
3.9 140%
4 35% 5
4.40
30% 120%
4 30%
27% 26% 3.0 26% 4 91%
RMB bn
3 23% 85% 100%

25% 3.23
27%
RMB
3 2.2 3 2.74 80%

1.9 20%
2
60%
2 10% 1.3
15%
2 1.76 1.90 44%
1.1 36%
1 10% 28% 40%
0.5 0.92 18%
5% 1
1 0.2 0.37 8% 20%
0 0%
0 0%
Basic earnings per share EPS YoY growth

Source: Company report, Bernstein estimate and analysis

Valuation
AMEC’s 1-year forward P/E is trading at 46x, around its one standard deviation (S.D.) below the recent 2-year average (Exhibit
27).
Our model compared to consensus is summarized in Exhibit 28:
• We value AMEC at a 45x NTM+1 P/E to reflect 27% EPS CAGR in 2023-25 with 1.7x PEG. We believe that AEMC's
transparent disclosure, international recognition, solid technology foundation, and Western-style governance justify a
premium to its Chinese peers.
• Our topline and bottom-line forecasts are slightly above the consensus. We are more bullish on the demand from advanced
logic and NAND in 2024-25 and the company’s capability to increase market share.
EXHIBIT 26: AMEC has outperformed EXHIBIT 27: AMEC is trading at one
market in recent two years and the standard deviation (S.D.) below the
gap is wide in recent one year recent 2-year average
170 1Y Forward P/E of AMEC

120x
150
100x
130
Rebased to 100
80x 73x
110 60x
109 60x
46x
90 82 40x 48x
70 20x
50 0x
Feb-22
May-22
May-23
Aug-22
Feb-23
Aug-23
Nov-22
Nov-23
1Y Forward P/E Average

AMEC MSCI ex Japan

EXHIBIT 28: AMEC: Company model forecast vs. consensus

Bernstein 4,740 6,328 8,764 11,676
Growth YoY 52% 34% 38% 33%
Consensus 4,740 6,135 7,933 10,201
Growth YoY 52% 29% 29% 29%
Gross profit
Bernstein 2,168 2,953 4,131 5,523
GP Margin 45.7% 46.7% 47.1% 47.3%
Consensus 2,168 2,807 3,640 4,711
GP Margin 45.7% 45.7% 45.9% 46.2%
Operating profit
Bernstein 1,263 1,911 2,273 3,099
OP Margin 27% 30% 26% 27%
Consensus 1,263 1,709 1,935 2,578
OP Margin 27% 28% 24% 25%
Bernstein 1,170 1,701 2,025 2,761
Growth YoY 16% 45% 19% 36%
Consensus 1,170 1,577 1,848 2,416
Growth YoY 16% 35% 17% 31%
Source: Bloomberg, company reports, Bernstein analysis and estimates

PIOTECH: CHINA'S WFE RISING STAR SPECIALIZING IN CVD
Investment Thesis
Piotech, Inc. is a high-tech enterprise founded in 2010 based in Shenyang, China, and became a publicly traded company in
April 2022. The company focuses on semiconductor thin film deposition equipment, and its three main product lines include
PECVD, ALD, SACVD. Piotech has been developing PECVD equipment, the company's core product (~90% revenue share),
since its establishment. After over ten years of research, development, and industrialization experience, the company has
achieved domestic market share leadership through full coverage of PECVD equipment types. Based on this, the company has
gradually expanded its thin film deposition equipment to SACVD, ALD, HDPCVD, and other equipment fields, further enriching
its product portfolio. In addition, the company is focused on the trend of 3D chip integration and has developed equipment for
wafer-to-wafer hybrid bonding.
Piotech is China's rising WFF star specializing in CVD with proven product innovation capability. Three highlights for Piotech as
illustrated in Exhibit 29:
• Piotech is a rising star in Chemical Vapor Deposition (CVD), particularly the PECVD. We anticipate the company will gain
a 7% share in the CVD sector between 2023 and 25, accelerating from the 5% share gain during 2021 to 23, benefiting
most from domestic substitution as the leader in CVD.
• Piotech's core members are WFE veterans from global leaders, which lays a solid technology foundation for product
development. The company has a solid international team with advanced R&D expertise and high-tech management
experience in the semicap industry. All core tech members have graduated aboard and have relevant working experiences in
international semiconductor companies, including Novellus, Lam, Mattson, Applied Materials, etc.
Outperform
• Piotech's products have a proven innovation track record with new product launches every year, constantly increasing
Piotech: Rising
its SAM. The company WFE star
has established intechnical
a strong China with and
foundation a solid tech
intellectual team,
property specialized
system, with its own self-
developed IP rights. In recognition of its achievements,
in CVD with proven product innovation capability Piotech has been rated as a "National Intellectual Property Excellence
Enterprise (2019-2022)" by the National Intellectual Property Office.
EXHIBIT 29: Piotech investment thesis
#1 CVD substitution beneficiary #2 Solid tech team #3 Proven innovation capability

Leader in CVD (Deposition), Core tech leaders are WFE Product innovation track
accelerated share gain veterans from global leaders record with increasing SAM
Piotech CVD share in China Piotech’s core tech members and Piotech’s new product launch
+7% leaders past working experience
+5% 15% ► 2010 Founded
8% ► 2011 PECVD
3%
► 2016 ALD
2021 2023E 2025E
► 2018 ACHM
Rev. growth drivers, '25E over '23E
► 2019 SACVD
► 2020 UV Cure
1.1x X 1.1x X 1.8x
► 2021 HDP-CVD
=
2.1x ► 2022 Hybrid bonding
Main Driver: domestic substitution share shift
Notes: 1) Founded in 1984 in California, Novellus is a semicap company specialized in CVD equipment, and was acquired by Lam Research in 2012
Rev. in #1 refers to2)Piotech’s
Rev. in #1CVD
refersrevenue
to Piotech’s CVD revenue
Source: Gartner, company reports, Bernstein estimates and analysis
Source: Gartner, Bloomberg, Company reports, Bernstein estimates and analysis


• Revenue: We anticipate that Piotech's PECVD sector will maintain high growth while rapidly expanding SACVD and ALD. As a
small-sized WFE pure-play company in the growth stage, we expect Piotech to have a high-than-industry topline growth.
• Gross profit and gross profit margin: Piotech has steadily increased GPM, from 32% in 2019 to 49% in 2022, and is now
entering a stable stage. We anticipate GPM will remain steady.
•Operating profit and operating profit margin: We anticipate that the SG&A ratio will remain steady, despite the expected
increase in expenses associated with expansion. As Piotech expands, we have projected a minor decline in the R&D ratio,
Piotech income
while the absolute amount statement illustrated
spent on R&D will continue to increasein a Sankey Diagram
rapidly.
• EPS: The company paid stock dividends in 3Q23 and increased the number of shares outstanding, so we forecast its
unadjusted EPS to decline by 12%; if 2022 EPS is adjusted for this change, the 2023 EPS will grow by 46%. Our EPS
growth projection beyond 2023 aligns closely with revenue growth, assuming a stable margin.
EXHIBIT 30: Piotech income statement illustrated in a Sankey Diagram
Piotech 2022 Income Statement Illustration, % of Total Revenue

The Sankey diagram is produced

Notes: with
The Sankey RAWGraphs
diagram is produced with RAWGraphs
Source: CompanySource:
reports,Company reports, Bernstein estimates and analysis
Bernstein analysis and estimates

EXHIBIT 31: We expect Piotech to have higher-than- EXHIBIT 32: We forecast Piotech to have a stable GPM
industry revenue growth
Gross profit and gross profit margin
Revenue and YoY growth 5 60%
4.0
9 300% 4 49% 50% 51% 51% 51%
7.9 50%
8 44%
256% 4
250% 3.1
7 3 40%
6.1 34%
32%
6 200% 3
RMB bn
RMB bn
2.2
30%
5 2
4.3
150% 1.5
4 125% 2 20%
2.9
3 100% 1 0.8
74%
73% 1.7 69% 10%
2 1 0.3
50% 50% 0.1 0.15
0.8 41%
1 0.3 0.4 29% - 0%
0 0%
Gross Profit Gross Profit Margin
Revenue % growth
EXHIBIT 33: We expect Piotech’s OPM to improve slightly EXHIBIT 34: Our EPS growth projection beyond 2023
due to R&D ratio decrease after scaling up aligns closely with revenue growth
Operating Profit and margin
EPS and YoY growth
2.0 25%
1.8
1.8 22% 23% 9 8.31 400%
21% 20% 20% 340%
1.6 19% 8 350%
1.4 1.3
15%
7 300%
RMB bn
1.2 6.26
1.0 0.9 10% 6 250%
7%
0.8 5% 5 200%
RMB
0.5 4.24
0.6
0.4 0% 4 150%
0.4 -3% 3.18
2.89
0.2 0.1 3 100%
-5% 46% 48%
0.0 -8% 33%
2 50%
0.0 0.0
-0.2 -10% -12%
1 0.72 0%
0 -50%
Operating profit Operating profits margin 2021 2022 2023E 2024E 2025E 2026E
Basic earnings per share YoY growth


Valuation
• Piotech’s 1-year forward P/E is trading at 46x, lower than its one standard deviation (S.D.) below the average since its IPO
(Exhibit 36).
• We value Piotech at a 51x NTM+1 P/E to reflect 47% EPS CAGR in 2023-25 with 1.1x PEG. The 1.1x PEG ratio used is
slightly higher than the China semicap average PEG ratio. As Piotech is a pure-play WFE company operating in the sector
with the largest TAM, we believe the company has amplified growth potential and is worth a premium.
• Our projections for both the top and bottom lines are slightly higher than the consensus in 2023, and we are even more
optimistic about 2024 and 2025. Specifically, we anticipate a surge in demand from China’s memory customers during
2024-25, further bolstering our bullish outlook for those years.
EXHIBIT 35: Piotech has outperformed EXHIBIT 36: Piotech is trading at one
market in recent one year standard deviation (S.D.) below the
average since its IPO
200 1Y Forward P/E of Piotech
210x
160 190x
170x
Rebased to 100
150x
120 130x 123x
115
110x
96
90x 89x
80
70x
50x 54x 46x
30x
40
May-22
Jun-22
Jul-22
Aug-22
Sep-22
May-23
Aug-23
Dec-22
Feb-23
Jun-23
Jul-23
Sep-23
Dec-23
Mar-23
Oct-23
Oct-22
Jan-23
Apr-23
Jan-24
Nov-22
Aug-22 Nov-22 Feb-23 May-23 Aug-23 Nov-23 Nov-23
Piotech MXAPJ Index 1Yr Forward P/E Average


EXHIBIT 37: Piotech: Company model forecast vs. consensus

Bernstein 1,706 2,890 4,337 5,979
Growth YoY 125% 69% 50% 38%
Consensus 1,706 2,859 4,122 5,421
Growth YoY 125% 68% 44% 32%
Gross profit
Bernstein 840 1,457 2,196 3,025
GP Margin 49.3% 50% 51% 51%
Consensus 840 1,422 2,061 2,720
GP Margin 49.3% 50% 50% 50%
Operating profit
Bernstein 357 540 877 1,295
OP Margin 20.9% 19% 20% 22%
Consensus 357 507 787 1,112
OP Margin 20.9% 18% 19% 21%
Bernstein 369 542 793 1,171
Growth YoY 438% 47% 46% 48%
Consensus 369 505 777 1,067
Growth YoY 438% 37% 54% 37%

EXHIBIT 38: Glossary of some semiconductor manufacturing techniques

Abbreviation Full name Process Detailed explanation
Semicap refers to the broader category of equipment used in
Semiconductor Capital
Semicap the semiconductor industry, including WFE, assembly and
Equipment
packaging equipment, and testing equipment
WFE is a subset of Semicap that specifically refers to the

machines and tools used in the manufacturing process of
WFE Wafer Fabrication Equipment semiconductor wafers, i.e., Front End of chip manufacturing
(including part of advanced packaging where the equipment is
also used to process wafers)
ICP-RIE uses a high-frequency electromagnetic field to
Inductively Coupled Plasma -
ICP-RIE Dry etch generate a dense and highly reactive plasma remove material
Reactive Ion Etching
from a substrate
Capacitively Coupled Plasma - CCP-RIE uses a radio frequency electric field to generate a
CCP-RIE Dry etch
Reactive Ion Etching plasma and remove material from a substrate
PVD is a thin film deposition technique that involves the
PVD Physical Vapor Deposition Deposition transfer of material from a source to a substrate in a vacuum
environment
PECVD is a thin film deposition technique that uses a plasma
Plasma-Enhanced Chemical
PECVD Deposition to enhance the chemical reactions between gases and a
Vapor Deposition
substrate to deposit a thin film on a substrate
Low Pressure Chemical Vapor LPCVD involves the reaction of gases at low pressure and high
LPCVD Deposition
Deposition temperature to deposit a thin film on a substrate
SACVD involves the reaction of gases at sub-atmospheric
Sub-Atmospheric Pressure
SACVD Deposition pressure and high temperature to deposit a thin film on a
Chemical Vapor Deposition
substrate
ALD involves the sequential exposure of a substrate to
alternating gas-phase precursors, resulting in a highly
ALD Atomic Layer Deposition Deposition
controlled and conformal deposition of thin films with atomic-
scale precision
One of the advanced dielectric films deposited, which can
ACHM Amorphous Carbon Hard Mask Deposition
provide good etch selectivity
UV cure is a process of curing or hardening a material using
UV Cure Ultraviolet Cure Deposition ultraviolet light, which triggers a chemical reaction that causes
the material to harden or cure in a matter of seconds
HDP-CVD deposits a thin film on a substrate at relatively low

High-Density Plasma Chemical
HDP-CVD Deposition temperature, which helps to minimize thermal stress on the
Vapor Deposition
substrate and reduce the risk of defects
Source: Encyclopedia of Integrated Circuit Industry, Bernstein analysis

FOUNDRY (SEMICONDUCTOR FABRICATION)
CHINA FOUNDRY MARKET OUTLOOK

Traditionally, the foundry segment had always been treated as a global segment where the purchasing decision was mainly
driven by capability, quality, and cost, regardless of the location of the fabs. With the recent trend towards de-globalization,
there has been a gradual change in how this works. China, the US, Japan, Europe, and many other regions have announced plans
to build more local fabs to improve semiconductor manufacturing supply chain resilience. We do not believe that the industry
will completely decouple, and each region must be able to provide its own foundry supply. However, for this discussion, we will
concentrate on the extent to which the local foundry supply in China can satisfy the demands of local fabless companies. Hence,
here we define China’s Foundry TAM as the demand from fabless companies headquartered in China. This is calculated by
global foundry demand multiplied by the share of design TAM from design companies in China. As shown in Exhibit 39, China's
Foundry TAM has been increasing steadily in the past few years with a 16% CAGR from 2017-22, thanks to the technological
advancement of China's IC design companies. In 2023, we expect a 12% decline in demand due to the semiconductor
downcycle. In 2023-26, we expect China’s foundry demand share to grow at a 12% CAGR from USD 25bn to USD 35bn. We
anticipate that the self-sufficiency ratio of China's foundry industry will keep growing, driven by domestic players’ capacity
expansion efforts and the increasing need for supply chain resiliency from domestic fabless customers. The rapid growth of
local foundries, such as SMIC and Hua Hong, has already brought the self-sufficiency ratio to a maturation stage, reaching 39%
China’s Foundry capacity expansion will continue, and drive the self-
in 2023. Our bottom-up analysis indicates that in 2023, China's local foundries are expected to experience a 7% decline, but
sufficiency
this ratio
is still better than the global from
supplier's39% to15%
expected 44% from
decline. ’23-’26
Nevertheless, we anticipate the domestic supply will grow
faster than the international suppliers (China CAGR 16% vs. Global 9%). As a result, we expect China's foundry self-sufficiency
ratio to increase
 We expect theby another 5%supply
domestic to 44%toduring
have2023-26.
higher growth than the demand due to domestic players’ capacity
expansion efforts, and the increasing need for supply chain resiliency from domestic fabless customers
EXHIBIT 39: China’s Foundry capacity expansion plan will continue, and drive the self-sufficiency ratio from 39% to
44% from ’23-’26
China Foundry TAM and Domestic Share

USD bn
’17-’22 ’22-’23 ’23-’26

+12% China CAGR YoY CAGR
35 TAM
-12%
32
+16% 29 28
25 Global
suppliers 12% -15% 9%
23
for China
18
14 15 14
Domestic
42% 44% suppliers 26% -7% 16%
36% 39% 39% for China
31%
23% 27% 27% 27%
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E
China TAM is definedNote:

as global TAM times the Design TAM ratio of Fabless headquartered in China. The domestic suppliers’ share has only included their wafer sales
China TAM is defined as global TAM times the Design TAM ratio of Fabless headquartered in China.
to Chinese customersThe domestic suppliers’ share has only included their wafer sales to Chinese customers CHINA SEMICONDUCTORS | 29
Source: Gartner, SEMI, Company
Source: reports,
Gartner, Bernstein
SEMI, Company estimates
reports, andestimates
Bernstein analysis and analysis

SAM Sizing
We define China's SAM for local foundries as the demand for the most advanced nodes they can manufacture. To estimate
China's foundry demand by node, we use global foundry demand as a proxy and assume that China's demand for advanced
We
nodesexpect
is only halfChina local
of the global foundry’s
demand, as shown inSAMExhibitto
40. decrease
Assuming that slightly, due capacity
China’s production to might be capped at
7nm for the nextin
challenge 3 years,
techweadvancement
expect China's local beyond
foundry's SAM
7nmto drop slightly from 89% to 86% during 2023-26. Therefore,
the growth opportunity for local foundries is mainly from the TAM increase.
 The SAM will be capped by 7nm till 2026, slightly decrease from 89% to 86%
EXHIBIT 40: We expect China’s local foundry’s SAM to decrease slightly to 86% by 2026, due to challenges in tech
advancement beyond 7nm
China Foundry SAM, 2023E China Foundry SAM, 2026E
100% 100% 100% 100%

<5nm 3% (Assume China has
<5nm 14%
18% 89% 7nm capability, and
5nm 86%
China’s advanced 5nm 13%
node demand is
7-22nm 23% only half of global)
7-22nm 21%
>22nm 55% >22nm 51%

39% 44%
2023E 2023E 2026E 2026E

Global foundry China foundry Global foundry China foundry
demand by node SAM demand by node SAM
TAM SAM Domestic Share
Global foundry Note: Global foundry demand by node in 2023E & 2028E are estimated by Gartner,
demand by node in 2023 & 2026 are estimated by Gartner, the SAM in 2023E & 2026E are estimated by Bernstein
the SAM in 2023E & 2028E are estimated by Bernstein CHINA SEMICONDUCTORS | 30
Source: Gartner, Company
Source: reports,
Gartner, Bernstein
Company reporting,estimates and analysis
Bernstein estimates and analysis
Competitive Landscape
Competitive
The landscape:
competitive landscape SMICand
of the global and Hua
China Hong
market are small
is illustrated globally
in Exhibit butand Hua Hong are relatively small
41. SMIC
lead
on locally
a global scale, but they are the top two local foundries in China. Although SMIC and Hua Hong rank as the second and third
largest foundries in China, respectively, their global market share is only in the low single digits. TSMC is the largest foundry in
While SMIC and Hua Hong are largest foundries in In China, SMIC takes second largest foundry share,
China and globally and the undisputed leader in advanced
China, they only take single digit shares globally
node manufacturing.
followed by Hua Hong
EXHIBIT 41: Competitive landscape: SMIC and Hua Hong are small globally but lead locally
Top companies' revenue market share from shipments Top companies' revenue market share from shipments
of foundry wafers to external customers in global (2022) of foundry wafers to external customers in China (2022)
Others Others
16% 20%
Hua Li TSMC
VIS 32%
1% PSMC
Hua Hong
PSMC 2% 2% 1% DB HiTek 3% 2%
SMIC 5% 51% TSMC NexChip 3%

6%
6% Hua Li
GlobalFoundries
6%
7%
UMC 20%
UMC 8%
8%
Hua Hong SMIC
Samsung Foundry
Non-wafer manufacturing revenue and manufacturing of internal chips is excluded

Notes: 1) Non-wafer manufacturing revenue is excluded from calculation (Non-wafer revenue mix of TSMC: 12%; SMIC: 7%; GlobalFoundry: 9%
Source: Gartner, Company
2) Samsung reports,
Foundry's Bernstein
revenue does not includeestimates andof analysis
the manufacturing internal chips.
3) We assume 2% of Samsung foundry’s and 80% of Hua Li’s revenue is from China. CHINA SEMICONDUCTORS | 30
Source: Gartner, company reports, Bernstein analysis and estimates

SMIC: CHINA'S FOUNDRY LEADER IN TECHNOLOGY AND SCALE
Investment Thesis
SMIC is the largest local foundry in China, with a 20% market share in China in 2022, offering semiconductor foundry services
on 0.35 microns to FinFET process node technologies. SMIC has three 8-inch (8’’) wafer fabrication facilities (fabs) and four 12’’
fabs in Shanghai, Beijing, Tianjin, and Shenzhen. Additionally, three 12’’ fabs are under construction in Shanghai, Beijing, and
Tianjin.
Our Outperform thesis for SMIC is based on its position as the technology leader in China's local foundry market and its status
as a significant beneficiary of domestic substitution. Compared to its foundry peers, we anticipate that SMIC will capture a larger
share of the Chinese market due to increasing demand for its advanced node capacity. Three highlights for AMEC as illustrated
in Exhibit 42:
• We expect SMIC to benefit the most from the domestic substitution trend, with ~2% share gain in 2023-25. While local
foundries show capacity expansion efforts to increase the self-sufficiency ratio, as the industry leader, SMIC shows no signs
of slowing down, with plans to add approximately 50,000 wafers per month (kwpm) 12’’ capacity each year (per their 1Q23
call). As a result, we anticipate that SMIC's market share will expand by 2% over the next two years, even with a moderate
utilization rate assumption. We expect the share shift to contribute 1.1x growth for SMIC’s wafer revenue;
• As the technology leader in China, SMIC is the only foundry with advanced node manufacturing capability pre-sanctions, and
the last publicly announced process node is at 14nm using FinFET technology back in 2019. Going forward, we think it has
the potential to capture more share vs. peers in China with increasing demand for its FinFET capacity.
• Despite recent ASP pressure, SMIC is poised to benefit from the recovery in downstream demand. Our observations indicate
Outperform
that inventory levels in China's fabless firms have reached a tipping point. During SMIC's 3Q23 call, it was revealed that the
SMIC: The
issue of high only
inventory foundry
levels that
for products that hasinthe
emerged potential
the Chinese market lastto
yearbecome China’s
has been resolved and is now at a
healthy level. Our analysis also shows that China’s fabless companies’
TSMC, we expect it to gain share despite short-term ASP pressure inventory days are reaching a tipping point. With more
advanced manufacturing capabilities than its peers, we anticipate that SMIC will be better positioned to capitalize on the
recovery in downstream demand.
EXHIBIT 42: SMIC investment thesis
#1 Foundry subs. beneficiary #2 Tech leadership in China #3 UT/ASP tipping point

