Guotai Haitong: Google's TurboQuant compression technology does not change the current storage shortage situation, long-term contracts and capacity expansion are the main trends.

Guotai Haitong released a research report stating that storage is a strong cyclical industry, with historical data showing that the prosperity cycle typically lasts for 3-4 years. This is also the reason why global manufacturers have been actively signing long-term agreements recently. Google's TurboQuant memory compression technology has disrupted the market, but in the medium to short term, the trend of storage shortage remains unchanged. This is due to the fact that current manufacturing capacities are almost fully booked, especially in the server sector. Additionally, Google's algorithm only targets the inference process and is based on laboratory data, so even if it is implemented, it does not necessarily mean that demand will decrease. On the contrary, the reduction in inference costs may open up even greater market space. Guotai Haitong's main points are as follows: Storage: Hedging cyclical fluctuations with long-term agreements, seizing the prosperity cycle by expanding production Biwin Storage Technology announced a $1.5 billion long-term order to be delivered evenly over the course of 24 months (from Q2 2026 to Q1 2028), with fixed prices throughout to hedge against price fluctuations. Google's introduction of the TurboQuant memory compression algorithm does not change the trend of storage shortage. The core reason is that current manufacturing capacities are almost fully booked, especially in the server sector. Additionally, Google's algorithm only targets the inference process and is based on laboratory data, so even if it is implemented, it does not necessarily mean that demand will decrease. Instead, the decrease in inference costs may open up even greater market space. Kaixia, SanDisk, SK Hynix's subsidiaries Solidigm and Cisco subscribed to a private placement of 17.2 billion yuan in Nan Ya Technology to secure future DRAM supply. Logic: Intensification of U.S. technology blockades On March 27, the U.S. officially passed the "Chip Security Act," requiring advanced semiconductors subject to export controls to incorporate "chip security mechanisms," including location verification functions. The aim of the act is to ensure that controlled chips do not enter China through technical means. Wafer manufacturing and testing: Three major foundries disclose their 2025 annual reports Semiconductor Manufacturing International Corporation achieved an operating income of 67.323 billion yuan in 2025, a year-on-year increase of 16.5%; net profit attributable to the parent was 5.041 billion yuan, a year-on-year increase of 36.3%; basic earnings per share were 0.63 yuan; gross profit margin was 21.0%, a year-on-year increase of 3.0 percentage points. The average capacity utilization rate for the year was 93.5%, an increase of 8 percentage points year-on-year. Hua Hong Semiconductor achieved an operating income of 17.291 billion yuan in 2025, a year-on-year increase of 20.18%; net profit attributable to the parent was 3.77 billion yuan; operating net cash flow was 5.065 billion yuan, a year-on-year increase of 40.38%. The overall capacity utilization rate reached 106.1%. Nexchip Semiconductor Corporation achieved an operating income of approximately 10.885 billion yuan in 2025, an increase of 17.69% year-on-year; net profit attributable to the parent was 7.04 billion yuan, an increase of 32.16% year-on-year; basic earnings per share were 0.36 yuan, an increase of 33.33% year-on-year. Semiconductor equipment: Surge in orders benefits the industry SK Hynix signed a 815.6 billion won semiconductor equipment contract with the only etching equipment supplier in South Korea, VM company. The value of the contract is equivalent to 116% of VM company's combined revenue for the full year of 2024. Orders from storage manufacturers such as SK Hynix to VM company have now accumulated to 224.6 billion won. Wafer bonding enterprise, Qinghe Jingyuan, completed a 500 million yuan strategic financing, jointly led by Advanced Micro-Fabrication Equipment Inc. China and Fontenay Capital, with participation from Beiqi Venture Capital; existing shareholder Yingno Fund continued to increase its investment. Risk Warning Unexpected fluctuations in end demand, and international technology control measures beyond expectations.