CITIC SEC: Strong demand for AI and storage, traditional peak season trend continues in the electronics sector.

CITIC SEC released a research report stating that the third quarter is the traditional peak season for the electronics sector, with the industry's overall performance continuing to grow under normal demand. Strong demand for AI computing power, both in overseas and domestic supply chains, continues to accelerate. The storage sector is showing enhanced prosperity, with strong demand from enterprises. NAND and DRAM demand and price increases have exceeded expectations since the second half of 2025. ToB industrial demand continues to recover, driving related analog, power, and mature processes to achieve high year-on-year growth rates against a low base, with prospects for continued prosperity until the end of the year. The third quarter is the traditional peak season for consumer electronics, with stable downstream demand. Strong demand can be seen in the smart imaging industry, and some companies are expected to perform well due to increased market share and innovation upgrades. The localization of the semiconductor equipment chain is steadily advancing, with orders for advanced logic gradually being executed, a bottoming out of storage orders, and a clear trend towards industry mergers and acquisitions. Key points from CITIC SEC: Consumer electronics sector: Downstream demand remains stable under normal peak season conditions, with stable demand for smartphones and IoT, and strong demand in the smart imaging industry. 1) Smartphone - Apple chain: Overall normal pull-in, with an estimated production of 89-92 million units for the iPhone 17 series in 2025 (compared to about 85-88 million units in the same period last year). 2) Smartphone - Android chain: Global shipments of Android smartphones are expected to reach 260 million units in the third quarter of 2025, remaining flat year-on-year. Demand is relatively stable, with some stocks of companies with growth logic expected to perform well. 3) IoT chain: With the progress of Sino-US tariff negotiations, the impact of the rush to export has gradually weakened after June, considering that most companies face a high base in the fourth quarter of 2024; strong demand can be seen in the smart imaging industry and AI glasses industry. Semiconductor sector: Storage demand exceeds expectations, analog power sees high growth from a low base, advanced processes/packaging show impressive performance, and equipment orders gradually recover. 1) Manufacturing/testing: Manufacturing companies are expected to see better-than-expected revenue in the third quarter, with strong demand for mature processes, gradual expansion of advanced processes, and significant growth in domestic replacement demand. The capacity utilization rate of packaging and testing companies in the third quarter has steadily increased, with revenue growth visibility generally higher than profits. 2) Equipment/components: Overall performance is steadily confirmed by existing orders, demand for the fourth quarter of 2024 is relatively stable, and revenue is gradually realized in the third quarter of 2025. Therefore, the overall performance of the sector is expected to be steady; with storage customers gradually recovering production demand, overall expectations are stable to slightly upward. 3) Design: Storage chips: Downstream demand in the third quarter continues to grow, with strong demand for enterprise storage driving increased NAND/DRAM prices in the third quarter and expectations of further price increases in the second half of 2025. The outlook for niche storage is on the rise, with increased DDR4 prices and a comprehensive increase in large-capacity NOR and SLC NAND. Analog chips: Consumer demand peaks, and the automotive and industrial control demand continues to recover, driving the analog sector's prosperity under the influence of domestic alternatives and downstream replenishment cycles. Power devices: Benefiting from the recovery of consumer electronics demand, the automotive, industrial, and new energy sectors continue to prosper, with revenue expected to generally increase against the low base of last year. Electronic components sector: Continued prosperity in AI demand. 1) PCB: AI demand remains high, benefiting from the production increase of major customers and the layout of high-end capacity. 2) Passive: Downstream demand is gradually recovering, with high capacity utilization rates, especially in AI-related segments. Investment strategy: The overall performance of the electronics industry in the third quarter of 2025 continues to follow the trend of normal demand growth. In summary, the research house expects relatively bright performance in certain segment sectors in the third quarter, including leading PCB companies in the AI-related industry, storage, analog, equipment, optical, CIS, and some power companies. Looking ahead to the fourth quarter of 2025, the research house is optimistic about sector excess returns, recommending investment opportunities in the directions of AI computing power, storage, semiconductor equipment, and consumer electronics. The research house expects the electronic sector to enter the peak season for stocking in September and October, driving up the capacity utilization rate; from a fundamental perspective, autonomous controllable factors (domestic AI computing breakthroughs, orders for storage plant expansion, and logic plant orders confirmation), AI innovation (overseas AI computing orders and expansion, continuous launch of new products on the terminal side), and cyclical prosperity (storage price increases) are all expected to continue to be prosperous, with expectations for capital market catalysts (IPO financing and other events) to accelerate, and continues to have a positive outlook on the sector's performance for the next quarter. Risk warning: Risks of global economic downturn; risks of changes in international political environment and escalation of trade disputes; downstream demand falls short of expectations; AI innovation falls short of expectations; AI commercialization progress falls short of expectations; lack of innovation in the Android industry chain; slower progress in domestic substitution; slower expansion of domestic wafer fabrication plants; slower development of advanced process technologies; increased competition among downstream manufacturers; risks of material price increases due to inflation; risks of increased sanctions; risks of significant exchange rate fluctuations, etc.