Largest foundry to benefit the Tech leader with advanced Inventory in China’s fabless
most from substitution node capability pre-sanctions firms likely have peaked
SMIC’s share in China Foundry TAM SMIC’s publicly announced tech China fabless companies’
+2% advancement roadmap inventory has seen tipping point
+5%
20% Weighted average inventory days of
18%
14% China fabless design companies
2006 SMIC 90nm entered production
200
2009 SMIC 65nm entered production 180
2021 2023E 2025E 160
100
TAM SAM Share-shift 2019 SMIC 14nm entered production 80
1.3x X 0.98x X 1.1x SMIC was added into the “entity list”,
60
40
2019 stopped public communication of
= tech advancement in advanced node
20
-
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22
4Q22
1Q23
2Q23
3Q23
1.4x
Main Driver: China foundry TAM growth
Note: China fabless companies include Willsemi, GigaDevice, Montage, Maxscend, SG Mirco, GalaxyCore, Unigroup
China fabless companies
Guoxin,include Willsemi,
SH Fudan, Goodix GigaDevice, Montage, Maxscend, SG Mirco, GalaxyCore, Unigroup Guoxin, SH Fudan, Goodix
Source: Gartner, SEMI, Bloomberg,
Source: Company
Gartner, SEMI, reports,
Bloomberg, Bernstein
company estimates
reports, Bernstein and analysis
estimates and analysis


A visual illustration of SMIC’s income statement using the Sankey Diagram can be found in Exhibit 43.
SMIC's financial performance and projection are illustrated in Exhibit 44, Exhibit 45, Exhibit 46, Exhibit 47:
• Revenue: We expect SMIC's revenue to decline in 2023, but we believe that it will rebound and resume a growth trajectory
thereafter, driven by the recovery of end market and demand for its FinFET capacity. We modeled a gradual utilization
recovery, from 77% in 3Q23 to 85% in 4Q25, factoring in the newly added capacity ramp-up period. We think the ASP
will be flat in 1H24 and recover slightly in 2H24, mainly due to the pressure from commoditized 8’’ products. We expect
utilization and ASP to recover further in 2025, driven by the recovery of the whole sector.
• Gross profit and gross profit margin: SMIC’s GPM peaked at 38% in 2022, driven by inventory shortage and high ASP,
which we think will be hard to achieve. Due to the depreciation pressure after capacity expansion, we expect its GPM will
continue to be under pressure and maintain at the 2019 level with a slight increase in 2024-26.
• Operating profit and operating profit margin: SMIC's OPM peaked with GPM in 2022, but we expect it to decline due to a
drop in ASP and utilization (vs. 2022). We anticipate a minor decline in SG&A and R&D ratios as cost-saving strategies will be
implemented during the market downturn. This will help OPM increase slightly from 2023's low level.
•
SMIC income statement illustrated in Sankey Diagram
EPS: Overall, we expect SMIC’s profitability to dip in 2023 due to cycle headwinds and topline decline. We assume the
conversion of the Employee Stock Option and Convertible Bond (issued USD 565mn) will increase the number of shares
outstanding every year, thus causing EPS to grow by less than net profit. We expect EPS to recover considerably in 2025-26
with the topline.
EXHIBIT 43: SMIC income statement illustrated in a Sankey Diagram
SMIC 2022 Income Statement Illustration, % of Total Revenue

2022 Revenue: USD 7.3 bn

Notes: with
Source: Company reports, Bernstein
Source: Company analysis
reports, Bernstein analysis CHINA SEMICONDUCTORS | 34

EXHIBIT 44: We expect SMIC’s revenue to dip with the EXHIBIT 45: We expect SMIC’s GPM to drop from the
cycle in 2023 and recover in 2024-25 peak in 2023 and under pressure in 2024-26 due to D&A
impact
SMIC Revenue & YoY growth
SMIC Gross profit & GPM
14 50%
3 2.8 40%
11.5 2.8
12 39% 34% 40%
38% 35%
2.5
10 9.4 30% 2.1 30%
Revenue YoY
25% 7.5 25% 23% 31%
Revenue (USD bn)
2
8 7.3 20% 1.7 25%
USD Bn
6.3 19% 20% 1.5
5.4 24% 24%
6 10% 1.5 23% 20%
3.9 21% 1.2
19%
4 3.1 0% 0.9 15%
1
-7% -13% 0.6 10%
2 -10%
0.5
5%
0 -20%
2019
2020
2021
2022
2023E
2024E
2025E
2026E
0 0%
2019
2020
2021
2022
2023E
2024E
2025E
2026E
Revenue YoY growth
Gross profit GPM
Source: Company reports, Bernstein analysis and estimates SMIC EPS

EXHIBIT 46: We expect SMIC’s OPM to drop siginficantly EXHIBIT 47: We expect SMIC’s EPS to dip with revenue
in 2023 due to operating deleverage then recover to then recover in 2025
teens in 2025
SMIC EPS & YoY growth
SMIC Operating profit & GPM
25 22.99 200%
2 30% 21.55
1.8
1.8 25% 19.72 150%
26% 25% 20
1.6 1.5 143% 91%
1.4 73% 15.47 100%
1.4
USD Cents
20% 15
48%
1.2 1.1 11.71
USD bn
11.27 27% 50%

10.46
1 15% 7%
10 -11%
13% 0%
0.8 12%
0.6 10% 4.65 -49%
0.6
8% 5
0.3 0.3 -50%
0.4 7%
5%
0.2 5%
0.0 0 -100%
2%
0 0%
2019
2020
2021
2022
2023E
2024E
2025E
2026E
EPS YoY growth

Operating profit OPM


Valuation
• SMIC’s TTM P/B is trading at 0.9x, near one standard deviation below its historical average (Exhibit 49).
• We value SMIC at a 1.1x NTM P/B excluding intangible assets and goodwill to reflect our positive stance on its FinFET
manufacturing capability upside potential. We believe the considerable demand from AI and 5G and the market recovery in
2H24 will support the trading sentiment in 2024. This gives us a 23% upside potential.
• Our topline and bottom line projections are broadly in line with consensus for 2023, and we are more bullish for 2024 and
2025 given the potential upside from FinFET capacity (Exhibit 50).
EXHIBIT 48: SMIC has outperformed EXHIBIT 49: SMIC is trading near its
the market in recent one year historical average
130
TTM P/B of SMIC
120 1.9x
1.7x
110
1.5x
1.3x
Rebased to 100
100 1.3x
86 1.1x 1.1x
90
82 0.9x
0.9x
80 0.7x 0.9x
70 0.5x
60
Feb-22
Aug-22
Nov-22
Feb-23
Aug-23
Nov-23
May-22
May-23
TTM P/B
Average
Average + 1S.D.
SMIC MXAPJ Index
Average - 1S.D.
Source: Bloomberg, Bernstein analysis Source: Bloomberg, Bernstein analysis
EXHIBIT 50: SMIC: Bernstein forecast vs. consensus

Revenue (USD mn) 2022 2023E 2024E 2025E
Bernstein 7,273 6,313 7,482 9,364
Growth YoY 34% (13%) 19% 25%
Consensus 7,273 6,305 7,404 8,737
Growth YoY 34% (13%) 17% 18%
Gross profit
Bernstein 2,762 1,242 1,451 2,124
GP Margin 38% 20% 19% 23%
Consensus 2,762 1,238 1,421 1,971
GP Margin 38% 20% 19% 23%
Operating profit
Bernstein 1,836 306 557 1,086
OP Margin 25% 5% 7% 12%
Consensus 1,836 304 536 966
OP Margin 25% 5% 7% 11%
Bernstein 1,818 904 847 1,283
Growth YoY 7% (50%) (6%) 52%
Consensus 1,818 884 802 1,172
Growth YoY 7% (51%) (9%) 46%

HUA HONG: CHINA'S LEADING SPECIALTY IC PROVIDER
Investment Thesis
Hua Hong Semiconductor is mainland China's largest wafer foundry company focusing on specialty IC. It is also the world's
largest smart card IC manufacturer and MCU manufacturing foundry in China. In addition, Hua Hong is the world's largest power
discrete wafer foundry by production capacity. Hua Hong Semiconductor has three 8’’ wafer fabs and one 12’’ wafer fab (Wuxi
Fab). Wuxi Fab Phase I is planned to reach a total capacity of 94.5kwpm by 1H24, while Wuxi Phase II is scheduled to complete
construction by 1H24 and kick off production in 2025, and finally ramp up to a total capacity of 83kwpm by 2027.
As the second largest Chinese local foundry focusing on specialty and matured nodes, Hua Hong has recently faced more
overcapacity headwinds in the matured node segment. Three investment theses for Hua Hong are illustrated in Exhibit 51:
• We expect Hua Hong’s market share to be flat during 2023-25 due to more fierce competition in matured nodes. As the
company faces competition in matured nodes from both mainland China and Taiwan (UMC, Vanguard, etc.), we expect the
ASP pressure to continue in 1H24 and see recovery in 2H24. As the Wuxi Phase I is ramping up to reach its full capacity, we
expect it to adopt an aggressive pricing strategy in the short term to acquire a customer base.
• Hua Hong has five specialty platforms to meet diverse customer needs, but all face fierce competition from foundries with
similar positioning. (According to SEMI), various Chinese local foundries, including. CR Microelectronics, Nexchip, SiEn and
Market-Perform
SMEC etc. have an expansion plan in the next 2 years and will intensify the competition in matured nodes.
Hua Hong: The second largest China local foundry focusing on
•specialty andhit matured
The cycle headwind Hua Hong due to node, facing
a higher share overcapacity
in commodity, dragging down ASPheadwind
and GPM. Hua Hong has
recently lowered their gross margin guidance by 10-13% in 4Q23 to only 2-3%, significantly lower than peers. We think the
depreciation and ASP pressure will linger until 2H24, dragging down the recovery course.
EXHIBIT 51: Hua Hong investment thesis
#1 Slowdown of share gain #2 Commoditize matured node #3 Short-term GPM pressure

Maintain share as mature Five specialty IC platforms all Low UT/ASP dragging down
node competition intensified facing fierce competition GPM, recovery might be slow
Hua Hong’s share in China Foundry Hua Hong wafer revenue Foundry gross margin comparison
breakdown by platform GPM%
+1.7% 0.0%
70
6.6% 6.6% 5-10%
4.9% 60
5-15% 20-40% 50
40
2021 2023E 2025E
30
10-20% 20
10
0
24Q4E
23Q4E
24Q1E
24Q2E
24Q3E
21Q1
21Q2
21Q3
21Q4
22Q1
22Q2
22Q3
22Q4
23Q1
23Q2
23Q3
1.3x X 0.98x X 1.0x 30-40%

= eNVM Logic & RF
1.3x Discrete Standalone NVM Hua Hong UMC
Main Driver: China foundry TAM growth Analog & PM Others TSMC Vanguard
Note: UT-utilization ratio; ASP-Average selling price

UT-utilization ratio;Source:
ASP-Average
Gartner, selling price
SEMI, Bloomberg, company reports, Bernstein estimates and analysis
Source: Gartner, company reports, Bernstein analysis and estimates


A visual illustration of Hua Hong’s income statement using the Sankey Diagram can be found in Exhibit 52.
Hua Hong's financial performance and projection are illustrated in Exhibit 53, Exhibit 54, Exhibit 55, Exhibit 56:
• Revenue: We expect Hua Hong’s revenue to decline in 2023-24. We modeled a blended utilization decline from 87% in
3Q23 to 80% in 2Q24, then a gradual recovery to 94% in 4Q25. We think the blended ASP will decrease to USD 470-480
level in 4Q23, be flat in 1H24, and recover slightly in 2H24, factoring in the aggressive pricing strategy it may adopt during
the 12’’ products ramp-up period. We anticipate the recovery of utilization and ASP in 2025, when the pricing of 12-inch
should stabilize in Wuxi Fab Phase I, along with the gradual warming up of end-market demand.
• Gross profit and gross profit margin: Hua Hong's GPM reached its peak of 34% in 2022 due to inventory shortages and
high ASPs, which we believe will be challenging to replicate. Due to the depreciation pressure and inventory write-down, we
expect its GPM to dip in 4Q23 and rebound less than competitors until 2H24. Beyond 2024, we modeled a gradual recovery
of its GPM, mainly driven by ASP recovery.
• Operating profit and operating profit margin: Hua Hong’s OPM peaked with GPM in 2022 but we expect it to decline
due to a drop in GPM going forward. We anticipate a minor decline in SG&A and R&D ratios for 12’’ from 4Q23-4Q24 as the
loadingHong
Hua is gradually ramped to its
income full capacity in Wuxi
statement Fab Phase I; andin
illustrated stable SG&A and R&D
Sankey ratios for 8’’ fabs. In 2024, we
Diagram
expect OPM to drop further from the 2023 level due to lower GPM, then recover to the 2019 level in 2025.
• EPS: We anticipate that Hua Hong's profitability will vary in accordance with its revenue, with more significant fluctuations
due to thinner margins. We expect the sector's headwind to continue and thus affect its profitability in 2024.
EXHIBIT 52: Hua Hong income statement illustrated in a Sankey Diagram
Hua Hong 2022 Income Statement Illustration, % of Total Revenue

2022 Revenue: USD 2.5 bn

Notes: with
reports, Bernstein analysis

EXHIBIT 53: We expect Hua Hong’s revenue to be under EXHIBIT 54: We expect Hua Hong’s GPM will be under
pressure and then recover in 2025 after market warming pressure in 2023-24 and recover in 2025
up and scaling up of new production lines
Hua Hong Gross profit & GPM
Hua Hong Revenue & YoY growth
0.9 40%
34%
3.5 70% 80% 0.8
30% 35%
70% 0.7 28%
3.0 3.3 30%
52% 60% 24%
0.6 0.7
2.5 40% 50% 21% 0.6 20% 25%
USD bn
0.5
40% 16% 20%
USD bn
2.0 0.8 0.5 22%

0.4 0.5
19% 30%
15%
1.5 20% 0.3
2.8 0.3
3% 2.5 2.3 0.3 10%
1.0 0% 10% 0.2
2.0 0.2
1.6 -8% 0% 0.1 5%
0.5 0.9 1.0 -13%
-10% 0.0 0%
2019
2020
2021
2022
2023E
2024E
2025E
2026E
0.0 -20%
2019
2020
2021
2022
2023E
2024E
2025E
2026E
Gross profit GPM

Rev YoY growth

EXHIBIT 55: We expect Hua Hong’s OPM to drop with GPM EXHIBIT 56: We expect EPS growth trend to be in line
with topline
Hua Hong opearting profit & OPM
0.6 23% 25% Hua Hong EPS & YoY growth
0.40 200%
0.5 20% 0.35
15% 0.35 162%
0.4 150%
15% 0.30
11% 11%
USD bn
0.3 0.6 9% 103% 100%

8% 0.25
10%
0.2 0.20 72%
USD
4% 0.20 0.18 0.18 50%

0.3 0.3 5% 0.16
0.1 0.2
0.2 0.15 0.13
0.1 0.0 0.1 1% 0%
0.0 0% 0.09
0.10 -26% 0.08
-0.1
-4%
-5% 0.05 -53% -46% -50%
-39%
2019
2020
2021
2022
2023E
2024E
2025E
2026E
0.00 -100%
2019
2020
2021
2022
2023E
2024E
2025E
2026E
Operating profit OPM

EPS YoY growth


Valuation
• Hua Hong’s TTM P/B is trading at 0.5x, which is lower than one standard deviation below its historical average (Exhibit 58).
Note that Hua Hong’s TTM P/B before the A-share IPO is adjusted for capital raised. A-share is listed on 8/7/2023 and
reflected in the financial report on 11/9/2023 (3Q earnings release day).
• We value Hua Hong at a 0.7x NTM P/B excluding intangible assets and goodwill, close to one standard deviation below its
historical average to reflect our concern over its ASP pressure and overcapacity risk. This gives us a 10% upside potential.
• Our topline and bottom line projections are largely in line with the consensus for 2023. We are more bearish for 2024 given
the aforementioned headwinds but are slightly more positive for the 2025 recovery (Exhibit 59).
EXHIBIT 57: Hua Hong has EXHIBIT 58: Hua Hong is trading lower
underperformed the market in than the one standard deviation
recent one year below its historical average
110 Adj. TTM P/B of Hua Hong
100
1.6x
90 1.4x
82
80 1.2x 1.0x
Rebased to 100
1.0x
70 0.8x
0.8x
60 0.6x
47 0.6x 0.5x
50 0.4x
0.2x
40
0.0x
30
Feb-22
Aug-22
Feb-23
May-22
May-23
Aug-23
Nov-22
Nov-23
TTM P/B Average

Hua Hong Semiconductor Ltd Average + 1S.D. Average - 1S.D.
MXAPJ Index

EXHIBIT 59: Hua Hong: company model forecast vs. consensus

Revenue (USD mn) 2022 2023E 2024E 2025E
Bernstein 2,475 2,271 1,970 2,762
Growth YoY 52% (8%) (13%) 40%
Consensus 2,475 2,317 2,250 2,728
Growth YoY 52% (6%) (3%) 21%
Bernstein vs. consensus (2%) (12%) 1%
Gross profit
Bernstein 844 482 317 610
GP Margin 34% 21% 16% 22%
Consensus 844 492 346 574
GP Margin 34% 21% 15% 21%
Operating profit
Bernstein 565 191 88 303
OP Margin 23% 8% 4% 11%
Consensus 565 195 89 266
OP Margin 23% 8% 4% 10%
Bernstein vs. consensus (1bps) 51bps 122bps
Bernstein 450 235 139 283
Growth YoY 76% (48%) (41%) 103%
Consensus 450 245 144 275
Growth YoY 76% (46%) (41%) 91%

FABLESS (INTEGRATED CIRCUIT DESIGN)
OVERVIEW OF THREE INDUSTRIES WE COVER IN FABLESS

Fabless companies are chip makers that design and sell various Integrated Circuits but outsource the chip manufacturing
(fabrication) process to third-party foundries. In the global landscape, many of the world’s largest semiconductor companies
are operating with a fabless model, such as Nvidia, AMD, and Qualcomm24, which is in contrast to the integrated device
manufacturing (IDM) model where the chip maker owns designing, manufacturing, and sales of chips. The examples include
Intel25, Samsung Electronics, and SK Hynix26. Our coverage in Fabless focuses on 3 industries (Exhibit 60):
• x86 Server CPU: x86 architecture-based Central Processing Unit (CPU) used in servers. x86 is the mainstream architecture
of server CPUs, taking >90% share globally in 2023, though the ARM architecture server CPUs are incrementally taking
shares (ARM CPU not included in this market sizing). We expect the x86 server CPU global market revenue to reach USD
25bn in 2025 with an 8% CAGR.
• AI Accelerator: Specialized microprocessor designed to perform AI tasks (training & inference), including General-purpose
GPUs (GPGPUs), Application-specific integrated circuits (ASICs), and Field-programmable gate arrays (FPGAs), etc. The AI
accelerator is the fastest-growing sub-sector among our fabless coverage, thanks to the exponential growth of AI computing
demand in the coming years. We expect the global market revenue to reach USD 52bn in 2025 with a 27% CAGR.
• Analog: Microchips that process real-world, continuous signals (power, temperature, sound, etc.). The Analog chips are
different from logic ICs that process digital signals (“0s and 1s”, i.e., CPU, GPU, memory chip, SoC, etc.). Before hitting the
down cycle in 2023, the Analog sector has experienced fast growth at 19% CAGR in the past four years, driven by 5G and
electric vehicles, etc. We expect the global market revenue to reach USD 100bn in 2025 with a 7% CAGR.
Our coverage in Fabless focuses on 3 industries
EXHIBIT 60: Our coverage in Fabless focuses on 3 industries
China’s x86 server China’s leading AI China's largest analog

CPU leader accelerator substitute chip (PMIC) supplier
x86 Server CPU AI Accelerator Analog
x86 architecture-based Specialized microprocessor Microchips that process

Central Processing Unit designed to perform AI real-world signals (power,
(CPU) used in servers tasks (training & inference) temperature, sound, etc.)
’23E-’25E global TAM ’23E-’25E global TAM ’23E-’25E global TAM

(USD Bn) (USD Bn) (USD Bn)
+8% +27% +7%

25 25 48 52 93 100
22 87
32
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Source: Gartner, Mercury, Company reporting, Bernstein analysis and estimates CHINA SEMICONDUCTORS | 41
Source: Gartner, Mercury, Company reporting, Bernstein analysis and estimates
24
NVIDIA Corp (NVDA.US), Advanced Micro Devices Inc (AMD.US), Qualcomm Inc (QCOM.US) are all covered by Bernstein
analyst Stacy A. Rasgon
25
Intel Corp (INTC.US), covered by Bernstein analyst Stacy A. Rasgon
26
Samsung Electronics (005930.KS) and SK Hynix (000660.KS) are covered by Bernstein analyst Mark Li

