The semiconductor industry, recognized as a cyclical sector, is poised for a remarkable resurgence in 2024 following two years of market adjustmentsEspecially notable in the second half of the year, the sector is set to experience significant growth as demand in the consumer electronics market rises during its traditional peak seasonThis recovery is further accelerated by the increasing momentum of artificial intelligence (AI), which continues to fuel demand across various subsectors of the industry.

As we look towards 2025, the expansion of AI capabilities is expected to become even more pronouncedThe trend of "independent innovation" will regain its prominence within the semiconductor realm, suggesting a more assured trajectory for the industry's growthQuestions arise regarding which specific niches within the market will experience marked enhancements due to AI, the growing significance of autonomous innovation, and the persistent uncertainties that linger in the sector

To construct a clearer picture of the semiconductor landscape as we approach 2025, reports from industry analysts and interviews with various companies have been compiled.

Recent data showcases a notable rebound in the global semiconductor market, establishing 2024 as pivotal for recoveryAccording to Counterpoint's research, the semiconductor industry is projected to witness a staggering 17% year-on-year revenue growth, amounting to $158.2 billion in the third quarter alone, with the resurgence being primarily driven by the demand for AI technologies as well as a revival in the memory sectorLooking ahead, analysts predict that AI applications across servers, personal computers, and smartphones will remain as the key revenue generators for the industry.

The steady recovery is particularly evident in the second half of the yearThe Semiconductor Industry Association (SIA) has revealed that Q3 of 2024 recorded the largest quarterly sales increase since 2016, with revenues reaching $166 billion—an impressive 23.2% increase year-on-year and 10.7% from the previous quarter

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These figures further reflect the encouraging performance of semiconductor firms listed on the A-share market, with 80 out of 153 companies reporting positive growth in net profits during the first three quarters of 2024. Notably, 31 of these companies achieved over 100% profit growth, highlighting significant advancements for entities like Changchuan Technology, Goodix Technology, and others.

A spokesperson from a semiconductor silicon wafer company recently shared insights indicating that the global shipment volume of silicon wafers has continued to grow, with a 6.8% increase year-on-year in Q3. This growth is attributed to improvements in the consumer electronics market, as well as an upsurge in demand for computational and power chips due to advancements in AI and electric vehicle technologiesThe signs of recovery in silicon wafer sales are becoming increasingly evident.

Similarly, a materials supplier in the semiconductor industry noted that there has been a gradual resurgence in downstream customer activity rates since the latter half of 2023, contributing to a recovery in semiconductor materials demand for 2024. Reports suggest that key wafer fabrication plants in mainland China are operating at capacity rates exceeding 90%—a positive indication of renewed production activity.

This upward spiral is further illustrated by the performance of major foundries during Q3. According to the Q3 financial reports from SMIC (Semiconductor Manufacturing International Corporation), the company's operations saw dramatic improvement with quarterly revenues surging to 15.6 billion RMB—an annual rise of 32.5%. Net profits for the quarter reached 1.06 billion RMB, marking a 56.5% increase

In stark contrast, the net profits for the first half of 2024 had dipped by 45%. Meanwhile, Hua Hong Semiconductor reported a revenue of 3.77 billion RMB for Q3, down 8.24% year-on-year, yet the net profits attributable to its parent company soared by over 226% in Q3.

It is crucial to note that the current recovery within the semiconductor sector unfolds at a measured pace, rather than an aggressive accelerationSeveral analysts emphasize the ongoing inventory pressures posed by specific niches within the industry, alongside limited growth in industrial and automotive electronic demandsManagement at SMIC acknowledged that due to the complexities of external factors at play, the recovery cycle may extend longer than expected, leading to a more temperate resurgence of market activities.

Amid this moderate recovery, a key focal point has been the integration of AI technologies across diverse industries—semiconductors included

A burgeoning trend in earnings reports reflects the increasing prominence of AI in discussions surrounding industry changes and transformationsCompanies are adapting their cellular designs and technical specifications to cater to the evolving demands of AI functionalities, with terms like AI prominently appearing in various communications.

