Analogue semiconductor companies are currently experiencing an upward industry cycle, with new products launched by domestic firms in recent years poised to enter a phase of significant volume expansion.

From a downstream perspective, the industrial, AI, and automotive sectors are the key focus areas for international giants and are also central to the localization effort. The view is that as the competitive pricing environment improves and the revenue share from high-end segments like industrial and AI increases, coupled with the ongoing dilution of expense ratios due to revenue scale effects, leading domestic analog chip companies—particularly those with a higher proportion of non-consumer electronics revenue—are expected to be the first to enter a phase of profit improvement.

The core investment thesis for domestic analog chip firms currently is industry cycle upturn + AI-driven incremental demand + rising localization rates + new product volume ramp + profitability enhancement. The main points are outlined below.

Analog Chip Industry Cycle on the Upswing

Revenue for Texas Instruments (TXN) turned positive year-over-year in Q1 2025, marking the first increase after nine consecutive quarters of decline, and has remained positive since. Similarly, revenue for Analog Devices (ADI) in Q2 2025 (ending May 3) turned positive year-over-year for the first time after seven consecutive quarters of decline and has continued to grow. Analog Devices has indicated that rebounding demand is leading to supply constraints, with lead times for some products extending up to six months. This suggests the analog chip industry is in an upward cycle, and new products introduced by domestic companies in recent years are expected to enter a large-scale volume ramp phase.

AI Drives Incremental Demand for Analog Chips, Domestic Firms Compete on Global Stage

Infrastructure Side: Analog chips are widely used in the primary, secondary, and tertiary power supplies of AI servers, with demand increasing as system power rises. Optical modules also require analog chips, including signal chain chips and power management chips.

Application Side: The number of end-devices for AI applications far exceeds that of AI servers, suggesting that the long-term volume pull for analog chips will be even more significant. International firms like Texas Instruments and Analog Devices have data center exposure of around 10%, whereas domestic firm Suzhou Novosense Microelectronics Co.,Ltd. (688484) has exposure in networking and computing exceeding 15%.

Significant Room for Localization, Focus on Industrial, AI, and Automotive Sectors

According to data from WSTS and Frost & Sullivan, China accounts for approximately 35% of the global analog chip market in 2025, making it a major source of revenue for overseas analog chip giants. Revenue from China for Texas Instruments, Analog Devices, and MPS in fiscal 2025 was approximately $3.8 billion, $2.9 billion, and $1.5 billion respectively, totaling $8.2 billion. In contrast, revenue for A-share analog chip leader Suzhou Novosense Microelectronics Co.,Ltd. in 2025 was only 3.9 billion yuan, indicating substantial potential for domestic substitution.

From a downstream viewpoint, the industrial, AI, and automotive sectors are the key areas targeted by international majors and are thus the focus for localization. In consumer electronics, represented by mobile phones, providing customers with one-stop solutions is becoming an inevitable choice, and the Matthew effect is expected to become more pronounced.

Improved Pricing Competition, Leading Firms Poised for Profit Recovery

Domestic analog chip companies such as Suzhou Novosense Microelectronics Co.,Ltd., NOVOSENSE (02676), Southchip Semiconductor Technology(Shanghai)Co.,Ltd. (688484), Joulwatt Technology Co.,Ltd. (688141), and 3PEAK all achieved record-high revenues in 2025, but profitability performance was lackluster. It is believed that as the competitive pricing environment improves and the revenue contribution from high-end sectors like industrial and AI increases, alongside the ongoing scale-driven dilution of expense ratios, leading domestic analog chip companies—especially those with a higher proportion of non-consumer electronics revenue—are likely to be the first to see profit improvement.

Risk factors include: slower-than-expected progress in domestic substitution, weaker-than-expected downstream demand, intensifying industry competition, and risks associated with adverse changes in international relations.