CHINA X86 SERVER CPU MARKET OUTLOOK

In China’s x86 server CPU market, domestic substitution has been a significant theme over the past few years. Although the
China TAM has been growing at 5% CAGR from 2019-22, the two duopoly global suppliers (Intel and AMD) only managed to
grow at a 2% CAGR, due to the emergence of Hygon growing at ~130% CAGR (from a very low base, with market share grew
from 1% to 9%). Other than Hygon, there are currently no credible Chinese suppliers in this market, and we expect Hygon to
remain the sole Chinese supplier to benefit from x86 server CPU domestic substitution, therefore in this TAM analysis, we have
only included Intel, AMD, and Hygon’s x86 server CPU revenue.
In 2023, the global market experienced a cyclical downturn. The decline during 2022-23 was due to industry-wide inventory
level normalization. While expecting China to be less affected, we still estimate that the market demand experienced a 5%
decline in 2023, compared to a double-digit global revenue decline.
Despite Hygon's unit shipment growth being impacted by chip supply issues and weaker spending from the government, from
the company’s preliminary guidance, Hygon is still expected to capture 10-20% revenue growth in 2023, thanks to the ASP
increase from the higher contribution of newer-generation products. Therefore, we expect Hygon’s x86 revenue to grow at
~12% in 2023. With global suppliers seeing a 7% decline in China revenues in 2023, we expect Hygon to capture an 11%
share in China's x86 server CPU market in 2023 - solidifying its position as a critical substitute in the domestic market with a
+2% share gain.
Hygon now holds 11% share in China's x86 server CPU market as a
key
For substitute,
'23-'26, expect
we expect China’s share
market growth to be atto
8%reach 23%
CAGR from a lowertill
base’26
in 2023. With the consistent rollout of new
generation products and acceleration of the ITAI (XinChuang) policy push, we expect a strong domestic share shift to Hygon and
its server CPU revenue to grow at a 40% CAGR, doubling its market share to 23% by 2026 (Exhibit 61).
 2023 growth of domestic suppliers slowed down due to the chip supply issue
HygonHygon
 We61:expect
EXHIBIT now holds 11% share
will grow in CAGR
at 41% China'sinx86
theserver
next 3CPU market
years asby
driven a key substitute,
domestic expect share to reach
substitution
23% till ’26
China x86 Server CPU TAM and Domestic Share

USD bn
’19-’22 ’22-’23 ’23-’26
+5% +8% China CAGR YoY CAGR
9 TAM
8 -5% 8 8
7 7
7
7
6
Global
supplier 2% -7% 2%
5
(Intel/AMD)
Domestic
19% 23% supplier 131% 12% 40%
9% 11% 14% (Hygon)
1% 2% 4%
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E
Source: Mercury, Gartner, Bernstein analysis and estimates

Source: Mercury, Gartner, Company reports, Bernstein estimates and analysis CHINA SEMICONDUCTORS | 42
China’s ITAI (XinChuang) Policy for Server CPU

Based on the ITAI (XinChuang, or 信创) policy (No.79) document issued by China's SASAC (State-owned Assets Supervision
and Administration Commission, 国资委) in Sept 2022, an ambitious domestic replacement target was set up for each industry
to be completed by 2027, including a "full replacement" target for the party and government, as well as the SOEs in eight key
industries. Our forecast of the share of domestic new CPU servers at 23% in 2026 indicates that the domestic share in installed
servers is only at 13%, still far from the government target (Exhibit 62). We present the details of the ITAI policy targets and

analysis below.
In September 2022, China’s SASAC issued Policy Document No. 79, formally establishing domestic replacement targets for
the ITAI sector. Specific targets for each type of information system infrastructure are to be achieved by the end of 2027, which
include:
• “Full replacement”: OA, portal, email, archives, party affairs and discipline inspection, and business management software
• “Replace as needed”: Strategic decision-making, ERP, risk management, and CRM management systems
• “Replace if possible”: Production, manufacturing, and research and development systems
Although the SASAC replacement target focuses on software and information system infrastructure, ITAI (XinChuang) is in fact
a general concept that combines existing sectors related to information technology and is collectively named the "Information
Technology Application Innovation (ITAI) sector", which includes 4 major sub-sectors: basic hardware (semiconductor chips,
servers and PCs, storage devices, etc.), basic software (databases, operating systems, middleware, etc.), application software
(office software, ERP, etc.), and information security (hardware and software security, and security services).
In particular, SASAC has provided a three-step roadmap for China to achieve the ITAI domestic replacement target by 2027,
named the "2+8+N" strategy:
• Party and government ("2"): First, the goal is to achieve domestic substitution within the scope of government agencies, while
also polishing products and cultivating core domestic suppliers in ITAI sectors.
• The eight key industries ("8"): Second, when domestic products and ecosystems are relatively mature, the goal is to achieve
the replacement target in the eight key industries (predominantly SOEs), which include energy and electricity, transportation,
Share of domestic
telecommunications, new healthcare,
finance, education, CPU servers at aerospace
petroleum, and 23% inand '26 indicates that the
aviation.
domestic share in installed servers only at 13%, still far from target
• Other industries ("N"): Finally, the goal is to expand ITAI software and hardware products to China’s overall consumer IT
market.
 Based on the ITAI policy (No.79) document issued by China's SASAC in Sept 2022, an ambitious domestic
62: Share oftarget
EXHIBITreplacement domestic newupCPU
was set for servers at 23%
each industry toin
be'26 indicatesbythat
completed the
2027, domestic
including share
a "full in installedtarget
replacement" servers
only atfor
13%, still far from target
the party and government, as well as the SOEs in eight key industries
CPU installed based by sector Breakdown of change in installed base CPU installed based by sector
(2023E, USD bn) (2023E-2026E, USD bn) (2026E, USD bn)
9 49 31 49
8 8
27 42 42
6% 23%
5% 19%
4% 14% -6
-6 -6
11
10 3%
1%
5 6
10% 20%
6% 6% 13% 50% 13%
25%
Govt. Key Others 2023E 2023E ’24 ’24 ’25 ’25 ’26 ’26 2026E Govt. Key Others 2023E
Ind. installed installed retire new retire new retire new installed Ind. installed
base base base base
Intel/AMD Hygon
SASAC means State-owned Assets

Note: SASAC Supervision
means andAssets
State-owned Administration
Supervision Commission (国资委)
and Administration Commission (国资委)
The 8 key industries cited by China's ITAI policy documents include Energy & electricity, Transportation,
Telecommunications, Finance, Education, Healthcare, Petroleum, Aerospace & aviation
The 8 key industries cited byMercury,
Source: China'sGartner,
ITAI policy documents
SASAC, Bernstein include
analysis Energy & electricity, Transportation, Telecommunications, Finance, Education, Healthcare,
and estimates
Petroleum, Aerospace & aviation
Source: Mercury, Gartner, SASAC, Bernstein analysis and estimates

SAM Sizing
Our SAM analysis is based on the performance of Hygon’s server CPUs. Our CPU performance analysis shows that Hygon’s
server CPU is about 2-3 years behind Intel’s and 3-4 years behind AMD’s. However, the upshot is that the latest generation
server CPUs contribute only a small yearly revenue. Due to lower pricing, better software compatibility, and more mature
infrastructure support, older generation models usually have ~3 years of product lifetime after a new generation product
launch. Specifically, in our analysis of the revenue split by server CPU generations in the global market, we found that the older
generation models (1-2 generations older, launched 2-5 years ago) are in fact always the mainstream CPUs in each year, which
contribute to more than 70% of revenue share (Exhibit 63).
The CPU performance from Intel, AMD, and Hygon products is measured by the benchmark tests of SPECrate 2017 Integer.
SPEC CPU2017 benchmark27 is a globally recognized performance benchmark based on actual CPU test results produced in
various real-world server environments. Among the different metrics published, we select the “SPECrate + Integer” test results
as they are the best for comparing the full computing power of the entire server CPUs (i.e., the “SPECrate”), and for general-
purpose computing by servers (i.e., the Integer computing). Overall, the server CPU models we analyzed include 150 models
across 3 Intel generations (from 2018 Gen to 2022 Gen) and 70 models across 3 AMD generations (from 2019 Gen to 2023
Gen), from a total number of data points of 9,600 test scores published on the SPEC2017 official website.
CPU performance
Our analysis benchmark
of SPEC2017 benchmark shows
scores suggests a 65-70%that Hygon’s
China SAM for Hygon. server
Based on the CPU
SPEC2017 is
about 2-3
benchmark years
scores, behind
and by using the global Intel, and
revenue share split3-4 years
between Intel and behind AMD
AMD in 2023 as a proxy, we estimate Hygon's
SAM in China to be ~70% in 2023. However, due to technology limitations capped by China's foundries (at the 7nm process
node), we expect the SAM may decrease to about 65% in 2026 (Exhibit 64).
 Total number of CPU models analyzed: 150 across 3 Intel generations, 70 across 3 AMD generations
 EXHIBIT 63: CPU performance
Total number benchmark
of data points: shows
9,600 test that
scores onHygon’s server CPU
the SPEC2017 is about
official 2-3 years behind Intel, and 3-4
website
years behind AMD
SPEC2017 INT-rate scores: Intel vs. AMD vs. Hygon server CPUs
1,500
Average
Low
1,300
High
1,100
900 903 Hygon
700 '23 Gen (?nm), ~700

673
578 '22 Gen (14nm), 540
500 491
416
'20 Gen (14nm), 348
300 276
100
'18 Gen (14nm) '20 Gen (10nm) '22 Gen (7nm) '19 Gen (7nm) '21 Gen (6nm) '23 Gen (5nm)
25% share 27% share 19% share 1% share 17% share 10% share
Intel Xeon Gold and Platinum AMD EPYC
(72% share in 2023*) (28% share in 2023)
Note: 1) we excluded outliers in each product tier by keeping # of cores per CPU between 20-80 cores
2) Hygon scores are based on its premium 7000s series; while ’20 Gen was reported by company, ’22 & ’23 Gens info was from external sources and channel check
1) we excluded outliers in each product tier by keeping # of cores per CPU between 20-80 cores
3) 2023 market shares* are estimated based on 9M23 actual and 4Q23 forecast (Mercury), lower end Intel CPUs (Silver and Bronz e) are also included
2) Hygon scores are based on its premium 7000s series; while ’20 Gen was reported by company, ’22 & ’23 Gens info was from external sources and channel check
Source: SPEC CPU2017 benchmark results, Hygon prospectus and disclosures, Intel website,
channel check, Bernstein analysis and estimates CHINA SEMICONDUCTORS | 44
3) 2023 market shares* are estimated based on 9M23 actual and 4Q23 forecast (Mercury), lower end Intel CPUs (Silver and Bronze) are also included
Source: SPEC CPU2017 benchmark results, Hygon prospectus and disclosures, Intel website, channel check, Bernstein analysis and estimates
27
See more from: https://www.spec.org/cpu2017/

Benchmark scores suggest that SAM for Hygon is 70% of China TAM
in '23, but as tech gap enlarges SAM will decrease to 65% in ‘26
 Based on the SPEC2017 benchmark scores, and by using the global revenue share split between Intel and
64: Benchmark
EXHIBITAMD scores
in 2023 as a proxy,suggest that SAM
we estimate for Hygon
Hygon’s SAM inisChina
70% of
to China TAM
be ~70% in '23, but as tech gap enlarges
in 2023
SAM
 will
Wedecrease
assume to 65% inwill
Foundry ‘26be capped at the 7nm node, SAM may decrease to 65% in 2026 due to larger tech gap
China x86 Server CPU SAM, 2023E SAM growth
26% 27% 19% 1% 17% 10% 100% 100%
70% 0.94x 65%

100% 100%
90%
50% 50%
23%
10% 11%
’18 Gen ’20 Gen ’22 Gen ’19 ’21 Gen ’23 Gen 2023E 2026E
Gen Total Total
Intel Xeon (72% share) AMD EPYC (28% share)
Whitespace SAM Domestic Share
2023 market shares are estimated

Note: based
2023 market on 9M23
shares actual and
are estimated based4Q23 forecast
on 9M23 actual (Mercury)
and 4Q23 forecast (Mercury)
Source:
Source: Mercury, Gartner, SPECMercury,
CPU2017Gartner, SPEC CPU2017
benchmark benchmark
results, results, Hygon
Hygon prospectus andprospectus and annual
annual reports, reports, analysis and estimates
Bernstein CHINA SEMICONDUCTORS | 45

HYGON: CHINA’S X86 SERVER CPU LEADER
Investment Thesis
Hygon is the leading x86 server CPU company in China, founded in 2014, originating from the Chinese Academy of Sciences
(CAS), China’s top national research institution and leading advisory body for science and technology. The company’s business
is predominately in developing x86 server CPU (~90% of revenue) and also includes AI chips (Deep Computing Unit, “DCU”, a
GPGPU-like AI accelerator) and technical services. Hygon's strong tie with the CAS is not only because the founding members
were top CAS researchers (including Dr. Zhimin Tang, the leading expert in high-performance computing and microprocessor
architecture), but also because the biggest shareholder is Sugon (603019.CH, not covered), a CAS affiliate that develops and
manufactures servers, storage, and supercomputers. We rate Hygon Outperform.
We see Hygon as China’s AMD and the only credible x86 server CPU challenger to Intel & AMD among domestic peers28. Our
outperform thesis concerns Hygon being the leader in China's x86 server CPU market and likely the sole beneficiary of domestic
substitution. The company's proven track record of technological innovation, combined with China's ITAI policy push, will
continue to put Hygon in a solid position to capture domestic market share. Three thesis highlights for Hygon as illustrated in
Exhibit 65:
• With a technology foundation rooted in the license of AMD Zen1 architecture in 2016, Hygon is seen as the ‘domestic
AMD’ in China, and we believe Hygon is the only credible x86 server CPU challenger to Intel & AMD among domestic peers.
Since 2018, Hygon has grown its domestic market share significantly from 1% to over 10% in 2023, supported by its
solid and consistent iteration of four generations of x86 server CPU products. With strong confidence in Hygon's gen-4
product performance, we expect a significant domestic substitution share shift during 2024-25 once the domestic foundry
manufacturing (7nm) capacity ramps up. This will help the company double its revenue and market share from 11% to 19%
in two years.
• Hygon has a proven innovation capability demonstrated through its product iteration roadmap, which we see as its core
competence to support future market share gains in China. Despite being added to the US BIS’ Entity List and no longer
receiving technical service from AMD since 2019, Hygon has independently developed and commercialized its gen-2
to gen-4 CPU products. With a consistent 30%-50% performance enhancement from each generation product, the
SPEC2017 CPU performance scores show that Hygon has maintained a narrowed 2-year performance gap with Intel in each
generation, positioning the company as the best among China's domestic alternatives.
• We identify Hygon as a key beneficiary from China’s ITAI (XinChuang) policy push for server CPU domestic substitution. Our
forecast of domestic server CPU (Hygon’s) share increase of 14-23% (from 2023-26) indicates that the share of domestic
CPU in installed servers will only increase from 6-13% by 2026 (Exhibit 62), which is a fairly conservative assumption. For
context, the Chinese government has advocated for the “full replacement” and “replace as much as possible” of domestic
CPUs in installed servers for government units and 8 key industries as the long-term target. As for the breakdown of
domestic CPU server replacement target by each industry, we only expect 20%-50% replacement for the government and
(CCP) party organizations and 8 key industries29 (predominantly SOEs) by 2026, which falls far behind the government’s
stated target for these two segments, while for other sectors we only estimated 3% domestic CPU replacement achieved.
28
There are 6 major domestic CPU fabless companies in China, including Hygon (x86 architecture), Loongson (688047.CH,
not covered, MIPS architecture), Zhaoxin (private company, x86 architecture), Huawei Kunpeng (private company, ARM
architecture), Phytium (private company, ARM architecture), Sunway (private company, Alpha architecture), other than Hygon,
the only other x86 player Zhaoxin's technology is still far behind Hygon due to VIA's limited IP license.
29
The 8 key industries cited by China's ITAI policy documents: Energy & electricity, Transportation, Telecommunications,
Finance, Education, Healthcare, Petroleum, Aerospace & aviation

Outperform
Hygon: China’s x86 server CPU leader with proven tech innovation
capability to capture share under CPU domestic substitution policy
EXHIBIT 65: Hygon investment thesis
#1 x86 server CPU local leader #2 Proven innovation capability #3 ITAI (XinChuang) tailwind
 The only credible x86 server CPU  Maintained a 2Y gap vs Intel, 4-  Server CPU domestic substitution
challenger in China to Intel/AMD gens of continual product innovation creates sufficient headroom
Share in China x86 server CPU mkt Hygon vs Intel CPU benchmark Installed server % by ind. (’26E)
+9% 100%
551 540
+7% 347 348
19% 64%
11%
4% 13% 23%
2021 2023E 2025E Intel Hygon Intel Hygon Govt. Key Ind. Others Total
’18 Gen ’20 Gen ’20 Gen ’22 Gen
Revenue growth drivers, ’25E/’23E Hygon’s product development Domestic share in installed server
SPEC2017 scores (’26E)
50%
+55% +30%
1.17x X 0.94x X 1.94x
+74% 700 20%
= 348
540
3%
13%
200
2.14x
Govt. Key Ind. Others Total
Main Driver: Substitution share shift 2018 2020 2022 2023
Note: all benchmark scores are SPEC2017 INT-rate scores, Hygon scores are estimated except for 2020.
信创(Xinchuang) stands for 信息技术应用创新(Information technology application innovation, ITAI)
All benchmark scores Source:
are SPEC2017 INT-rate
Gartner, Mercury, scores,
SASAC, Hygon scores
Bloomberg, arereporting,
Company estimated except
Bernstein for 2020.
estimates and analysis
信创(Xinchuang) stands for 信息技术应用创新(Information technology application innovation, ITAI)

Source: Gartner, Mercury, SASAC, Bloomberg, Company reports, Bernstein analysis and estimates


A visual illustration of Hygon’s income statement using the Sankey Diagram can be found in Exhibit 66.
Hygon's financial performance and projections are illustrated in Exhibit 67, Exhibit 68, Exhibit 69, and Exhibit 70.
Revenue projection: Though the company has logged several years of growth at ~130% CAGR (albeit off a small base),
we expect Hygon’s top-line growth to have a dip to ~15% YoY in 2023, mainly due to a weaker ITAI server demand (as local
governments’ budgets are tight this year impacted by soft macro) and increasing challenges in supply. However, we believe
the slowdown is temporary, and ITAI orders will return in 2024 - with pent-up demand driving this year’s revenue growth to
57% from a low base. In the longer term, we expect Hygon to continue with its solid market share gain in the China x86 server
CPU market (to reach 23% in 2026) and incrementally benefit from its DCU (AI accelerator) growth, resulting in a 34% revenue
CAGR from 2022 to 2026.
Gross profit projection: With the continuous rollout of next-generation CPU products with much higher performance specs
(we expect 30-50% performance enhancement in each generation), we project a ~10% ASP increase every year for Hygon’s
CPU segment, led by its flagship 7000 series products iteration (and factoring price cuts in older generation products). We
expect Hygon’s gross margin to reach 59% by 2026.
Operating profit projection: In the past, the biggest profit draggers for Hygon were the R&D and SG&A expenses, the
aggregate of which were as high as 60-70% of revenue before 2021, which is understandable due to Hygon’s small revenue
scale. With revenue expected to scale up significantly in the coming years, we expect its R&D ratio to come down to ~26% by
2026 and SG&A ratio down to mid-single digit (~4%), resulting in a healthy operating margin improvement to ~30% by 2026.
Hygon
EPS projection:income statement
Overall, we expect illustrated
Hygon’s profitability to continuein Sankey
to improve Diagram
in the coming years, with solid market share
gain boosting ~34% top-line CAGR, ASP tailwinds, and R&D efficiencies to drive margin expansion, and factoring continuous
tax subsidies from the government in support of the domestic IC design industry, we project Hygon to achieve a multi-year
~40% EPS growth from 2022-26.
EXHIBIT 66: Hygon income statement illustrated in a Sankey Diagram
Hygon 2022 Income Statement Illustration, % of Total Revenue


The Sankey diagramSource:
is produced with RAWGraphs
Company reports, Bernstein analysis and estimates CHINA SEMICONDUCTORS | 48

EXHIBIT 67: We expect Hygon maintains +34% revenue EXHIBIT 68: We expect gross margin to continue to
CAGR till 2026E improve, supported by continuous ASP increase in new
generation products
Revenue and YoY growth
Gross profit and GP margin
170% 2022-2026 CAGR 34%
18 180% 58% 59%
16.3
12 56% 56% 57% 60%
16 160% 52%
51%
14 126% 122% 12.6 140% 10 9.6 50%
RMB Bn
12 120%
37% 7.4
8 40%
RMB Bn
10 9.2 100%
8 80%
5.9 57% 6 5.3 30%
6 5.1 60%
36%
29% 4 3.3 20%
4 2.3 40%
15% 2.7
2 1.0 20%
0.4 1.3
2 10%
- 0% 0.5
0.1
- 0%
Revenue % growth
Source: Company reporting, Bernstein analysis and estimates
EXHIBIT 69: We expect Hygon’s OP margin to rise to EXHIBIT 70: As a result, we expect Hygon to enjoy a
28-30% in coming years, due to economies of scale on robust ~40% EPS CAGR from both revenue growth and
R&D and admin expenses margin tailwinds
Operating Profit and OP margin EPS and YoY growth

RMB
7 40% 2022-2026 CAGR 39%
30% 30% 1.6 200%
27% 28% 1.42
6 22% 30% 135%
19% 1.4 150%
5.0
5 20% 1.2 1.07
59% 100%
3.7
RMB Bn
4 10% 1.0 36% 30% 33%

0.82 50%
3 2.6 0% 0.8
-8% 0%
0.6 0.52
2 1.6 -10%
1.1 0.38 -50%
0.4
1 0.4 -20% 0.16 -100%
0.2
-37%
- -30% 0.0 -150%
-0.1 -0.1 -0.05 -0.02
(1) -40% -0.2 -200%
Operating profit Operating profits margin Basic earnings per share EPS growth YoY in %
Source: Company reporting, Bernstein analysis and estimates Source: Company reporting, Bernstein analysis and estimates

Valuation
We rate Hygon Outperform and set our 12-month target price for Hygon at CNY 100 (+46% upside potential). This is based on
our valuation for Hygon at a 93x NTM+1 P/E (2025E EPS), reflecting our projected ~44% EPS CAGR (2023-25) with 2.1xPEG
(price/earnings-to-growth) ratio. Hygon’s unique market position (as the #1 domestic player and only credible x86 server CPU
challenger to Intel & AMD among domestic peers) grants it a premium valuation at 2.1xPEG. With somewhat high volatility in the
past (following the market sentiment of China's semiconductor industry), Hygon’s stock price has outperformed the market by a
solid ~20% margin since its IPO (Exhibit 71).
The stock trades at 93x 1-year forward P/E (street consensus), in line with the historical average (Exhibit 72), and we expect the
momentum to continue. In the near term, we expect Hygon’s revenue growth to significantly pick up (>50%) in 2024 as next-
gen products ramp up, while in the longer term, China market growth and share shift are set for Hygon’s ~34% revenue CAGR
until 2026. The revenue scale will also help Hygon deliver better OPM, resulting in ~40% EPS CAGR in the next few years.
Bernstein vs. consensus estimations: Hygon is a consensus buy on the street (17 buys, 0 hold/sell) despite relatively high P/
E. For the 2024-25 projection, we are more optimistic than the consensus on revenue growth, and we are also more bullish on
the margin tailwinds and R&D efficiencies, resulting in better operating margins and EPS growth (Exhibit 73).
EXHIBIT 71: Despite the volatility, Hygon’s stock price EXHIBIT 72: Hygon is currently trading at a relatively high
growth has outperformed the market by ~20% since its P/E at 93x (but in line with historical average), and it’s
IPO expected to come down quickly with ~40% EPS CAGR
Hygon - price return since IPO 1Y Forward P/E of Hygon

200
160x
140x
160 120x 108x
Rebased to 100
100x 89x 93x

120 80x
114 69x
60x
96
40x
80
20x
0x
40
1Yr Forward P/S Average

Hygon MXAPJ Index Average + 1S.D. Average - 1S.D.