For instance, Allwinner Technology has stated that the rising demand for edge AI requires enhanced performance from SoC (System on Chip) solutionsThe company is actively pursuing both in-house development and collaboration with partners to refine AI-related algorithms, enhancing functionalities like visual processing, voice recognition, and human-machine interactionsConversely, memory chip manufacturers such as Montage Technology have acknowledged the rapid growth in demands for computation and storage driven by AI applications, designating "computational power" as a pivotal factor for upgrading overall AI system performance.

Industry observers generally anticipate that AI will stimulate a fresh wave of demand within the semiconductor landscape

Research from Guojin Securities suggests that while 2023 served as the "genesis year" for AI training, 2024 is expected to be pivotal for AI inference; with 2025 heralding a peak in AI terminal applicationsThis projection indicates a potential resonation of demand, capacity, and inventory cycles within the semiconductor sector—spurring a robust upward trajectory throughout the industryAnalysts from China International Capital Corporation further elaborate that AI will be a principal investment theme within the semiconductor design sector by 2025, with cloud-based AI computation chips emerging as significant trade opportunities.

In addition to the surge in AI demand, the upcoming release of a new "Entity List" in late 2024 emphasizes the critical need for independent innovations within the semiconductor value chainWith heightened external constraints affecting the Chinese semiconductor industry, the urgency around advancing domestic production capabilities in essential manufacturing and semiconductor equipment is becoming increasingly apparent—even more so for companies striving to bridge technological gaps

Analysts are optimistic about domestic manufacturers that have achieved notable advancements, as they stand to benefit from a market transition driven by reciprocal developments.

Despite the overall positive outlook, it must be recognized that disparities still exist within the industryWhile some companies are flourishing, others are struggling, with a reported 73 semiconductor firms on the A-share market experiencing declines in net profits in the first three quarters of 2024. Out of these, 20 firms saw decreases exceeding 100%, and 42 companies recorded losses, primarily among chip design entities and certain materials and components suppliersThis indicates that the recovery of downstream demands is still uneven, and analysts highlight the existing lag in transmitting this recovery upstream through the supply chain.

Particularly within the industrial sector, caution prevails regarding future demands, as analysts believe the market remains conservative, primarily on account of traditional manufacturing practices

Some semiconductor experts contend that while the demands for industrial chips may gradually improve, they are likely to remain restrained due to the conservative deployment of computing capabilities in some traditional factoriesNevertheless, with AI and innovation as catalysts, certain segments are expected to experience explosive growth opportunities as we advance into 2025.

International Data Corporation (IDC) forecasts that the global AI market could expand to a staggering $221.87 billion by 2025, with a compound annual growth rate of about 26.2%. Such trends are likely to regenerate vigorous growth trajectories in devices like smartphones and wearables, which could be instrumental in propelling the semiconductor industry forwardGuojin Securities further posits that the combination of AI and traditional sectors—termed "AI+X"—is set to play a critical role in escalating traditional device upgrades

This suggests a robust increase in demand for not only computational and storage chips but also other types such as SOCs, CIS (Camera Image Sensors), and analog chips—expanding the potential for significant market advancements.

On another note, semiconductor self-innovation will remain a long-term trend, potentially reaping rich dividends for supply chain entities poised to gain market shareSeveral institutions have noted that the latest "Entity List" focuses on sanctions against equipment firms and limitations on HBM (High Bandwidth Memory) and software tools, suggesting a reallocation of advantageous opportunities towards semiconductor equipment and parts manufacturersFor example, a representative from a semiconductor equipment company recently indicated that their plasma etching and thin film deposition machines' localization percentages are approaching satisfactory levels

They foresee new orders amounting to approximately 11 to 13 billion RMB in 2024, enhancing their market presence among primary clients.

However, the journey towards independence and innovation is fraught with challengesExperts acknowledge that leading semiconductor wafer markets remain largely dominated by a handful of countries, with Japan, South Korea, and Germany controlling over 85% of the global market share, particularly with 12-inch silicon wafers, where they hold indisputable dominance and first-mover advantagesChinese firms currently lag in technology accumulation, pricing structures, and client networks, compounded by the constraints of adhering to standards set by foreign leaders, which further complicates the race to catch up.

Additionally, as noted by industry leaders, the sector features an extensive variety of specialized electronic gases, with over 130 types classified as ultra-pure gases essential for semiconductor applications