EXHIBIT 73: Hygon: company model forecast vs. consensus

Bernstein 5,125 5,904 9,243 12,606
Growth YoY 122% 15% 57% 36%
Consensus 5125 6,123 8,532 11,293
Growth YoY 122% 19% 39% 32%
Bernstein vs. consensus (4%) 8% 12%
Gross profit
Bernstein 2,686 3,327 5,302 7,358
GP Margin 52% 56% 57% 58%
Consensus 2,686 3,460 4,835 6,374
GP Margin 52% 56.5% 56.7% 56.4%
Operating profit
Bernstein 1,136 1,572 2,593 3,733
OP Margin 22% 27% 28% 30%
Consensus 1,136 1,685 2,343 3,165
OP Margin 22% 28% 27% 28%
Bernstein 804 1,202 1,907 2,486
Growth YoY 146% 50% 59% 30%
Consensus 804 1,209 1,661 2,228
Growth YoY 146% 50% 37% 34%
Bloomberg, Company reporting, Bernstein analysis and estimates

Source: Bloomberg, Company reporting, Bernstein analysis and estimates

CHINA AI ACCELERATOR MARKET OUTLOOK

Compared to server CPUs, the outlook for the China Server AI Accelerator market is more controversial. Historically, the market
was small, at around USD 2 billion before 2023. However, last year, the China market saw significant 3x growth following the
exponential worldwide demand for AI computing chips. That said, the domestic share has stagnated in the past three years, at
7-10%, as Nvidia products have dominated the market.
Globally, the AI accelerator is likely the fastest-growing sub-sector among our fabless company coverage, but we expect a
much choppier growth trajectory for the China market from this year onwards due to the latest US sanction in Oct 202330.
In particular, we expect the impact of US sanctions will cut Nvidia’s supply by more than 70% in 2024, while the constrained
domestic 7nm foundry capability this year will likely limit domestic players (like Cambricon and Huawei) to fulfill the demand. In
sum, we expect the overall market to drop significantly by 52% in 2024, to about USD 3bn, while domestic players take ~48%
share of the constrained market revenue this year.
However, as domestic 7nm foundry capability matures with potential new capacity expansion, we expect AI chip volume
from domestic fabless companies will ramp up from 2024 and pick up fast from 2026, resulting in continuous market share
expansion to 63% in 2025, and 76% in 2026 (and helping domestic market revenue reaching ~USD 9bn, above pre-sanction
level in 2023). In our forecast, we expect Nvidia’s revenue in China will still be heavily constrained by the export control
regulations in coming years, resulting in only a slow recovery (~15% CAGR after the 70% dip in 2024) and taking less than a
quarter of market share by 2026.
China Server AI Accelerator market: domestic share was stagnant in
Among the Chinese players, we believe Huawei will lead the growth of domestic suppliers with the best end-to-end hardware
the pastintegrated
and software 3 years but is
ecosystem. expected
Cambricon will stand to accelerate
out as the solid #2 playerdue toHuawei
and best the alternative,
US sanctiontaking ~9%
market share by 2026 (Exhibit 74).
 The impact of US sanctions will cut Nvidia’s supply by more than 70% in '24, with a slow recovery
EXHIBIT
 With74: China Server
a domestic 7nmAI Accelerator
capability, market:
volume fromdomestic
domesticshare was
fabless stagnant
will in the
ramp from ’24 past 3 years but is expected to
accelerate
 Huaweiduewill to
bethe US sanction
leading the growth of domestic suppliers with the best end-to-end integrated ecosystem
China Server AI Accelerator TAM and Domestic Share

USD bn
’21-’23 ’23-’24 ’24-’26

+72% CAGR YoY CAGR
China
US export 9 TAM
control
Global
-52% supplier 91% -72% 15%
for China
6
+94% 5
Domestic
3 76% supplier 129% 128% 117%
2 for China
2
63%
48%
7% 7% 10%
2021 2022 2023E 2024E 2025E 2026E
Source: Mercury, Gartner,

Source:Nvidia financial
Mercury, reports,
Gartner, NvidiaBernstein estimates
financial reports, and analysis
Bernstein estimates and analysis CHINA SEMICONDUCTORS | 50
30
The US BIS' Oct'23 export control regulations on advanced AI chips. See more from: https://www.bis.doc.gov/index.php/
documents/federal-register-notices-1/3353-2023-10-16-advanced-computing-supercomputing-ifr/file

SAM Sizing & Competitive Landscape

Our SAM analysis is based on the performance of various domestic AI accelerator products that have been developed and are
available in the market, while factoring in the impact of the latest (Oct 2023) US BIS export control regulations, with the latter
playing a dominant role in our SAM analysis and market share forecast in China.
Among the group of China domestic AI chip suppliers, Huawei and Cambricon are the leading domestic players with products
surpassing the US export control threshold of “Advanced computing chips”, and at a comparable level to A100/A800 chips of
Nvidia (we categorized the high-end AI chips of these two players, Ascend 910/910B and Siyuan 590, as Tier-2). For many other
domestic players (Enflame, Baidu, and Biren Technology31), their published products thus far still fall within the “Less advanced
computing chips” defined by US BIS (we categorized the AI chips from these players as Tier-3) and face greater competition
from global suppliers, as their AI chips at this performance level may be exempted for an export license for selling to China.
It’s unsurprising to see the massive technology gap between China's home-made chips and the products from leading global
players, such as Nvidia’s H100/H800 or AMD’s MI 300X (we categorized as Tier-1), with only a small overlap of China’s best
chips and the second tier global products, such as Intel’s Gaudi2 and AMD’s MI250X (Exhibit 75).
Overall, we believe the impact of US export control on advanced AI chips will become the dominant factor shaping the
competitive landscape of the China AI accelerator market in the coming years. With a low threshold in both total processing
performance (TPP) and performance density (PD), the US BIS is essentially banning all high-end and mainstream AI chips of
Nvidia, leaving only the 2017-released V100 chip in full compliance. Due to the strict cap on performance density, we believe
it's unlikely that Nvidia may release another tailored China-market chip as competitive as the A800 or H800 in the past, leaving a
massive void in the mainstream market for domestic players.
In summary, our China SAM sizing is based on the fact that domestic AI chips are already able to substitute part of the
mainstream products (with Huawei and Cambricon's products at comparable performance to A100), and all the low-end market
(most domestic players have launched products with better specs than V100), with a combined 70% SAM in 2023. Going
forward, as domestic suppliers further advance the technology to capture 100% of the mainstream by 2026, and meanwhile,
the US sanction impact will compress the demand for high-end chips, shrinking the share to only ~5%, we expect the SAM for
domestic players to approach 95% by 2026 (Exhibit 76).
31
Baidu (BIDU.US) is covered by Bernstein analyst Boris Van, while Enflame and Biren Technology are private companies.

Huawei and Cambricon are the leading domestic suppliers, with
products
Qingyuan surpassing
Lin, Ph.D. +852 the US export control threshold
2918 5759 qingyuan.lin@bernstein.com 10 January 2024
EXHIBIT 75: Huawei

 Huawei Ascendand
910BCambricon are the
and Cambricon leading
Siyuan domestic
590 are leaders suppliers, with products
in China comparable surpassing the US export
to A100
control threshold
Performance Advanced computing chips under US export license controls (and comparable Chinese chips)
Density (PD)
Less advanced computing chips may be exempted for license (and comparable Chinese chips)
22.0
Tier 1 AMD MI 300X
20.0
18.0 Nvidia H100/H800 SXM
16.0 Nvidia
Nvidia H100/H800 PCIe
14.0 AMD
Intel
12.0
Huawei Tier 2 Cambricon
10.0 Ascend 910B Huawei
Intel Gaudi2
8.0 Cambricon Enflame
Siyuan 590* AMD MI 250X Moore Threads
6.0 Nvidia A100/A800
Biren Technology
4.0
2.0 Tier 3
Total Processing
0.0
China 0 SAM 2,000 sizing:
4,000 6,000 Domestic
8,000 10,000products 12,000 14,000 already 16,000 18,000 able20,000 to22,000
substitute
Performancepart
(TPP)
of the mainstream
Note:
Cambricon’s Siyuan 590Cambricon’s Siyuan
has not launched yet,
products,
590 has
the not is
spec launched with
yet,estimation
Bernstein the SAM
spec isfrom
Bernstein approaching
estimation
the channel checkfrom the channel check 95% by ’26
Source: US BIS, Company websites, desktop research, Bernstein estimates and analysis CHINA SEMICONDUCTORS | 51
Source: US BIS, Company websites, literacy research, Bernstein estimates and analysis
 Domestic suppliers will further advance the technology to capture 100% of the mainstream by 2026
EXHIBIT 76: China
 Sanction willSAM sizing:
compress theDomestic products
demand for high-endare already
chips, ablethe
shrinking to substitute
share part of the mainstream products,
with SAM approaching 95% by ’26
China AI Accelerator SAM (2023&2026) SAM growth

15% 55% 30% 15% 80% 5% 100% 100%
95%
1.8X
100% 100% 100% 52%
76%
70%
42%
10%
Low-end Mainstream High-end Low-end Mainstream High-end 2023E 2026E
(V100) (A100) (H100) Total Total
2023E 2026E
Whitespace SAM Domestic Share
Source: Nvidia and other company

Source: websites,
Bernstein literacy
analysis research, Bernstein analysis and estimates
and estimates CHINA SEMICONDUCTORS | 52

CAMBRICON: CHINA'S LEADING AI CHIP SUBSTITUTE
Investment Thesis
Cambricon was founded in 2016 by Dr. Tianshi Chen and Dr. Yunji Chen, two brothers and research scientists from the Institute
of Computing Technology (ICT), Chinese Academy of Sciences. The ICT is China’s national research institute focused on
computer science and technology. The Chen brothers’ study focused on microprocessor design and artificial intelligence; later
they combined both of their expertise in making China’s first AI chips. Although known as the leading AI accelerator company
in China, the cloud and edge AI chips are currently less than 30% of Cambricon’s revenue, with the company’s main business
in “Intelligent Computing Cluster System” (70% of revenue, where Cambricon delivers integrated cloud computing and data
center solutions based on its own cloud AI products and software platforms). We rate Cambricon Outperform.
We see Cambricon as the leading AI chip alternative from our confidence in its capability to develop China’s leading home-made
AI chips and software ecosystems. We have a binary thesis on Cambricon; the outperform call indicates our expectation of its
commercial traction in the next few years. Cambricon has not yet demonstrated commercial success for its next-generation
product, the Siyuan 590. However, we anticipate a catalyst to come in 2H24. This is when the company is expected to announce
the deployment of the new chip in some of its customers. In a nutshell, Cambricon's flagship Siyuan 590 chip will either become
a blockbuster in China, taking significant share as the best alternative to Huawei, or the company may still encounter supply
chain issues or fail to secure meaningful foundry capacity, leading to another year of big R&D spend and widened losses. Our
strong belief in the former scenario is summarized in 3 key highlights, as illustrated in Exhibit 77:
• Cambricon is the leading AI fabless company and a proxy to invest in China's domestic AI chip substitution. Investors may
bypass the near-term fundamentals but buy for the scarcity as most other pure-play AI fabless companies are not yet listed.
Fueled by China's demand for supply chain independence in the global AI race, and accelerated by the US BIS Oct'23
sanction that may cut Nvidia's supply in China by more than 70% in 2024, Cambricon's stock is now the best proxy that
investors can gain exposure to China's potential drastic domestic substitution pace in this sector. We expect Cambricon to
deliver over 4x revenue expansion in the coming 2 years from a low base, driven by a significant domestic share shift from
1% to 7%.
• Beyond its current market positioning, our confidence in Cambricon stems from the company's persistent R&D investment
to achieve technology advances. Since its inception, Cambricon has maintained a solid and persistent R&D investment
(150-200% of revenue annually) regardless of revenue volatility and market cycles. Despite its revenue being just 1/500
of Nvidia, we estimate its R&D expenses to have reached 1/50 of Nvidia's in 2023 - the 10x difference demonstrates the
company's commitment to technology advances. Despite not yet making a penny profit since listing, investors have shown
strong support for the company's R&D and capex plan. A total of RMB 1.8bn was raised in 2023 via new share insurance,
more than 2x its FY22 revenue (and RMB 4.9bn was raised since IPO, ~7x of FY22 revenue). Although we don’t think that
significant R&D investment will guarantee success for Cambricon, it is necessary to have the R&D investment to become
competitive in the market.
• More importantly, we believe Cambricon is the best "Huawei alternative" in China to capture the Nvidia void in the domestic
market. Not only has its latest AI training chip (Siyuan 590) delivered comparable single-chip performance to Huawei's
(Ascend 910B, at a comparable level to Nvidia's A100), but also its overall AI competence has been ranked #2 in China
(supply chain, GPU programming, and scalable interconnects) and only behind Huawei. Our channel checks have indicated
great feedback on the Cambricon chip's overall AI competence, although they still need to invest more to develop an inter-
chip connection and CUDA-like GPU programming ecosystem. In the meantime, Huawei's potential dominance in the AI chip
sector has pushed many customers to seek a secondary supplier to reduce reliance on Huawei (as AMD's positioning to be
the best Nvidia alternative in the global market), and Cambricon is likely to be the top local choice.

Outperform
Cambricon: Best alternative to Huawei for domestic AI chip
Qingyuan Lin, Ph.D. +852 2918 5759 qingyuan.lin@bernstein.com
substitution, persistent R&D to maintain its #2 position in China 10 January 2024
EXHIBIT 77: Cambricon investment thesis
#1 Domestic AI Chip Substitute #2 Solid R&D investment #3 Best Huawei alternative

 The leading listed AI fabless as a  Persistent R&D investment to  Chip performance comparable to
proxy to invest in China’s AI chip achieve tech advances Huawei, #2 in AI competence
Share in China AI accelerator mkt R&D expenses as % of revenue AI chips’ TPP* comparison (TFLOPs)
+6% Cambricon Nvidia 5,120 4,992
4,493
219% 209%
-3% 7% 158% 135%
4%
1% 22% 20% 27% 14%
2021 2023E 2025E 2017-20 2021 2022 2023E Cambricon Huawei Nvidia A100
average Siyuan 590* Ascend 910B
Revenue growth* drivers, ’25E/’23E Revenue vs. R&D expenses scale Cambricon only second to Huawei
2023E Revenue 2023E R&D expenses
in overall AI competence
(US$mn) (US$mn)
59,057 8,457
0.8x X 1.8x X 3.4x
Supply
= 51x
chain
493x
GPU
5.0x 120 161
programing
Main Driver: Share shift Scalable

interconnects
(Note: *AI chip revenue) Cambricon Nvidia Cambricon Nvidia
Note: CY2023E (FY2024E) Nvidia forecast based on Bloomberg consensus; TPP is ‘total processing performance’ defined by
CY2023E (FY2024E) BIS; Cambricon’s
Nvidia forecastSiyuan
based590on
has not launchedconsensus;
Bloomberg yet, the specTPP
is Bernstein
is ‘totalestimation
processingfromperformance’
the channel check
defined by BIS; Cambricon’s Siyuan 590 has not
Source: Gartner, Mercury, Bloomberg, Company reporting, Bernstein estimates and analysis
launched yet, the spec is Bernstein estimation from the channel check
Source: Gartner, Mercury, Bloomberg, Company reports, Bernstein analysis and estimates


A visual illustration of Cambricon’s income statement using the Sankey Diagram can be found in Exhibit 78.
Cambricon’s financial performance and projections are illustrated in Exhibit 79, Exhibit 80, Exhibit 81, and Exhibit 82.
Revenue projection: we believe Cambricon has the best growth potential among our coverage, boosting a ~96% revenue
CAGR from 2023-2025, and over 70% CAGR from 2022-2026. This is still a fairly conservative projection given its tiny size
today (~1% China market share) and the massive 95% SAM available for all domestic players to capture. As a result, we expect
the company’s AI chip revenue (cloud and edge accelerator) will outgrow its intelligent computing cluster system revenue (big
government AI server cluster projects), from a 30% revenue mix (2023) to 70% (2026).
Gross profit projection: Despite a much smaller scale, Cambricon's gross margin at 65%-70% has reached a comparable
level to Nvidia's. We expect further improvement from 2024-26 (72-73%) as its pricing power of AI chips in China would be
substantial due to the scarcity of supply.
Operating profit projection: In the past, Cambricon’s small revenue scale has resulted in a significant burden to afford high
fixed SG&A and R&D expenses (combined burn rate has been 200-300% of revenue). The company is betting on substantial
revenue expansion to become a sustainable business, rather than slowing down R&D investments. In our projection, we believe
the breakeven point would happen in 2026 as a result of a much larger revenue scale (7-8x of 2023), when the combination of
Cambricon income statement illustrated in Sankey Diagram
SG&A and R&D expenses ratios drops to below 50%.
EPS projection: With a 72% revenue CAGR delivering 7-8x top-line growth in the next few years, pricing power on AI chips,
and R&D/fixed cost efficiencies, we project that Cambricon will achieve critical scale and deliver a profit in 2026.
EXHIBIT 78: Cambricon income statement illustrated in a Sankey Diagram
Cambricon 2022 Income Statement Illustration, % of Total Revenue

2022 Revenue: RMB 729 mn
- -
Gross Profit
66
The Sankey diagramNotes:

is produced withdiagram
is produced with RAWGraphs
Source: Company reports,
Source:Bernstein analysis
Company reports, and estimates

EXHIBIT 79: We believe Cambricon has the best growth EXHIBIT 80: We expect further gross margin
potential among our coverage stocks, boosting a 70+% improvement from 2024E-26E as Cambricon’s pricing
revenue CAGR from 2022E-26E power of AI chips in China would be substantial due to
the scarcity of supply
2022-2026 CAGR 72%
7 6.4 140%
123% 7 73% 74%
72% 72%
6 120% 71% 72%
98% 6
Billion RMB
5 100% 70%
5 68% 4.7
Billion RMB
72% 68%
4 80% 65% 66%
57% 3.2 4 66%
3 60%
3 62% 64%
1.9 2.3
2 40% 62%
2
1 0.7 0.7 15% 20%
1.3
60%
0.4 3%0.5 0.8
1% 1 0.6
0.3 0.3 0.4 0.5 58%
0 0%
- 56%
Revenue % growth
EXHIBIT 81: We expect Cambricon to continue with its EXHIBIT 82: With 7-8x top-line growth in the next few
high R&D investments, but expect to see substantial years, pricing power on AI chips, and R&D/fixed cost
revenue expansion to become a sustainable business efficiencies, we project that Cambricon will achieve
critical scale and deliver a profit in 2026
Operating Profit and OP margin
EPS and YoY growth
1.7 17% 50% RMB
-3% 927%
1.1 0% 5.0 1000%
1.2 -35%
4.0
0.7 -50% 800%
Billion RMB
-95% -97% 3.0

-114% 2.06
0.2 -100% 2.0
600%
-182% -150% 1.0
-0.3 -0.1
0.0 400%
-0.8 -0.4 -200%
-0.6 -1.0 -0.25
-265% -0.8 -0.8 200%
-1.3 -250% -2.0 -1.15
-1.3 -1.90 -1.46
-1.8 -1.2 -300% -3.0 -2.06
-3.14 83% 0%
-4.0 -3.27 65% 39% 23%
-5.0 -79% -52% -200%

Basic earnings per share

Valuation
We rate Cambricon Outperform and set our 12-month target price for Cambricon at CNY 160. This is based on our valuation
for Cambricon at a 20x NTM+1 EV/Sales, reflecting our projected ~96% revenue CAGR (2023-25). We value Cambricon using
a sales multiple, as we do not expect the company to deliver a positive EPS before 2026.
Despite underperforming in 2022, Cambricon's stock has significantly outperformed the market last year (amid the volatility
driven by market sentiment), boosted by the AI hype since ChatGPT and US sanctions on Nvidia’s supply in China. Overall, it has
performed better than the market by over 80% since the beginning of 2022 (Exhibit 83).
Compared to industry leader Nvidia (trading at 12x CY2025 sales, Bloomberg sellside consensus ) and domestic fabless
peer Hygon (trading at 14x 2025 sales, Bloomberg sellside consensus), our 20x valuation for Cambricon is on the high side.
However, this is highly justified in our view due to a much smaller revenue base (Cambricon’s 23E revenue is ~1/500 of Nvidia’s)
and a more robust growth profile. We expect Cambricon to deliver higher than consensus growth (>120%) in 2024 as supply
chain issues are sorted out and a longer-term 72% revenue CAGR until 2026, supported by domestic share gains.
Furthermore, compared to the historical trading level, our valuation in fact indicated a moderate multiple at 20x NTM+1 EV/
sales (-1 standard deviation fo historical average, see Exhibit 84), which has factored in the potential downside of Cambricon’s
binary results, as we believe failure in commercialization of next-gen AI chip may lead to massive derating. In short, instead of
running a bear case revenue scenario, our approach is to keep our bullish forecast but adjust the multiple to incorporate the
potential downside.
Bernstein vs. consensus estimations: The consensus forecast for Cambricon is less reliable as only 7 other street analysts
are following the stocks (6 buys, 1 hold). Still, our projection appears to be much more bullish than the street, with the 2024-25
revenue projection 16-20% higher than consensus (Exhibit 85).
EXHIBIT 83: Cambricon's stock has significantly EXHIBIT 84: Cambricon is trading at below historical
outperformed the market by over 80% since the average of 30x NTM EV/Sales. Our valuation of 20x
beginning of 2022, boosted by the AI hype since (NTM+1) close to the lower bound has factored in
ChatGPT and US sanctions on Nvidia’s supply in China downside of its potential binary results this year
380 1Y Forward EV/Sales of Cambricon
330 160x
280
120x
Rebased to 100
230
180 80x
66x
153
130 43x
40x
30x
80 82
20x
30 0x
Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23
1Yr Forward P/S Average

Cambricon MXAPJ Index

Bloomberg, Bernstein analysis

EXHIBIT 85: Cambricon: company model forecast vs. consensus

Bernstein 729 842 1,875 3,232
Growth YoY 1% 15% 123% 72%
Consensus 729 874 1,611 2,689
Growth YoY 1% 20% 84% 67%
Gross profit
Bernstein 479 594 1,343 2,326
GP Margin 66% 71% 72% 72%
Consensus 479 618 1,139 1,905
GP Margin 66% 71% 71% 71%
Operating profit
Bernstein (1,324) (815) (648) (111)
OP Margin (182%) (97%) (35%) (3%)
Consensus (1,324) (757) (532) (179)
OP Margin (182%) (87%) (33%) (7%)
Bernstein vs. consensus (1023bps) (150bps) 323bps
Bernstein (1,257) (791) (620) (106)
Growth YoY (52%) 37% 22% 83%
Consensus (1,257) (734) (475) (126)
Growth YoY 42% 35% 74%

CHINA ANALOG MARKET OUTLOOK

Before hitting the down cycle in 2023, the China Analog sector experienced fast growth at a 17% CAGR in the previous 4
years, driven by the growth of 5G deployment and electric vehicles' adoption. However, compared to our fabless coverage of
digital chips in an early stage of acceleration (server CPU and AI accelerator), China’s Analog market has already completed
0-1 acceleration stage for domestic substitution and reached the mature stage with slower growth. The technology gap in
Analog does not have a dominant parameter (e.g., process node) as measurement, while unique and diverse functions based on
end-customer demand (e.g., better reliability) instead of better numeric values (e.g., higher power) are a strong moat for global
leaders beyond 0-1 substitution, as those rely strongly on experience accumulation.
As aChina’s Analog
result, we expect market
the market has completed
share of domestic suppliers only growthe 0-1toacceleration
from 13% stage
16% (2023-26, see Exhibit forthe
86), with
revenue CAGR slowing down to 17% compared to 46% in the past
domestic substitution and reached maturation with a slower growth years when domestic players took shares during the 0-1
acceleration stage, especially during the chip shortage in 2021 that helped domestics players significantly expanded shares
from 8% to 13%.
 The technology gap in Analog does not have a dominant parameter (e.g., process node) as measurement
 Unique
EXHIBIT 86: China’s Analog
functions market
(e.g., betterhas completed
reliability) 0-1 of
instead acceleration stage
better numeric for domestic
values substitution
(e.g., higher power) areand reached
a strong moat
for global leaders beyond 0-1 substitution
mature stage with slower growth
China Analog and Mixed Signal (AMS) TAM and Domestic Share
USD bn
+8% China
30 ’19-’22 ’22-’23 ’23-’26
28 TAM
-5% CAGR YoY CAGR
+17% 26
25
23 23
17 Global
supplier 15% -6% 7%
15
for China
Domestic
16% supplier 46% 3% 17%
13% 12% 13% 14% 15% for China
6% 8%
2019 2020 2021 2022 2023E 2024E 2025E 2026E
Source: Gartner, Company reports, Bernstein analysis and estimates

Source: Gartner, Company reports, Bernstein estimates and analysis CHINA SEMICONDUCTORS | 57

SILERGY: CHINA'S LARGEST ANALOG SUPPLIER
Investment Thesis
Silergy was founded in 2008 by Dr. Issac (Wei) Chen, a Silicon Valley veteran who held multiple senior positions in the US analog
and PMIC companies (VPT Inc, Linear Technology, and Monolithic Power Systems) before returning to China and founding
Silergy with a diverse group of Chinese and American engineers. As the largest domestic Analog supplier in China, Silergy
offers a wide range of power management and analog IC products, including PMICs, AC/DC concenters, LED solutions, light
sensors, audio power amplifiers, microcontroller, etc. From an end-customer industry perspective, the company’s business
can be broken down into 5 segments: Consumer (the largest and 39% of 2022 revenue), Industrial (33%), Computing (13%),
Communication (11%), and Automotive (4%).
The global analog industry has historically been cyclical, with an average of 3-4 years of cycle since 2010. After reaching the
peak in 2021 due to the chip shortage caused by COVID-19, the capacity expansion and weak macroeconomic conditions since
the Fed rates hike have caused a global oversupply and price pressure. In particular, the current cycle headwind has hit Silergy
hard in 2023, with reported revenue down 37% YoY (Nov'23 YTD), which is much worse than the revenue performance of global
analog leaders such as TI32 (-12% YoY, as of Q3'23 YTD) and ADI33 (+2% YoY, as of FY'23). We rate Silergy Market-Perform.
Our Market-Perform rating on Silergy reflects a balanced view. We like the company’s market positioning, product portfolios,
and R&D competence, and we believe Silergy could recover in the next 2-3 years. However, we believe the short-term share
recovery and EPS momentum are already priced-in, while we expect further share gain from domestic substitution to be limited.
Specifically, our 3 key thesis to support the balanced view on Silergy as illustrated in Exhibit 87:
• After a multi-year market share gain and peaked at 1.9% in 2021, we expect Silergy's domestic market share to drop to
1.1% last year (following a 34% YoY revenue decline from 2022-23E). With the industry cycle likely bottoming out in Q4'23
and Silergy's inventory level returning to a healthier level of around 5 months (only 1 month higher than pre-Covid levels),
we anticipate strong recovery growth for the company in the next 2-3 years, with its China market share returning to 1.5%,
largely at 2020 levels, but still lower than 2021. We also expect its overseas market share to follow a similar recovery trend.
As a result, we are slightly more optimistic than the current sell-side consensus on Silergy's topline recovery in 2025, which
has already baked in over TWD 27bn revenue projection (higher than the historical high of TWD 23.5bn in 2022).
• Still, we anticipate a ~150% EPS CAGR (2023-25) from a low base in 2023, thanks to both revenue growth and ~800 bps
margin recovery from a normalized inventory level and write-off reversal from 2024 (i.e., we expect GPM to recover from
43% to 51% during 2023-25, although still lower than the 53% during 2021-22). As a result, the projected 2025 EPS has
priced in much of the recovery upside potential, even if we assume the recovery path in the next 2 years goes well. In the
short-term, despite Silergy trading at ~60x NTM P/E, higher than 1 standard deviation (48x) of the historical average and
close to the historical high in 2021 (60-70x), we expect such EPS momentum may continue to support the elevated valuation
and caution any investor against trying to short the stock during a strong recovery period.
• Historically, Silergy has been a long-term compounder with over 40% topline growth from 2011-2022. Product expansion
to new categories has been the key success formula for the past few waves of growth (i.e. 0-1 substitution of global Analog
leaders in China domestic market). This is in line with the trend of the overall market share shift of China domestic players,
who saw their aggregated market share double from 6% in 2019 to 12% in 2022. However, we expect the moat from global
leaders for 1-10 substitution to be high, as the technology gap is not measured by a single parameter that will eventually
saturate (e.g., process node). In the Analog sector, many hidden parameters, such as reliability or some special unique feature
specifically designed for a subset of customers that rely on intensive experience accumulation, create a high moat for global
leaders. Among the 5 sub-sectors that Silergy is operating in, we believe only the Auto sector will be experiencing 0-1
substitution and become the key growth driver in the next few years.
32
Texas Instruments Inc (TXN.US), covered by Bernstein analyst Stacy A. Rasgon
33
Analog Devices Inc (ADI.US), covered by Bernstein analyst Stacy A. Rasgon

Market-Perform
Silergy: Short-term share and EPS recovery already priced-in, further
Qingyuan Lin, Ph.D. +852 2918 5759 qingyuan.lin@bernstein.com
share gain from domestic substitution expected to be limited 10 January 2024
EXHIBIT 87: Silergy investment thesis
#1 Recovery might be slow #2 EPS recovery priced-in #3 Challenge beyond 0-1

 Analog cycle hit Silergy hard, share  ~150% EPS CAGR (’23-’25E), but  Moat from global leader for 1-10
in ’25 still lower than ’21 level stock up ~70% to price-in that substitution expected to be high
Share in China Analog & AMS mkt Silergy EPS recovery forecast Share of domestic Analog suppliers
(TWD, 22-25E) in China
-0.8% +0.5%
-85% +151%
1.9% 1.6%
1.1% 16.0 14.5 20%
7.5
2.3 Actual
2021 2023E 2025E ’22 ’23E ’24E ’25E 15% Projection
Revenue growth drivers, ’25E/’23E Revenue CAGR GPM recovery 10%

TAM SAM Ratio Share shift 32% 53%
30% 51% 5%
1.19x X 1x X 1.47x
46%
= ’22-’23E 43%
+8% 0%
2023E
2024E
2025E
2026E
2019
2020
2021
2022
-34%
1.75x
Main Driver: Share shift (recovery) ’19-’22 ’23E-’25E ’22 ’23E ’24E ’25E
Source: Gartner, Bloomberg, Company reporting, Bernstein estimates and analysis

Source: Gartner, Bloomberg, Company reports, Bernstein analysis and estimates CHINA SEMICONDUCTORS | 58


A visual illustration of Silergy’s income statement using the Sankey Diagram can be found in Exhibit 88.
Silergy’s financial performance and projections are illustrated in Exhibit 89, Exhibit 90, Exhibit 91, and Exhibit 92.
Revenue projection: We expect Silergy to have a V-shaped recovery as the industry cycle bottoms out in 2023, with revenue
back to be above 2022’s level by 2025, and achieve an 8% CAGR 2022-26 despite the choppiness during 2023-2024. In the
next 3 years, we expect most of Silergy’s sub-sectors to see market share recovery (in both China and the global market) back to
2022 level, while the Auto sector to achieve 0-1 breakthrough and achieve ~9x growth in 2026, from a low base in 2023.
Gross profit projection: We expect the gross margin to recover to 51% in 2025 due to inventory normalization and write-
off reversal, but in the next few years it will still be lower than the 53% seen at the last cycle's peak. As we expect the industry
cycle likely will bottom out in Q4'23 and Silergy's inventory level returns to a healthier level of around 5 months in Q3’23 (only 1
month higher than pre-Covid levels), we expect inventory adjustments to gradually end during Q4’23 to Q2’24, which will help
the gross margin return to a normal level. However, geopolitical tensions and high interest rates may still pose uncertainties. As
global leaders like TI announced capacity expansion, we believe it will be challenging for Silergy to reach historical peak margin
levels in the next 3 years. Nevertheless, the company is committed to adjusting the product mix by increasing new products to
help offset the industry-wide downward margin pressure.
Operating profit projection: Although revenue recovery will allow Silergy to achieve economies of scale in fixed costs, we
expect that most opex lines will remain higher than 2022 levels even after a full recovery. As a result, the company's OP margin
is only expected to reach 20-22% in 2025-26, compared to the peak level of 25-31% during 2021-22. In particular, due to
geopolitical tensions, Silergy had to localize its designs for mainland China to overcome supply chain challenges. For overseas
customers, the company also continues to emphasize its technological capabilities, both of which will continue to push up R&D
expenses. Additionally, since China's lockdown and supply chain disruptions in 2022, many Analog customers have required a
global supply chain layout. Silergy had to increase investment in Taiwan and add non-mainland China production capacity in the
testing and packaging process, which has led to profit challenges.
EPS projection: As a result, we expect Silergy’s EPS will only return to above the 2022 level in 2026, despite expecting full
revenue recovery by 2025. However, we anticipate a ~150% EPS CAGR (2023-25) from a low base in 2023, thanks to both
revenue growth and ~800 bps gross margin recovery. In the short term, Silergy's EPS momentum may continue to support its P/
E multiple at elevated levels.

Silergy income statement illustrated in Sankey Diagram
EXHIBIT 88: Silergy income statement illustrated in a Sankey Diagram
Silergy 2022 Income Statement Illustration, % of Total Revenue

2022 Revenue: TWD 23.5 bn
The Sankey diagram is produced with RAWGraphs

reports, Bernstein analysis CHINA SEMICONDUCTORS | 60
EXHIBIT 89: We expect Silergy to have a V-shape recovery EXHIBIT 90: We expect gross margin to recover to 51%
as industry cycle bottoming out in 2023 from inventory normalization and write off reversal,
but still lower than the 53% at the peak of last cycle
45 100%
2022-2026 CAGR 8%
40 80% 25 60%
53% 53%
55% 32 51% 51%
35 60% 47% 48% 46% 50%
30 27 20 43%
29% 28% 40%
TWD Bn
24 37% 16
25 14% 22 19% 40%
TWD Bn
9% 20 20% 15 14
20 12
15 11 30%
14 0%
15 11 9
-34% -20% 10
10 7 7 20%
-40% 5
5 5
10%
- -60%
- 0%
Revenue Growth YoY

Gross profit Grosss Profit Margin
Source: Bloomberg, company reporting, Bernstein analysis and estimates
Source: Bloomberg, company reporting, Bernstein analysis and estimates

EXHIBIT 91: We expect Silergy’s OP margin won’t return EXHIBIT 92: We expect a ~150% EPS CAGR (2023-25) from
to historical peak levels due to higher R&D expenses a low base in 2023, thanks to both revenue growth and
and incremental costs to build up a global supply chain ~800 bps gross margin recovery
Operating Profit and OP margin EPS and YoY growth

TWD
8.0 7.1 35%
31% 6.6 222%
7.0 20.0 17.77 250%
30%
5.9 18.0 200%
6.0 22% 22% 25% 5.3 22% 25% 15.95
16.0 15.38 14.55
150%
5.0
TWD Bn
20% 20% 14.0 72% 95%

100%
4.0 3.1 12.0 24% 38% 22%
15% 4% 50%
3.0 2.3 11% 10.0
7.47 0%
2.1 10% 8.0
2.0 6.46 8.93 -85% -50%
5% 6.0
1.0 -3% -100%
4.0
0% 2.32
0.0 2.0 -150%
-1.0 -0.4 -5% 0.0 -200%
Operating profit Operating Profit Margin Basic EPS EPS growth YoY in %
Source: Bloomberg, company reporting, Bernstein analysis and estimates Source: Bloomberg, company reporting, Bernstein analysis and estimates

Valuation
We rate Silergy Market-Perform and set our 12-month target price for Silergy at TWD 460 (4% upside potential). This is based
on our valuation for Silergy at a 31x NTM+1 P/E, close to the historical average level at 34x, reflecting our view that the recovery
story should have priced in. Silergy’s stock has underperformed the market by over 40% since 2022, which is unsurprising
due to its disappointing earnings during the market downturn. However, it recently picked up nicely as investors increasingly
returned to the stock on the 2024-25 recovery story.
Downside risks: Despite anticipating a ~150% EPS CAGR (2023-25) from a low base in 2023, thanks to both revenue growth
and ~800 bps gross margin recovery, we expect the Analog oversupply at global level (i.e., global leaders like TI announced
capacity expansion) may lead to future margin pressures, while Silergy’s post-recovery revenue growth (i.e., 1-10 substitution
story) is still in doubt for the long term.
Upside risks: In the short term, we believe the potential earnings beat in 2024 could lead to a higher valuation for an extended
period. The fast adoption of Automotive and AI computing products may also surprise the market with stronger top-line growth
of Silergy.
Bernstein vs. consensus estimations: The consensus forecast for Silergy is the most divergent among our coverage (9 buys,
5 holds, 6 sells), with the highest street TP at TWD 550-600 while the lowest below TWD 200. Our projection for Silergy is
currently leaning toward the median but still on the bullish side. We expect that the top-line forecast will broadly align with the
industry recovery story (only better than consensus by 5% in 2025), but we expect better margin recovery that may lead to a
slightly stronger operating profit and bottom line.
EXHIBIT 93: Silergy’s stock has underperformed the EXHIBIT 94: Silergy is trading at elevated multiples,
market by over 40% since 2022 during the market which has priced in strong EPS recovery; our valuation
downturn at a 31x NTM+1 P/E is close to the historical average
1Y Forward P/E of Silergy

120
80x
100 70x
60x 60x
Rebased to 100
80 82 50x
48x
40x
60
30x 34x
46 20x
40
20x
10x
20 0x
1Yr Forward P/E Average

Silergy MXAPJ Index


EXHIBIT 95: Silergy: company model forecast vs. consensus

Revenue (TWD mn) 2022 2023E 2024E 2025E
Bernstein 23,511 15,413 19,743 27,034
Growth YoY 9% (34%) 28% 37%
Consensus 23,511 15,496 19,958 25,725
Growth YoY 9% (34%) 29% 29%
Gross profit
Bernstein 12,359 6,603 9,161 13,742
GP Margin 53% 43% 46% 51%
Consensus 12,359 6,677 9,421 13,051
GP Margin 53% 43% 47% 51%
Bernstein vs. consensus (24bps) (81bps) 10bps
Operating profit
Bernstein 5,945 (424) 2,137 5,340
OP Margin 25% (3%) 11% 20%
Consensus 5,945 (411) 2,124 5,045
OP Margin 25% (3%) 11% 20%
Bernstein 6,039 885 2,853 5,558
Growth YoY 5% (85%) 222% 95%
Consensus 6,039 923 2,761 5,345
Growth YoY 5% (85%) 199% 94%

ESG CONSIDERATIONS
ESG SCORES
For ESG considerations in our sector, we have adopted Bloomberg's ESG Scores as a standard quantitative measurement to
compare our coverage companies with peers in the global semiconductor sector (a total of 326 companies). Bloomberg's ESG
Scores evaluate each year how well a company handles ESG issues that have a material impact on its financial performance,
with a scale of 0-10 on the overall ESG score and each pillar. In our analysis, all companies' ESG scores are based on FY2022
results (except for Hua Hong as of FY2021), while Piotech and Hygon scores are not yet available due to more recent IPOs.
From an overall ESG performance perspective, the semicap and foundry companies in our coverage have higher ESG scores
and have largely outperformed the industry median, while the fabless companies have lagged behind global peers (Exhibit
96). In particular, we have found that Cambricon has significantly lagged behind the industry in the social pillar, particularly in
Operating Risk Management, Labor and Employment Practices, and Data Security and Customer Privacy. We believe this is
more due to a lack of disclosure rather than poor performance in social matters, as Bloomberg did not assign any scores in
these three areas that dragged down the overall rating. Although its overall score for environmental issues appears to be low,
Cambricon outperformed the industry median in Energy Management, thanks to its overall grid electricity usage efficiency. For
Silergy, we have found similar issues where there has been little disclosure captured by Bloomberg on both environmental and
social pillars, resulting in overall scores lagging behind.
That said, our coverage companies are showing strength in the governance pillar. Among the 3 ESG pillars, our coverage
companies scored best in terms of governance (Exhibit 97), including board composition (director roles and board tenor),
shareholder rights (voting rights and takeover defense), and Audit (audit committee and audit outcome).
AMEC received the highest overall score (3.6) among our coverage companies in FY2022, which was supported by its strong
environmental scores that led the industry (81st percentile) and social scores that were above the median (60th percentile),
although its governance score slightly lagged behind. Nevertheless, AMEC achieved an overall balanced ESG score of 25%
above the industry median (2.88). In particular, the company received a 10/10 rating in various environmental and social
areas, such as Water Use Policies, Energy-efficient Product Offerings, and Hazardous Waste Management Policy. The
company's social scores also outperformed peers with a strong 10/10 rating in Business Ethics (Anti-Bribery Ethics Policy) and
Competitive Behavior (Anti-Competition policy). Lastly, despite lagging behind peers in the governance pillar, there were still
bright spots as AMEC scored 10/10 in Shareholder Voting Rights.
EXHIBIT 96: The semicap and foundry companies in our coverage have higher ESG scores, while fabless lagged
global peers
Bloomberg ESG Disclosure Scores (overall)

4 3.6
3.5
3.0 3.0
3
2.5 2.3 Global semiconductor median: 2.88
2
1.5 1.3
1.0
1
0.5
0
NAURA AMEC SMIC Hua Hong Cambricon Silergy
All companies’ scores are based on FY2022 disclosure (Except for Hua Hong as of FY2021). Piotech and Hygon scores are not yet available due to more recent
IPOs
Source: Bloomberg, Company reporting, Bernstein analysis

EXHIBIT 97: ESG Disclosure Scores of coverage companies showing strength in the governance pillar
Bloomberg ESG Disclosure Scores (by ESG pillar)

6 5.5 5.6
5.1 5.1
5 4.3 4.3
4 3.7
3 2.3 2.4 2.5

2.0
2 1.6
1.3 1.1
1 0.3 0.1 0.4
0
NAURA AMEC SMIC Hua Hong Cambricon Silergy
Environmental Social Governance
All companies’ scores are based on FY2022 disclosure (Except for Hua Hong as of FY2021). Piotech and Hygon scores are not yet available due to more recent
IPOs
KEY ESG TOPICS AND MATERIALITY MATRIX

For a qualitative approach evaluating key ESG topics and materiality matrix, we have looked into the Sustainable Accounting
Standards Board (SASB) Standards, which provide a framework for identifying and reporting on financially material ESG
topics — both for general issue categories and key issues specific to the semiconductor industry (i.e., Relevant Issues) (Exhibit
98).
Among the five dimensions under the SASB Standards, we can see that issues in the Environmental, Human Capital, and
Business Model and Innovation categories are most critical for investors to measure the sustainability-related risks, while
none of the Social Capital issues are identified as key issues for the semiconductor industry. While some social issues, such
as Human Rights and Community Relations, Customer Privacy, and Data Security, are critical to other industries, we believe
they may not be as financially material for the semiconductor industry. For instance, Human Rights and Community Relations
may have more financial significance for industries that rely heavily on labor-intensive manufacturing processes (e.g., the
apparel and footwear industry) or significantly impact local communities. As for Customer Privacy and Data Security, although
semiconductor companies are responsible for protecting customer data, the financial impact of a data breach may not be as
significant for them as it would be for other industries such as healthcare or financial services.
On the other hand, Environmental issues are at the top of the list as key relevant issues for the semiconductor industry due
to the nature of their operations. Semiconductor manufacturing processes require significant amounts of energy and water,
making GHG Emissions and Energy Management critical issues for the industry. Managing these issues effectively can have
an impact on both daily operational costs and regulatory compliance, as well as the reputation of semiconductor companies.
Additionally, semiconductor manufacturing processes can generate waste and hazardous materials that can harm the
environment and public health if improperly managed. Therefore, these environmental issues are financially material for the
semiconductor industry.
Despite none of the Social Capital issues being identified, certain ESG social issues are deemed critical to the semiconductor
industry by SASB, particularly internal Human Capital issues such as Employee Health and safety, Employee Engagement, and
Diversity and inclusion. This is because these issues can impact the company's ability to attract and retain talent - a key area
that is financially material to semiconductor companies as human resources are arguably the scarcest resources in the industry,
and a talented and diverse workforce can drive innovation and improve overall business performance. Additionally, effective
management of these issues can improve the productivity and well-being of the employee base, leading to a more engaged and
motivated workforce.

Furthermore, a key governance issue, Competitive Behavior, has been identified by SASB Standards for the semiconductor
industry, which is mainly associated with a company's policies and procedures for IP protection and ensuring ethical and fair
competitive behavior. For example, the global legal battles between Qualcomm34 and Apple35 on patents, which lasted for two
years from 2017 to 2019 and incurred significant legal and operational costs for both companies, highlight the importance of
effectively managing Competitive Behavior issues in the semiconductor industry.
Lastly, we present our ESG materiality matrix for China Semiconductors (Exhibit 99) focusing on the Governance pillar
as supplementary to the key issues from SASB Standards. Particularly, we believe the most important issues for our coverage
companies in China are regulation compliance, supply chain, and IP protection. Compared to their global peers, Chinese
semiconductor companies are subject to various regulations and US scrutiny, including export controls, national security
concerns, and data privacy regulations. They can also be vulnerable to supply chain disruptions, as many still rely heavily on
advanced node manufacturing capacity or the equipment supply. Compliance with these regulations is critical to avoid the
increased US sanctions and Entity List risks.
EXHIBIT 98: Key industry topics identified by SASB Standards that are useful for investors to measure the
sustainability-related risks in the semiconductor industry (i.e., Relevant Issues)
Relevant Issues for Disclosure Topics for
Dimension General Issue Category
Semiconductor? Semiconductors
GHG Emissions YES Greenhouse Gas Emissions
Air Quality
Energy Management in
Energy Management YES
Manufacturing
Environment
Water & Wastewater Management YES Water Management
Waste & Hazardous Materials
YES Waste Management
Management
Ecological Impacts
Human Rights & Community Relations
Customer Privacy
Data Security
Social Capital Access & Affordability
Product Quality & Safety
Customer Welfare
Selling Practices & Product Labeling
Labor Practices
Employee Health & Safety YES Employee Health & Safety
Human Capital
Employee Engagement, Diversity & Recruiting & Managing a Global &
YES
Inclusion Skilled Workforce
Product Design & Lifecycle Management YES Product Lifecycle Management
Business Model Resilience
Business Model and Innovation
Supply Chain Management
Materials Sourcing & Efficiency YES Materials Sourcing
Physical Impacts of Climate Change
Business Ethics
Competitive Behavior YES Intellectual Property Protection &

Competitive Behaviour
Leadership and Governance
Management of the Legal & Regulatory
Environment
Critical Incident Risk Management
Systemic Risk Management
Source: SASB Standards, Bernstein analysis
34
Qualcomm Inc (QCOM.US), covered by Bernstein analyst Stacy A. Rasgon
35
Apple Inc (AAPL.US), covered by Bernstein analyst A.M. (Toni) Sacconaghi, Jr.

ESG materiality matrix: Governance pillar in relation to regulation
compliance,
EXHIBIT supply
99: ESG materiality matrix: chain, and
Governance pillarIP are key
in relation topicscompliance,
to regulation in our supply
coverage
chain, and IP are
key topics in our coverage
China Semiconductors Industry

ESG Materiality Framework
Regulation
compliance
US persons in key
Importance to ESG Stakeholders
management
Audit practice Supply chain
concentration
Executive IP protection
Board /
Carbon footprint and compensation and
Management
energy efficiency accountability
Diversity
Social impact from
Shareholder business continuity
rights Ownership (sanction) risk Risk management
concentration / practices
Labor practices and
Renewable energy control
Community working conditions
adoption engagement
Employee health
and safety
Water conservation
and management
Financial Materiality to the Company
Environmental pillar Social pillar Governance pillar Key drivers
Source: Bloomberg, Company reporting, Bernstein analysis CHINA SEMICONDUCTORS | 66


APPENDIX - FINANCIAL FORECASTS
EXHIBIT 100: NAURA (002371.CH) - Income Statement

NAURA (002371.CH) - Income Statement
(in RMB million, unless otherwise stated) 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E
Revenue 1,622 2,223 3,324 4,058 6,056 9,683 14,688 21,004 27,419 34,879 42,510
Cost of sales (978) (1,410) (2,048) (2,413) (3,834) (5,867) (8,250) (12,022) (15,436) (19,578) (23,775)
Gross profit 645 813 1,276 1,645 2,222 3,817 6,438 8,982 11,983 15,301 18,735
Total SG&A (1,013) (920) (672) (797) (1,205) (1,705) (2,224) (2,792) (3,836) (4,643) (5,668)
R&D expenses - - (351) (525) (670) (1,297) (1,845) (2,361) (2,869) (3,772) (4,597)
Financial income / (expense) (27) (27) (48) (99) 43 46 83 81 104 118 136
Net income from investment - - - - 1 1 0 1 0 0 0
Other gain / (loss) (45) 330 130 196 279 375 414 675 685 872 1,063
Operating Profit (441) 196 334 421 669 1,236 2,867 4,586 6,067 7,876 9,668
Non-operating activities 615 10 11 19 15 16 (13) 7 - - -
Profit before taxation 174 206 345 439 684 1,253 2,854 4,593 6,067 7,876 9,668
Income tax (36) (38) (62) (70) (53) (59) (313) (623) (822) (1,068) (1,311)
Net Profit 138 167 283 370 631 1,193 2,541 3,971 5,244 6,808 8,358
Profit attributable to:
Equity shareholders of the Company 93 126 234 309 537 1,077 2,353 3,764 4,930 6,400 7,865
Non-controlling interests 45 42 49 61 94 116 188 207 314 408 493
Basic EPS (RMB) 0.22 0.27 0.51 0.67 1.09 2.15 4.46 7.11 9.31 12.08 14.84
Diluted EPS (RMB) 0.22 0.27 0.51 0.67 1.09 2.15 4.45 7.08 9.25 12.01 14.75
W.A. shares outstanding (mn) 458 461 491 502 527 530 530 530 530
Margins
Gross profit 40% 37% 38% 41% 37% 39% 44% 43% 44% 44% 44%
Operating profit (27%) 9% 10% 10% 11% 13% 20% 22% 22% 23% 23%
EBIT 12% 10% 12% 13% 11% 12% 19% 21% 22% 22% 22%
Profit before tax 11% 9% 10% 11% 11% 13% 19% 22% 22% 23% 23%
Net income (attributable) 6% 6% 7% 8% 9% 11% 16% 18% 18% 18% 19%
EXHIBIT 101: NAURA (002371.CH) - Balance Sheet

NAURA (002371.CH) - Balance Sheet
Cash & equivalents 964 1,020 1,038 2,875 2,642 9,068 10,435 11,231 12,459 12,853 15,851
Financial assets held for trading -- -- -- -- -- -- -- -- -- -- --
Accounts & other receivables, prepayments 1,087 1,301 1,462 1,875 2,797 4,187 6,359 8,157 10,376 13,027 15,812
Inventories 1,178 2,033 3,015 3,636 4,933 8,035 13,041 14,651 18,611 23,815 28,137
Other current assets 116 107 89 84 642 1,034 1,283 1,104 1,570 1,949 2,419
Total current assets 3,346 4,461 5,604 8,470 11,014 22,323 31,117 35,143 43,016 51,644 62,219
Total PP&E, intangible assets, ROU and investment

3,101
property 3,593 4,288 5,102 6,166 8,064 10,854 12,993 14,911 17,452 20,591
Long-term equity investment -- -- -- 20 34 33 25 26 26 26 26
Other non-current assets 94 91 109 144 304 635 555 693 693 693 693
Total non-current assets 3,195 3,685 4,397 5,265 6,504 8,732 11,434 13,712 15,630 18,171 21,310
Total assets 6,541 8,145 10,001 13,735 17,518 31,054 42,551 48,856 58,646 69,815 83,529
Accounts payables and other payables 1,269 2,463 3,458 3,672 3,371 4,945 7,271 9,138 11,541 14,401 17,334
Short-term borrowings 437 430 552 878 522 -- 227 -- -- -- --
Contract Liabilities -- -- -- -- 3,048 5,046 7,198 6,312 8,548 10,693 13,419
Other current liabilities 1 91 415 241 959 1,277 1,074 1,368 1,899 2,096 2,842
Total Current Liabilities 1,707 2,984 4,425 4,791 7,900 11,268 15,770 16,818 21,988 27,191 33,594
Long-term borrowings 60 436 328 1,113 10 -- 3,740 5,354 5,354 5,354 5,354
Other non-current liabilities 1,410 1,246 1,497 1,731 2,496 2,588 3,057 3,001 3,001 3,001 3,001
Total Non Current Liabilities 1,470 1,681 1,825 2,844 2,506 2,588 6,797 8,355 8,355 8,355 8,355
Total liabilities 3,177 4,665 6,250 7,635 10,406 13,856 22,567 25,173 30,343 35,546 41,949
Capital Reserve & Additional Add-in Capital 2,346 2,346 2,363 4,389 4,964 14,058 14,596 14,711 14,711 14,711 14,711
Less: Treasury Stock -- -- -- -- (154) (152) (90) (45) (45) (45) (45)
Retained earnings / (accumulated deficit) 847 962 1,183 1,467 1,973 2,996 5,241 8,504 12,810 18,368 25,186
Other comprehensive income / (loss) & Other equity tools
(1) (1) 1 0 (1) (4) (0) 7 7 7 7
Total Shareholders Equity 3,192 3,308 3,548 5,856 6,781 16,898 19,746 23,177 27,483 33,041 39,859
Minority shareholders’ interest 172 173 204 244 331 301 238 506 820 1,228 1,721
Total Equity 3,364 3,480 3,751 6,100 7,112 17,198 19,984 23,683 28,303 34,269 41,580
Total Liabilities & Equity 6,541 8,145 10,001 13,735 17,518 31,054 42,551 48,856 58,646 69,815 83,529
EXHIBIT 102: NAURA (002371.CH) - Cash Flow Statement

NAURA (002371.CH) - Cash Flow Statement
Net income 138 167 283 370 631 1,193 2,541 3,971 5,244 6,808 8,358
Depreciation & Amortization 193 200 265 307 364 460 552 692 825 947 1,112
Change in working capital (592) 61 444 (755) 1,455 (902) (2,684) (2,010) (1,475) (3,031) (1,174)
Other operating cashflow 59 (396) (1,013) (862) (1,064) (1,529) (1,137) (791) - - -
Net cash (used in) / generated from operating activities
(201) 32 (20) (941) 1,385 (777) (728) 1,862 4,594 4,724 8,296
Net capex (178) (232) (244) (170) (659) (447) (1,408) (2,118) (2,742) (3,488) (4,251)
Other investing cashflow 1 0 0 (19) (5) 0 (14) (62) - - -
Net cash used in investing activities (177) (232) (243) (189) (663) (447) (1,422) (2,180) (2,742) (3,488) (4,251)
Change in debt 99 332 335 1,080 (1,059) (602) 3,453 1,387 - - -

Change in equity 917 0 17 2,025 576 9,094 538 115 - - -
Cash Paid for Distribution of Dividends, Profit and Repayment
(49) of Interest
(62) (83) (110) (91) (114) (241) (265) (624) (842) (1,047)
Other Cash Paid Related to Financing Activities (0) (6) (19) (44) (379) (697) (405) (67) - - -
Net cash used in financing activities 967 264 250 2,951 (953) 7,680 3,345 1,169 (624) (842) (1,047)
Net change in cash during period 588 63 (6) 1,819 (235) 6,453 1,231 889 1,228 394 2,998
Cash and cash equivalents at period end 964 1,020 1,038 2,875 2,642 9,068 10,435 11,231 12,459 12,853 15,851

EXHIBIT 103: AMEC (688012.CH) - Income Statement

AMEC (688012.CH) - Income Statement
Revenue 610 972 1,639 1,947 2,273 3,108 4,740 6,328 8,764 11,676 15,077
Cost of sales (350) (597) (1,057) (1,267) (1,417) (1,761) (2,572) (3,375) (4,633) (6,154) (7,926)
Gross profit 259 375 582 680 856 1,348 2,168 2,953 4,131 5,523 7,151
Total SG&A (189) (247) (347) (306) (390) (499) (645) (802) (1,122) (1,495) (1,930)
R&D expenses (302) (57) (118) (234) (331) (398) (605) (710) (964) (1,168) (1,508)
Financial income / (expense) (2) (18) (10) 1 7 71 151 113 125 135 164
Net income from investment (109) 1 (2) 9 284 437 137 342 103 103 103
Other gain / (loss) (8) (6) 43 47 87 174 56 15 - - -
Operating Profit (352) 49 147 198 515 1,133 1,263 1,911 2,273 3,099 3,981
Non-operating activities 116 0 0 0 (2) (0) (4) 1 - - -
Profit before taxation (236) 49 147 198 513 1,133 1,259 1,912 2,273 3,099 3,981
Income tax (3) (19) (56) (10) (20) (122) (91) (213) (250) (341) (438)
Net Profit (239) 30 91 189 492 1,011 1,168 1,700 2,023 2,758 3,543
Equity shareholders of the Company (239) 30 91 189 492 1,011 1,170 1,701 2,025 2,761 3,547
Non-controlling interests - - (0) 0 0 (0) (2) (1) (2) (3) (4)
Basic EPS (RMB) 0.20 0.37 0.92 1.76 1.90 2.74 3.23 4.40 5.65
Diluted EPS (RMB) 0.20 0.37 0.92 1.76 1.90 2.73 3.23 4.40 5.65
W.A. shares outstanding (mn) 454 510 535 575 616 621 627 627 627
Margins
Gross profit 43% 39% 36% 35% 38% 43% 46% 47% 47% 47% 47%
Operating profit (58%) 5% 9% 10% 23% 36% 27% 30% 26% 27% 26%
EBIT (38%) 7% 10% 10% 22% 34% 23% 28% 25% 25% 25%
Profit before tax (39%) 5% 9% 10% 23% 36% 27% 30% 26% 27% 26%
Net income (attributable) (39%) 3% 6% 10% 22% 33% 25% 27% 23% 24% 24%
EXHIBIT 104: AMEC (688012.CH) - Balance Sheet

AMEC (688012.CH) - Balance Sheet
Cash & equivalents 204 333 670 945 1,132 8,659 7,326 7,510 6,924 8,338 9,889
Financial assets held for trading -- -- -- 1,368 1,505 2,511 2,939 2,413 2,413 2,413 2,413
Accounts & other receivables, prepayments 226 532 538 391 426 643 774 1,136 1,679 2,250 2,913
Inventories 331 894 1,248 1,088 1,064 1,762 3,402 4,075 6,263 8,170 10,726
Other current assets 12 5 400 54 71 156 214 213 292 388 505
Total current assets 773 1,764 2,856 3,846 4,198 13,731 14,655 15,348 17,571 21,560 26,446
Total PP&E, intangible assets, ROU and investment property 207 357 532 698 765 1,473 2,275 2,939 3,880 4,128 4,525
Long-term equity investment 88 116 120 169 424 555 979 984 984 984 984
Other non-current assets 11 40 25 61 414 975 2,125 2,389 2,389 2,389 2,389
Total non-current assets 306 513 677 928 1,603 3,002 5,380 6,312 7,252 7,501 7,898
Total assets 1,079 2,276 3,533 4,774 5,801 16,733 20,035 21,660 24,823 29,061 34,344
Accounts payables and other payables 1,478 1,453 1,247 856 578 1,135 1,659 2,126 3,076 4,097 5,291
Short-term borrowings 92 231 72 -- -- -- -- -- -- -- --
Contract Liabilities -- -- -- -- 592 1,372 2,195 1,714 2,356 3,118 4,059
Other current liabilities 103 13 30 40 63 64 65 107 150 200 266
Total Current Liabilities 1,674 1,697 1,349 896 1,233 2,571 3,919 3,947 5,582 7,415 9,617
Long-term borrowings 216 224 -- -- -- -- 500 250 -- -- --

Other non-current liabilities 60 88 67 127 199 222 133 103 103 103 103
Total Non Current Liabilities 275 313 67 127 199 222 633 353 103 103 103
Total liabilities 1,949 2,010 1,416 1,023 1,432 2,793 4,552 4,300 5,685 7,518 9,720
Capital Reserve & Additional Add-in Capital 2,368 3,474 2,779 4,224 4,354 12,904 13,263 13,559 13,559 13,559 13,559
Less: Treasury Stock -- -- -- -- -- -- -- -- -- -- --
Retained earnings / (accumulated deficit) (3,305) (3,275) (644) (455) 37 1,048 2,218 3,799 5,579 7,987 11,072
Other comprehensive income / (loss) & Other equity tools 67 68 (19) (17) (22) (12) 3 5 5 5 5
Total Shareholders Equity (871) 266 2,116 3,751 4,369 13,940 15,484 17,363 19,143 21,551 24,636
Minority shareholders’ interest -- -- (0) 0 0 0 (1) (3) (5) (8) (12)
Total Equity (871) 266 2,116 3,751 4,369 13,940 15,483 17,360 19,138 21,543 24,624
EXHIBIT 105: AMEC (688012.CH) - Cash Flow Statement

AMEC (688012.CH) - Cash Flow Statement
Net income (239) 30 91 189 492 1,011 1,168 1,700 2,023 2,758 3,543
Depreciation & Amortization 33 15 23 33 84 105 142 206 265 336 356
Change in working capital (5) (949) (966) 331 382 361 (569) (1,037) (1,174) (742) (1,134)
Other operating cashflow 109 754 1,113 (419) (112) (461) (123) (801) - - -
Net cash (used in) / generated from operating activities (102) (150) 261 133 846 1,016 618 68 1,114 2,351 2,766
Net capex (55) (18) (25) (45) (252) (496) (1,504) (957) (1,205) (584) (754)
Other investing cashflow (89) (4) (390) (1,121) (297) (5,648) (1,234) 2,246 - - -
Net cash used in investing activities (144) (22) (416) (1,166) (549) (6,144) (2,738) 1,289 (1,205) (584) (754)
Change in debt 4 72 (393) (72) 2 - 497 (250) (250) - -

Change in equity 1,106 1,106 (694) 1,444 130 8,550 359 296 - - -
Cash Paid for Distribution of Dividends, Profit and Repayment of Interest
(14) (14) (12) (1) (0) - - (244) (244) (354) (462)
Other Cash Paid Related to Financing Activities (823) (791) 1,830 (4) (132) (264) (374) 276 - - -
Net cash used in financing activities 273 373 731 1,368 1 8,286 482 77 (494) (354) (462)
Net change in cash during period 30 196 586 340 273 3,144 (1,569) 1,463 (586) 1,414 1,550
Cash and cash equivalents at period end 204 333 670 945 1,132 8,659 7,326 7,510 6,924 8,338 9,889

EXHIBIT 106: Piotech (688072.CH) - Income Statement

Piotech (688072.CH) - Income Statement
(in RMB million, unless otherwise stated) 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E
Revenue 71 251 436 758 1,706 2,890 4,337 5,979 7,618
Cost of sales (48) (171) (287) (424) (865) (1,433) (2,141) (2,954) (3,761)
Gross profit 22 80 148 334 840 1,457 2,196 3,025 3,857
Total SG&A (63) (68) (94) (142) (273) (516) (708) (976) (1,244)
R&D expenses (108) (74) (123) (288) (379) (625) (944) (1,196) (1,447)
Financial income / (expense) 3 3 10 19 18 25 31 28 34
Net income from investment - - - - 14 9 10 10 10
Other gain / (loss) 42 40 45 133 136 190 292 405 510
Operating Profit (103) (19) (14) 56 357 540 877 1,295 1,720
Non-operating activities 0 0 2 11 8 0 - - -
Profit before taxation (103) (19) (12) 67 364 540 877 1,295 1,720
Income tax - - - (0) - (0) (90) (133) (176)
Net Profit (103) (19) (12) 67 364 540 787 1,163 1,544
Equity shareholders of the Company (103) (19) (11) 68 369 542 793 1,171 1,556
Non-controlling interests - - (0) (2) (4) (2) (6) (9) (12)
Basic EPS (RMB) - - - 0.72 3.18 2.89 4.24 6.26 8.31
Diluted EPS (RMB) - - - 0.72 3.17 2.79 4.09 6.04 8.02
W.A. shares outstanding (mn) - - - 95 116 187 187 187 187
Margins
Gross profit 32% 32% 34% 44% 49% 50% 51% 51% 51%
Operating profit (146%) (8%) (3%) 7% 21% 19% 20% 22% 23%
EBIT (151%) (9%) (5%) 6% 20% 18% 19% 21% 22%
Profit before tax (146%) (8%) (3%) 9% 21% 19% 20% 22% 23%
Net income (attributable) (146%) (8%) (3%) 9% 22% 19% 18% 20% 20%
EXHIBIT 107: Piotech (688072.CH) - Balance Sheet

Piotech (688072.CH) - Balance Sheet
Cash & equivalents 275 362 1,004 965 3,827 3,063 2,274 2,429 2,742
Financial assets held for trading -- -- -- -- 46 46 46 46 46
Accounts & other receivables, prepayments 80 137 79 158 385 564 873 1,191 1,508
Inventories 322 350 512 953 2,297 3,350 5,582 7,467 9,574
Other current assets 16 7 14 98 266 200 365 506 687
Total current assets 694 857 1,609 2,175 6,820 7,223 9,140 11,640 14,558
Total PP&E, intangible assets, ROU and investment property 232 218 203 333 439 837 1,347 1,519 1,757
Long-term equity investment -- -- -- -- -- -- -- -- --
Other non-current assets 0 -- 2 10 54 121 121 121 121
Total non-current assets 232 218 205 343 493 958 1,468 1,641 1,878
Total assets 926 1,074 1,814 2,518 7,313 8,182 10,609 13,280 16,436
Accounts payables and other payables 146 201 242 464 967 1,383 2,219 3,004 3,812
Short-term borrowings 30 -- -- -- 400 400 400 400 400
Contract Liabilities -- -- 134 488 1,397 1,087 1,890 2,663 3,555
Other current liabilities -- -- 17 64 183 145 254 357 478
Total Current Liabilities 176 201 394 1,016 2,947 3,015 4,763 6,424 8,245
Long-term borrowings -- -- -- -- 270 550 550 550 550

Other non-current liabilities 56 59 298 309 389 358 358 358 358
Total Non Current Liabilities 56 59 298 309 659 908 908 908 908
Total liabilities 232 260 692 1,324 3,605 3,923 5,671 7,332 9,153
Capital Reserve & Additional Add-in Capital 917 1,056 1,376 1,098 3,248 3,336 3,336 3,336 3,336
Less: Treasury Stock -- -- -- -- -- -- -- -- --
Retained earnings / (accumulated deficit) (223) (242) (253) 95 464 929 1,613 2,633 3,979
Other comprehensive income / (loss) & Other equity tools -- -- -- -- -- 0 0 0 0
Total Shareholders Equity 694 814 1,122 1,193 3,712 4,265 4,949 5,969 7,315
Minority shareholders’ interest -- -- 0 1 (4) (6) (12) (20) (32)
Total Equity 694 814 1,122 1,193 3,708 4,259 4,938 5,949 7,283
Total Liabilities & Equity 926 1,074 1,814 2,518 7,313 8,182 10,609 13,280 16,436
EXHIBIT 108: Piotech (688072.CH) - Cash Flow Statement

Piotech (688072.CH) - Cash Flow Statement
Net income (103) (19) (12) 67 364 540 787 1,163 1,544
Depreciation & Amortization 17 18 17 18 29 50 85 127 143
Change in working capital (217) (18) 321 28 (126) (1,130) (957) (684) (783)
Other operating cashflow 175 (2) (18) 25 (19) 8 - - -
Net cash (used in) / generated from operating activities (128) (22) 309 137 248 (532) (85) 606 904
Net capex (6) (14) (6) (150) (111) (453) (595) (299) (381)
Other investing cashflow 0 - 0 0 (40) (45) - - -
Net cash used in investing activities (6) (14) (5) (150) (151) (498) (595) (299) (381)
Change in debt (43) (30) - - 670 280 - - -

Change in equity 917 139 319 (278) 2,150 88 - - -
Cash Paid for Distribution of Dividends, Profit and Repayment of Interest
(2) (1) - - (1) (69) (108) (152) (210)
Other Cash Paid Related to Financing Activities (917) 11 (17) 275 (29) (55) - - -
Net cash used in financing activities (45) 119 302 (3) 2,790 244 (108) (152) (210)
Net change in cash during period (179) 83 605 (15) 2,890 (786) (789) 155 313
Cash and cash equivalents at period end 275 362 1,004 965 3,827 3,063 2,274 2,429 2,742

EXHIBIT 109: SMIC (981.HK) Financial Statements

2022 2023
US$ in Millions Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4E 2022 2023E 2024E 2025E 2026E
Income Statement
Net Sales 1,842 1,903 1,907 1,621 1,462 1,560 1,621 1,669 7,273 6,313 7,482 9,364 11,534
Gross Profit 750 750 742 519 305 317 322 299 2,762 1,242 1,451 2,124 2,820
SG&A Expense+Govt Grants 49 24 81 39 54 59 61 60 193 234 220 208 288
R&D Expense 165 187 183 197 168 178 173 184 733 702 673 830 1,038
EBIT 536 539 478 282 83 80 87 55 1,836 306 557 1,086 1,493
EBITDA 1,070 1,097 1,054 887 715 736 767 792 4,107 3,010 4,035 5,371 6,438
Non-operating Income 38 97 107 137 193 416 80 200 378 889 515 540 629
Pretax Income 574 636 585 419 276 496 168 255 2,214 1,194 1,072 1,625 2,122
Tax 5 7 10 (6) 9 32 11 9 16 61 40 60 79
Net Income 447 514 471 386 231 403 94 201 1,818 929 847 1,283 1,675
Earnings Per Share (US$ in Cents) 5.66 6.51 5.95 4.87 2.92 5.08 1.18 2.53 22.99 11.71 10.46 15.47 19.72
Margin Analysis
Gross Profit 40.7% 39.4% 38.9% 32.0% 20.8% 20.3% 19.8% 17.9% 38.0% 19.7% 19.4% 22.7% 24.4%
EBIT 29.1% 28.3% 25.1% 17.4% 5.7% 5.1% 5.4% 3.3% 25.2% 4.8% 7.4% 11.6% 12.9%
EBITDA 58.1% 57.6% 55.3% 54.7% 48.9% 47.2% 47.3% 47.5% 56.5% 47.7% 53.9% 57.4% 55.8%
Pretax Income 31.2% 33.4% 30.7% 25.9% 18.9% 31.8% 10.4% 15.3% 30.4% 18.9% 14.3% 17.4% 18.4%
Net Income 24.3% 27.0% 24.7% 23.8% 15.8% 25.8% 5.8% 12.0% 25.0% 14.7% 11.3% 13.7% 14.5%
Sequential Growth
Net Sales 16.6% 3.3% 0.2% -15.0% -9.8% 6.7% 3.9% 3.0% 33.6% -13.2% 18.5% 25.2% 23.2%
Gross Profit 35.7% 0.0% -1.1% -30.1% -41.3% 3.9% 1.6% -7.1% 64.8% -55.0% 16.8% 46.4% 32.7%
EBIT 27.6% 0.6% -11.4% -40.9% -70.5% -4.2% 9.5% -36.9% 31.8% -83.4% 82.3% 94.9% 37.5%
EBITDA 15.2% 2.5% -3.9% -15.9% -19.4% 3.0% 4.1% 3.3% 25.9% -26.7% 34.1% 33.1% 19.9%
Pretax -9.1% 10.8% -8.1% -28.3% -34.2% 79.7% -66.1% 51.8% 20.3% -46.1% -10.2% 51.6% 30.5%
Net Income -16.2% 15.0% -8% -18.1% -40.1% 74.3% -77% 114.0% 6.8% -48.9% -8.9% 51.6% 30.5%
Earnings Per Share -16.2% 15.0% -8% -18.2% -40.0% 74.0% -77% 113.2% 6.7% -49.1% -10.7% 47.9% 27.5%
Balance Sheet
Cash and Cash Equivalents 6,933 6,037 5,007 5,243 5,569
Accounts Receivable 1,303 1,425 1,651 1,928 2,156
Inventory 1,911 2,547 3,021 3,562 3,937
Net Fixed Assets 18,856 23,744 26,866 28,981 29,407
Total Assets 43,808 47,666 50,640 54,052 55,529
Accounts Payable 3,022 3,541 3,981 4,583 5,232
Total Debt 8,585 10,030 10,850 11,378 11,423
Shareholders' Equity 19,150 20,120 20,967 22,251 22,612
Minority Interests & PSCS 9,811 10,710 10,895 11,177 11,256
Cash Flow
Cash Flow From Operations 5,348 3,207 4,750 6,107 7,368
Cash Flow From Investments (10,392) (6,223) (6,600) (6,400) (6,400)
Cash Flow From Financing 3,614 2,445 820 529 306
Depreciation & Amortization 2,271 2,704 3,478 4,285 4,945

Capex (6,172) (7,500) (6,600) (6,400) (6,400)
Key Financial Metrics

Return on Common Equity 10.0% 4.7% 4.1% 5.9% 7.5%
Return on Assets 5.5% 2.5% 2.1% 3.0% 3.7%
Capex Intensity 85% 119% 88% 68% 55%

Asset Turnover 0.2x 0.1x 0.1x 0.2x 0.2x
Debt / Equity 30% 33% 34% 34% 34%

Net Debt / Equity 6% 13% 18% 18% 17%
Debt / Capital 23% 25% 25% 25% 25%

EXHIBIT 110: Hua Hong (1347.HK) Financial Statements

2022 2023
US$ in Millions Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4E 2022 2023E 2024E 2025E 2026E
Income Statement
Net Sales 595 621 630 630 631 631 569 441 2,475 2,271 1,970 2,762 3,278
Gross Profit 160 209 234 241 202 175 92 14 844 482 317 610 665
SG&A Expense 33 30 31 25 32 32 35 25 118 124 109 153 164
R&D Expense 43 41 43 34 44 45 50 28 161 167 119 153 213
EBIT 85 138 160 181 126 98 7 (40) 565 191 88 303 288
EBITDA 202 254 277 289 246 222 134 115 1,021 717 662 1,081 1,313
Non-operating Income 10 (57) (58) 36 6 (55) (19) 11 (68) (57) 37 21 24
Pretax Income 95 82 103 217 132 44 (13) (29) 496 133 125 324 312
Tax (7) 28 37 31 (9) 36 13 2 89 42 24 48 62
Net Income 103 84 104 159 152 79 14 (10) 450 235 139 283 285
Earnings Per Share (USD) 0.08 0.06 0.08 0.12 0.12 0.06 0.01 (0.01) 0.35 0.16 0.09 0.18 0.18
Margin Analysis
Gross Profit 26.9% 33.6% 37.2% 38.2% 32.1% 27.7% 16.1% 3.1% 34.1% 21.2% 16.1% 22.1% 20.3%
EBIT 14.3% 22.3% 25.5% 28.7% 20.0% 15.6% 1.2% -9.1% 22.8% 8.4% 4.4% 11.0% 8.8%
EBITDA 34.0% 40.8% 44.0% 45.9% 39.0% 35.2% 23.5% 26.1% 41.3% 31.6% 33.6% 39.1% 40.1%
Pretax Income 16.0% 13.1% 16.3% 34.4% 20.9% 6.9% -2.3% -6.7% 20.0% 5.9% 6.3% 11.7% 9.5%
Net Income 17.3% 13.5% 16.5% 25.3% 24.1% 12.4% 2.4% -2.3% 18.2% 10.3% 7.1% 10.3% 8.7%
Sequential Growth
Net Sales 12.6% 4.4% 1.5% 0.0% 0.1% 0.1% -10.0% -22.5% 51.8% -8.2% -13.3% 40.2% 18.7%
Gross Profit -6.7% 30.5% 12.1% 2.8% -16.0% -13.4% -47.7% -85.2% 86.8% -42.8% -34.4% 92.6% 9.1%
EBIT -39.3% 63.0% 16.1% 12.9% 25.5% -21.9% -93.3% N.M. 133% -66% -54% 246% -5%
EBITDA -8.1% 25.5% 9.2% 4.4% 29.8% -9.8% -39.7% -14.2% 82.4% -29.8% -7.6% 63.2% 21.5%
Pretax -43.1% -14.4% 25.9% 111.2% -30.5% -66.9% N.M. N.M. 67.4% -73.1% -6.3% 159.8% -3.9%
Net Income -22.9% -18.5% 23.8% 53.2% -14.8% -48.4% -82.3% N.M. 72.1% -47.9% -40.6% 103.4% 0.6%
Earnings Per Share -23.0% -18.5% 23.6% 52.8% -82.9% -48.4% -85.4% N.M. 71.6% -52.9% -45.7% 103.4% 0.6%
Balance Sheet
Cash and Cash Equivalents 2,009 6,126 5,124 3,975 3,566
Accounts Receivable 292 182 226 327 366
Inventory 575 538 591 792 795
Net Fixed Assets 3,368 3,733 5,247 6,590 6,882
Total Assets 7,053 11,345 11,982 12,555 12,492
Accounts Payable 234 253 260 347 331
Total Debt 1,928 1,948 1,948 1,948 1,948
Shareholders' Equity 3,030 6,087 6,141 6,383 6,468
Minority Interests 1,105 2,438 2,909 2,903 2,901
Cash Flow
Cash Flow From Operations 751 923 661 1,013 1,300
Cash Flow From Investments (930) (1,096) (2,089) (2,120) (2,120)
Cash Flow From Financing 672 4,363 425 (42) (85)
Depreciation & Amortization 457 526 575 777 1,025

Capex (996) (1,140) (2,089) (2,120) (2,120)
Key Financial Metrics

Return on Common Equity 15.2% 5.1% 2.3% 4.5% 4.4%
Return on Assets 6.1% 1.0% 0.9% 2.3% 2.0%
Capex Intensity 40% 50% 106% 77% 65%

Asset Turnover 0.4x 0.2x 0.2x 0.2x 0.3x
Debt / Equity 64% 32% 32% 31% 30%

Net Debt / Equity -3% -69% -52% -32% -25%
Debt / Capital 39% 24% 24% 23% 23%
Dividend Per Share (US$) 0.00 0.00 0.05 0.03 0.05

EXHIBIT 111: Hygon (688041.CH) - Income Statement

Hygon (688041.CH) - Income Statement
Revenue 48 379 1,022 2,310 5,125 5,904 9,243 12,606 16,320
Cost of sales (8) (238) (506) (1,018) (2,439) (2,578) (3,941) (5,248) (6,734)
Gross profit 40 141 516 1,293 2,686 3,327 5,302 7,358 9,587
Total SG&A (41) (79) (91) (142) (216) (253) (398) (541) (702)
R&D expenses (156) (175) (546) (745) (1,414) (1,808) (2,589) (3,413) (4,303)
Financial income / (expense) (66) (27) 3 12 89 245 230 245 281
Net income from investment 6 - 7 11 (7) - 0 0 0
Other gain / (loss) 34 1 29 7 (4) 62 48 85 102
Operating Profit (182) (139) (82) 436 1,136 1,572 2,593 3,733 4,965
Non-operating activities (0) 0 (0) 1 1 0 - - -
Profit before taxation (182) (139) (82) 437 1,137 1,572 2,593 3,733 4,965
Income tax 3 1 (1) 1 (12) 19 - (373) (496)
Net Profit (180) (137) (83) 438 1,125 1,592 2,593 3,360 4,468
Equity shareholders of the Company (124) (83) (39) 327 804 1,202 1,907 2,486 3,306
Non-controlling interests (55) (54) (44) 111 321 389 686 874 1,162
Basic EPS (RMB) - (0.05) (0.02) 0.16 0.38 0.52 0.82 1.07 1.42
Diluted EPS (RMB) - (0.05) (0.02) 0.16 0.38 0.52 0.82 1.07 1.42
W.A. shares outstanding (mn) - 1,783 1,900 2,024 2,115 2,330 2,324 2,324 2,324
Margins
Gross profit 84% 37% 51% 56% 52% 56% 57% 58% 59%
Operating profit (377%) (37%) (8%) 19% 22% 27% 28% 30% 30%
EBIT (241%) (29%) (8%) 18% 20% 22% 26% 28% 29%
Profit before tax (378%) (37%) (8%) 19% 22% 27% 28% 30% 30%
Net income (attributable) (257%) (22%) (4%) 14% 16% 20% 21% 20% 20%
EXHIBIT 112: Hygon (688041.CH) - Balance Sheet

Hygon (688041.CH) - Balance Sheet
Cash & equivalents 415 40 1,511 1,960 11,208 13,120 13,076 14,783 19,162
Financial assets held for trading -- -- 658 -- -- -- -- -- --
Accounts & other receivables, prepayments 17 23 586 588 2,191 1,354 2,347 3,120 2,732
Inventories 106 141 182 1,124 1,095 830 1,493 1,442 1,398
Other current assets 39 93 137 198 454 248 350 474 616
Total current assets 577 297 3,073 3,871 14,949 15,551 17,266 19,819 23,908
Total PP&E, intangible assets, ROU and investment property
4,373 4,624 4,622 4,943 5,116 5,522 6,585 7,563 8,153
Long-term equity investment -- -- -- -- -- 20 20 20 20
Other non-current assets 37 774 1,327 1,643 1,870 2,951 2,951 2,951 2,951
Total non-current assets 4,410 5,398 5,949 6,586 6,986 8,493 9,556 10,534 11,124
Total assets 4,987 5,695 9,022 10,457 21,934 24,044 26,822 30,353 35,032
Accounts payables and other payables 317 477 469 634 783 857 1,323 1,638 2,187
Short-term borrowings -- -- 140 150 200 200 200 200 200
Contract Liabilities -- -- 5 172 -- 88 63 114 128
Other current liabilities 2 7 493 605 387 440 507 736 914
Total Current Liabilities 319 485 1,106 1,562 1,370 1,585 2,093 2,688 3,428
Long-term borrowings 597 591 240 541 480 819 719 619 519
Other non-current liabilities 1,108 1,768 2,099 2,093 1,854 1,870 1,870 1,870 1,870
Total Non Current Liabilities 1,705 2,360 2,339 2,634 2,334 2,689 2,589 2,489 2,389
Total liabilities 2,024 2,844 3,445 4,196 3,704 4,274 4,682 5,178 5,817
Total Shareholders Equity 2,118 2,060 4,831 5,406 17,053 18,204 19,888 22,050 24,927
Minority shareholders’ interest 845 790 746 856 1,177 1,566 2,252 3,125 4,287
Total Equity 2,963 2,851 5,577 6,261 18,230 19,770 22,140 25,176 29,214
Total Liabilities & Equity 4,987 5,695 9,022 10,457 21,934 24,043 26,822 30,353 35,032
EXHIBIT 113: Hygon (688041.CH) - Cash Flow Statement

Hygon (688041.CH) - Cash Flow Statement
Net income (180) (137) (83) 438 1,125 1,592 2,593 3,360 4,468
Depreciation & Amortization 81 170 341 409 699 694 785 913 1,042
Change in working capital 1,265 730 165 (566) (2,311) 1,540 (1,251) (251) 1,030
Other operating cashflow (1,171) (187) (800) 317 444 (93) - - -
Net cash (used in) / generated from operating activities (5) 576 (377) 598 (43) 3,732 2,127 4,023 6,540
Net capex (572) (926) (244) (752) (1,381) (1,047) (1,849) (1,891) (1,632)
Other investing cashflow 1 0 (839) 669 (148) (627) - - -
Net cash used in investing activities (571) (926) (1,083) (83) (1,530) (1,674) (1,849) (1,891) (1,632)
Change in debt 594 (1) 271 (145) 307 339 (100) (100) (100)
Change in equity 2,272 25 2,773 250 10,844 125 - - -
Cash Paid for Distribution of Dividends, Profit and Repayment
(20)
of Interest (29) (38) (18) (23) (177) (223) (324) (429)
Other Cash Paid Related to Financing Activities (1,979) (25) (75) (153) (302) (493) - - -
Net cash used in financing activities 866 (31) 2,931 (65) 10,826 (206) (323) (424) (529)
Net change in cash during period 290 (380) 1,471 450 9,252 1,852 (44) 1,707 4,379
Cash and cash equivalents at period end 415 40 1,511 1,960 11,208 13,120 13,076 14,783 19,162

EXHIBIT 114: Cambricon (688256.CH) - Income Statement

Cambricon (688256.CH) - Income Statement
Revenue 117 444 459 721 729 842 1,875 3,232 6,411
Cost of sales (0) (141) (159) (271) (250) (248) (532) (906) (1,756)
Gross profit 117 303 300 450 479 594 1,343 2,326 4,655
Total SG&A (50) (1,075) (210) (467) (379) (370) (681) (660) (759)
R&D expenses (240) (543) (768) (1,136) (1,523) (1,137) (1,299) (1,637) (2,223)
Financial income / (expense) 3 4 22 53 52 46 100 79 83
Net income from investment 62 104 118 90 91 102 149 149 149
Other gain / (loss) 67 29 103 186 (45) (51) (260) (367) (832)
Operating Profit (41) (1,178) (434) (824) (1,324) (815) (648) (111) 1,072
Non-operating activities 0 (1) (0) 0 2 0 - - -
Profit before taxation (41) (1,179) (435) (824) (1,323) (815) (648) (111) 1,072
Income tax - - - (6) (2) - - - (161)
Net Profit (41) (1,179) (435) (830) (1,325) (815) (648) (111) 911
Equity shareholders of the Company (41) (1,179) (435) (825) (1,257) (791) (620) (106) 875
Non-controlling interests - (0) - (5) (68) (24) (27) (5) 36
Basic EPS (RMB) NA (3.27) (1.15) (2.06) (3.14) (1.90) (1.46) (0.25) 2.06
Diluted EPS (RMB) NA (3.27) (1.15) (2.06) (3.14) (1.90) (1.46) (0.25) 2.06
W.A. shares outstanding (mn) NA 361 378 400 400 416 425 425 425
Margins
Gross profit 100% 68% 65% 62% 66% 71% 72% 72% 73%
Operating profit (35%) (265%) (95%) (114%) (182%) (97%) (35%) (3%) 17%
EBIT (37%) (267%) (100%) (122%) (189%) (102%) (40%) (6%) 15%
Profit before tax (35%) (266%) (95%) (114%) (181%) (97%) (35%) (3%) 17%
Net income (attributable) (35%) (266%) (95%) (114%) (172%) (94%) (33%) (3%) 14%
EXHIBIT 115: Cambricon (688256.CH) - Balance Sheet

Cambricon (688256.CH) - Balance Sheet
Cash & equivalents 1,354 383 3,625 2,921 2,467 4,218 3,588 3,340 4,502
Financial assets held for trading -- -- -- -- -- -- -- -- --
Accounts & other receivables, prepayments 74 88 235 593 804 606 877 943 1,279
Inventories 5 51 91 287 287 254 347 353 248
Other current assets 1,520 3,929 2,927 2,370 697 599 245 471 544
Total current assets 2,954 4,451 6,877 6,171 4,255 5,678 5,057 5,106 6,572
Total PP&E, intangible assets, ROU and investment property
76 205 397 639 656 529 621 621 613
Long-term equity investment -- 1 1 130 222 222 222 222 222
Other non-current assets 11 11 34 49 637 710 710 710 710
Total non-current assets 88 217 432 818 1,515 1,461 1,554 1,553 1,545
Total assets 3,041 4,668 7,310 6,989 5,770 7,138 6,610 6,659 8,117
Accounts payables and other payables 2,448 238 398 449 479 379 583 739 1,080
Short-term borrowings -- -- -- -- -- -- -- -- --
Contract Liabilities -- -- 2 0 0 0 0 0 1
Other current liabilities -- -- 0 53 63 26 129 244 599
Total Current Liabilities 2,448 238 401 503 542 406 712 984 1,681
Long-term borrowings -- -- -- -- -- -- -- -- --
Other non-current liabilities 83 74 477 506 288 205 205 205 205
Total Non Current Liabilities 83 74 477 506 288 205 205 205 205
Total liabilities 2,531 312 878 1,009 831 610 916 1,189 1,886
Total Shareholders Equity 511 4,356 6,432 5,891 4,855 6,457 5,650 5,431 6,157
Minority shareholders’ interest -- -- -- 89 85 71 44 39 75
Total Equity 511 4,356 6,432 5,980 4,940 6,528 5,694 5,470 6,232
Total Liabilities & Equity 3,041 4,668 7,310 6,989 5,770 7,138 6,610 6,659 8,117
EXHIBIT 116: Cambricon (688256.CH) - Cash Flow Statement

Cambricon (688256.CH) - Cash Flow Statement
Net income (41) (1,179) (435) (830) (1,325) (815) (648) (111) 911
Depreciation & Amortization 17 53 127 263 367 324 282 324 328
Change in working capital 660 (4,687) 1,382 133 1,284 108 297 (25) 393
Other operating cashflow (692) 5,611 (1,207) (439) (1,655) 1,635 - - -
Net cash (used in) / generated from operating activities(55) (202) (132) (873) (1,330) 1,253 (69) 188 1,633
Net capex (75) (156) (260) (505) (284) (191) (375) (323) (321)
Other investing cashflow (1,147) (2,312) 1,132 584 1,061 (1,640) - - -
Net cash used in investing activities (1,221) (2,468) 872 79 777 (1,831) (375) (323) (321)
Change in debt - - - - - - - - -
Change in equity 519 4,278 2,510 286 268 2,388 (277) (158) (68)
Cash Paid for Distribution of - - - - - (24) 90 45 (82)
Other Cash Paid Related to Financing Activities 1,886 (2,578) (17) (187) (170) (35) - - -
Net cash used in financing activities 2,405 1,700 2,493 99 99 2,329 (187) (113) (150)
Net change in cash during period 1,127 (971) 3,233 (695) (454) 1,751 (631) (248) 1,162
Cash and cash equivalents at period end 1,354 383 3,625 2,921 2,467 4,218 3,588 3,340 4,502

EXHIBIT 117: Silergy Corp. (6415.TT) - Income Statement

Silergy Corp. (6415.TT) - Income Statement
(TWD million, unless otherwise stated) 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E
Revenue 7,139 8,599 9,414 10,778 13,876 21,506 23,511 15,413 19,743 27,034 32,166
Gross profit 3,401 4,105 4,398 5,115 6,672 11,456 12,359 6,603 9,161 13,742 16,405
Sales & marketing expenses 953 1,083 1,105 1,189 1,452 1,633 1,968 2,272 2,215 2,974 3,217
Admin expenses 492 445 479 555 713 665 828 935 987 1,352 1,287
R&D expenses 1,010 1,168 1,398 1,610 2,161 3,203 4,460 4,783 4,846 5,467 6,112
Expected credit loss 0 0 (1) 0 1 0 1 0 (7) (8) (5)
Other operating (income) / expenses (3) (17) (17) (17) (51) (17) (17) (28) (31) (31) (30)
Operating profit 1,441 1,871 1,913 2,333 3,109 6,636 5,945 (424) 2,137 5,340 7,111
Total non-operating income (Expenses) 57 (9) 17 78 216 (223) 729 1,204 1,051 1,027 662
Profit before tax 1,498 1,862 1,931 2,412 3,325 6,413 6,674 779 3,188 6,367 7,774
Income tax expense 29 54 101 86 83 615 529 (26) 247 637 777
Net income 1,470 1,808 1,830 2,326 3,242 5,797 6,145 806 2,941 5,730 6,996
Net profit attributable to SHs 1,470 1,808 1,830 2,326 3,278 5,734 6,039 885 2,853 5,558 6,786
Basic EPS (TWD) - retrospective adjusted 4.68 5.30 5.19 6.46 8.93 15.38 15.95 2.32 7.47 14.55 17.77
Diluted EPS (TWD) - retrospective adjusted 4.37 4.93 4.95 6.27 8.50 14.43 15.21 2.26 7.28 14.18 17.31
W.A. shares outstanding (mn) - retrospective adjusted 314 341 352 360 367 373 379 382 382 382 382
Margins
Gross profit 47.6% 47.7% 46.7% 47.5% 48.1% 53.3% 52.6% 42.8% 46.4% 50.8% 51.0%
Operating profit 20.2% 21.8% 20.3% 21.6% 22.4% 30.9% 25.3% -2.8% 10.8% 19.8% 22.1%
EBIT 21.9% 21.9% 20.6% 22.4% 24.0% 29.8% 28.4% 5.1% 16.2% 23.6% 24.2%
Profit before tax 21.0% 21.7% 20.5% 22.4% 24.0% 29.8% 28.4% 5.1% 16.1% 23.5% 24.2%
Net income (attributable) 20.6% 21.0% 19.4% 21.6% 23.6% 26.7% 25.7% 5.7% 14.5% 20.6% 21.1%
EXHIBIT 118: Silergy Corp. (6415.TT) - Balance Sheet

Silergy Corp. (6415.TT) - Balance Sheet
Cash and Cash Equivalents 2,680 2,914 2,618 4,508 9,248 11,614 14,944 15,731 17,632 21,777 24,999
Notes & Accounts Receivables 672 712 769 1,365 1,244 2,421 2,059 1,436 1,805 1,894 3,769
Inventories 1,312 1,644 1,691 1,923 2,314 2,784 5,111 3,784 3,725 4,098 6,266
Financial Assets 668 1,235 2,023 1,811 230 1,247 2,425 4,635 4,635 4,635 4,635
Total current assets 5,331 6,505 7,102 9,607 13,036 18,066 24,539 25,586 27,798 32,404 39,669
Long-term investments 793 903 1,885 2,118 2,168 3,859 4,671 5,158 4,981 4,810 4,640
Property, plant & equipment, net 387 698 1,177 1,123 1,191 1,471 1,863 2,354 3,006 3,938 4,234
Intangible assets (Incl. Goodwill) 4,144 3,699 3,589 3,161 2,658 2,108 2,169 2,154 2,038 1,945 1,941
Refundable Deposits 28 92 40 43 54 332 426 427 425 630 1,230
Other non-current assets 143 194 85 620 761 807 1,606 1,815 1,882 1,897 1,897
Total non-current assets 5,497 5,586 6,776 7,065 6,832 8,577 10,735 11,908 12,331 13,220 13,943
Total assets 10,828 12,091 13,877 16,672 19,867 26,643 35,274 37,494 40,129 45,624 53,612
Short-term borrowings - 670 - 100 - - - 54 54 54 54
Accounts and Other Payables 778 772 867 1,160 1,291 1,759 1,950 3,595 3,356 3,730 5,838
Other Current Liabilities 15 29 34 74 131 584 465 440 553 622 1,015
Total current liabilities 793 1,471 901 1,334 1,422 2,343 2,415 4,089 3,963 4,406 6,907
Bond 1,759 - - - - - - - - - -
Guarantee Deposits 9 1 7 7 10 53 1,293 321 390 517 922
Other Non-Current Liabilities 73 49 32 127 85 69 74 297 297 297 297
Total non-current liabilities 1,840 50 39 133 95 122 1,367 618 687 814 1,219
Total liabilities 2,633 1,521 940 1,467 1,517 2,465 3,782 4,707 4,650 5,220 8,126
Shareholders' Equity Attributable to Holders 8,195 10,570 12,937 14,848 18,031 23,733 30,763 32,118 34,722 39,475 44,347
Minority Interests - - - 357 320 445 729 669 757 929 1,139
Total Equity 8,195 10,570 12,937 15,205 18,350 24,178 31,492 32,787 35,479 40,404 45,486
EXHIBIT 119: Silergy Corp. (6415.TT) - Cash Flow Statement

Silergy Corp. (6415.TT) - Cash Flow Statement
Income before income tax 1,498 1,862 1,931 2,412 3,325 6,413 6,674 779 3,188 6,367 7,774
Depreciation & Amortization 226 237 231 298 380 465 593 686 663 786 1,632
Change in working capital (486) (364) (4) (495) (82) (726) (1,892) 3,571 (436) (19) (1,542)
Other operating cashflow (incl. income tax paid) 424 379 321 588 361 280 1,625 571 (247) (637) (777)
Net cash (used in) / generated from operating activities 1,662 2,115 2,478 2,803 3,984 6,431 7,000 5,607 3,168 6,497 7,086
Net capex (287) (350) (445) (531) (308) (530) (551) (894) (1,169) (1,602) (1,905)
Other investing cashflow (3,843) (940) (1,822) (19) 1,665 (2,814) (2,692) (2,420) 83 (73) (450)
Net cash used in investing activities (4,130) (1,290) (2,267) (550) 1,357 (3,344) (3,244) (3,315) (1,086) (1,674) (2,355)
Change in debt 7,305 - (172) - - - - - - - -
Change in equity 12 106 107 217 461 516 364 254 - - -
Cash Paid for Distribution of Dividends (154) (431) (526) (585) (683) (971) (1,692) (1,722) (250) (805) (1,914)
Other Cash Paid Related to Financing Activities (3,370) (8) 6 269 (136) (10) (95) (712) 69 127 406
Net cash used in financing activities 3,793 (334) (586) (100) (358) (464) (1,423) (2,179) (180) (678) (1,509)
Net change in cash during period 1,259 235 (296) 1,889 4,740 2,366 3,329 787 1,901 4,145 3,222
Cash and cash equivalents at period end 2,680 2,914 2,618 4,508 9,248 11,614 14,944 15,731 17,632 21,777 24,999

DISCLOSURE APPENDIX
I. REQUIRED DISCLOSURES
Autonomous Research US is a unit within Sanford C. Bernstein & Co., LLC , a broker-dealer registered with the U.S. Securities and
Exchange Commission and a member of the Financial Industry Regulatory Authority (www.finra.org) and the Securities Investor
Protection Corporation (see www.sipc.org). When this report contains an analysis of debt securities, such report is intended for
institutional investors and is not subject to all the independence and disclosure standards applicable to debt research for retail
investors under the FINRA rules.
VALUATION METHODOLOGY
We value companies in our coverage using a combination of Enterprise Value to Sales, Price to Tangible Book Value, and Price to
EPS multiples. We use Price to NTM tangible book value to value foundries, Price to One-Year Forward Earnings to value design
& equipment companies, and Enterprise Value to Sales to value unprofitable design companies.
RISKS
The China Semiconductors sector is vulnerable to macroeconomic risks which can impact the overall demand for electronics
and influence the entire supply chain either positively or negatively. Apart from these macroeconomic factors, the industry also
faces cyclical and seasonal changes in demand for its products and services. These fluctuations can lead to a reduction in product
demand, overproduction, and decreased average selling prices. Any factors that affect the semiconductor industry can pose a risk
to our forecasts, either positively or negatively. We have listed some of the significant risks below:
• Overseas sanctions risk: If the United States, the Netherlands, Japan, and other Western countries increase sanctions on the
semiconductor industry in the Chinese mainland, which further affects the supply of core equipment and procurement of
components, it may impact the development of domestic semiconductor companies.
• Demand risk: The semiconductor industry is highly sensitive to changes in the macroeconomic environment and tends to be
more volatile and cyclical. This risk is usually evident when there is a shift in the demand for end-market products, which
gradually ripples through the electronics supply chain before eventually affecting upstream players such as fabless companies,
semiconductor capital equipment, or foundries. This can either be a positive or negative risk to our forecasts.
• Supply risk: Disruption and imbalance in the electronics supply chain, whether it's caused by a semiconductor company, its
suppliers/distributors, or its customers, can create a chain reaction that impacts the company's ability to utilize its capacity and
deliver its expected financial performance fully. This risk can be seen in the shortage of raw materials, which often accounts
for a significant portion of the manufacturing costs. Any supply shortage can lead to reduced shipments or increased costs.
• Technology risk: The speed of new tech development affects the semiconductor industry's competitiveness. Companies may
gain/lose market share, and pricing vs. competitors may widen/narrow.
• Competition risk: Rising competition and capacity expansions can result in excess capacity in the semiconductor industry.
Competitors may cut prices to grab demand, leading to lower prices and margins for a company. However, if capacity expansion
is slower, the company can benefit from improved prices and margins, resulting in an upside risk to forecasts and target prices.
• Product risk: Product launch delays can negatively impact forecasts, especially for IC design companies with a narrow market
window. Late launches can lead to lower market share and pricing.
RATINGS DEFINITIONS, BENCHMARKS AND DISTRIBUTION
Bernstein brand
The Bernstein brand rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for
stocks listed on the U.S. and Canadian exchanges, versus the Bloomberg Europe Developed Markets Large & Mid Cap Price
Return Index (EDM) for stocks listed on the European exchanges (except for Russian companies), versus the Bloomberg Emerging
Markets Large & Mid Cap Price Return Index (EM) for Russian companies and stocks listed on emerging markets exchanges

outside of the Asia Pacific region, versus the Bloomberg Japan Large & Mid Cap Price Return Index USD (JP) for stocks listed on
the Japanese exchanges, and versus the Bloomberg Asia ex-Japan Large & Mid Cap Price Return Index (ASIAX) for stocks listed
on the Asian (ex-Japan) exchanges -unless otherwise specified.
The Bernstein brand has three categories of ratings:
• Outperform: Stock will outpace the market index by more than 15 pp
• Market-Perform: Stock will perform in line with the market index to within +/-15 pp
• Underperform: Stock will trail the performance of the market index by more than 15 pp
Coverage Suspended applies when coverage of a company under the Bernstein research brand has been suspended. Ratings and
price targets are suspended temporarily. Previously issued ratings and price targets are no longer current and should therefore
not be relied upon.
Not Rated: The stock Rating, Target Price and/or estimates (if any) have been suspended temporarily.
Autonomous brand
The Autonomous brand rates stocks as indicated below. As our benchmarks we use the Bloomberg Europe 500 Banks And
Financial Services Index (BEBANKS) and Bloomberg Europe Dev Mkt Financials Lrg & Mid Cap Price Ret Index EUR (EDMFI) index
for developed European banks and Payments, the Bloomberg Europe 500 Insurance Index (BEINSUR) for European insurers, the
S&P 500 and S&P Financials for US banks and Payments coverage, S5LIFE for US Insurance, the S&P Insurance Select Industry
(SPSIINS) for US Non-Life Insurers coverage, and the Bloomberg Emg Mkt Financials Large, Mid & Small Cap Price Return Index
(EMLSF) for emerging market banks and insurers and Payments. Ratings are stated relative to the sector (not the market).
The Autonomous brand has three categories of ratings:
• Outperform (OP): Stock will outpace the relevant index by more than 10 pp
• Neutral (N): Stock will perform in line with the relevant index to within +/-10 pp
• Underperform (UP): Stock will trail the performance of the relevant index by more than 10 pp
Coverage Suspended (CS) applies when coverage of a company under the Autonomous research brand has been suspended.
Ratings and price targets are suspended temporarily. Previously issued ratings and price targets are no longer current and should
therefore not be relied upon.
Not Rated: The stock Rating, Target Price and/or estimates (if any) have been suspended temporarily.
Those denoted as ‘Feature’ (e.g., Feature Outperform FOP, Feature Under Outperform FUP) are our core ideas. Not Rated (NR) is
applied to companies that are not under formal coverage.
For both brands, recommendations are based on a 12-month time horizon.
DISTRIBUTION OF RATINGS/INVESTMENT BANKING SERVICES

Rating Market Abuse Regulation (MAR) and Count Percent Count* Percent*
FINRA Rule 2241 classification
Outperform BUY 394 49.44% 1 0.25%
Market-Perform (Bernstein Brand)

HOLD 285 35.76% 1 0.35%
Neutral (Autonomous Brand)
Underperform SELL 118 14.81% 0 0.00%
* These figures represent the number and percentage of companies in each category to whom Bernstein and Autonomous
provided investment banking services.
As of Jan 10 2024. All figures are updated quarterly and represent the cumulative ratings over the previous 12 months.

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10 January 2024

positive view on domestic substitution

Foundry: We expect China to achieve ~40% self-sufficiency in foundry by 2023, reaching

BERNSTEIN TICKER TABLE

EXHIBIT 1: Our Coverage:66 stocks

Source: Bloomberg, Company reports, Bernstein estimates and analysis

CHINA SEMICONDUCTORS BERNSTEIN 2

EXHIBIT 2: Our covered stocks in three sub-sectors - Semicap, Foundry, Fabless

Server CPU AI Chip Analog Logic Specialty IC

Integrated Device Manufacturer (IDM)

Exhibit 3 summarizes global

Semicap (Equipment) Fabless (IC Design)

Dry Etch equipment AI Accelerator

CVD Deposition equipment Analog (PMIC)

Advanced + matured node Matured node specialty IC

CHINA SEMICONDUCTORS BERNSTEIN 3

Semicap (Semiconductor Capital Equipment)

CHINA SEMICONDUCTORS BERNSTEIN 4

Foundry (Semiconductor Fabrication)

Fabless (Integrated Circuit Design)

CHINA SEMICONDUCTORS BERNSTEIN 5

CHINA SEMICONDUCTORS BERNSTEIN 6

VALUATION COMPS TABLE

EXHIBIT Key financials and

2023E vs. consensus 3% 3% 1% 0% -2% -4% -4% -1%

2023E-2025E CAGR 30% 27% 47% 19% 10% 44% NA 151%

2023E vs. consensus 4% 8% 7% 2% -4% -1% -8% -4%

CHINA SEMICONDUCTORS BERNSTEIN 7

Sector Thesis: Accelerating Domestic Substitution.................................................................................................................................................... 9

• Semiconductor Equipment Primer, 2020 Edition

• European Semiconductors: They get knocked down, they get up again

• Chinese Semiconductors: Think Global, Expand Local

CHINA SEMICONDUCTORS BERNSTEIN 8

SECTOR THESIS: ACCELERATING DOMESTIC SUBSTITUTION

THE CONTROVERSY OVER DOMESTIC SUBSTITUTION

Initiation Acceleration Maturation

Source: Bernstein analysis

CHINA SEMICONDUCTORS BERNSTEIN 9

ACCELERATION IN SHARE-SHIFT WITH OR WITHOUT TECHNOLOGY BREAKTHROUGH

Market Sizing & Growth Drivers Illustration 110 Illustration

TAM SAM Share-shift

Source: Bernstein analysis and estimates CHINA SEMICONDUCTORS | 8

CHINA SEMICONDUCTORS BERNSTEIN 10

INVESTMENT IMPLICATIONS FOR OUR COVERAGE

Primary driver Secondary driver

CHINA SEMICONDUCTORS BERNSTEIN 11

SEMICAP (SEMICONDUCTOR CAPITAL EQUIPMENT)

CHINA WFE MARKET OUTLOOK

TAM and Domestic Share

CHINA SEMICONDUCTORS BERNSTEIN 12

Source: Gartner, SEMI, Company reports, Bernstein estimates and analysis

CHINA SEMICONDUCTORS BERNSTEIN 13

Source: Gartner, SEMI, company reports, Bernstein estimates and analysis

CHINA SEMICONDUCTORS BERNSTEIN 14

Process Thermal Photoresist

Share of domestic supplier in China WFE supply, 2023E, USD mn

Source: Gartner, SEMI, Company reports, Bernstein estimates and analysis

CHINA SEMICONDUCTORS BERNSTEIN 15

NAURA: CHINA'S LARGEST SEMICAP PLATFORM WITH THE BROADEST PORTFOLIO