China Galaxy Securities Co., Ltd. released a research report stating that China's electronics industry in July showed an extreme divergence pattern: semiconductor cycle highs with profit recovery and valuation correction, while consumer electronics traditional terminals faced deep pressure but AI innovation terminals saw strong growth. Overall, the consumer electronics sector has completely moved past the stage of broad-scale growth, entering a structural development cycle focused on high-end, intelligent, and innovative products. The upcoming second-half new product peak season is expected to drive a marginal recovery in the supply chain.
China Galaxy Securities Co., Ltd. main viewpoints are as follows: In July 2026, the domestic electronics industry exhibited a polarized pattern with semiconductor cycle peaks supporting profit recovery and valuation adjustments, while consumer electronics traditional terminals faced severe pressure and AI innovation terminals achieved counter-trend high growth. The core logic for the semiconductor sector continues to be AI computing-driven volume and price increases, with memory, advanced packaging, and computing chips maintaining high prosperity. Both domestic and international manufacturers are experiencing explosive profit recovery, accelerated by major IPOs of domestic equipment and memory leaders and policy implementation. However, the broader tech sector saw collective corrections in secondary markets in July, with the semiconductor track undergoing temporary valuation digestion. The consumer electronics sector is pressured by rising upstream component costs from memory and main control chips, with traditional phone and PC shipments hitting new lows for the period, pushing the industry into a structural winter. However, innovative categories like AI terminals, foldable screens, and smart wearables are rapidly increasing penetration, becoming the sole growth driver. The "traditional decline, innovation increase" characteristic is extremely pronounced. Specifically, A-share electronics indices showed a significant overall correction in July with pronounced sub-sector divergence. The SW Electronics primary industry index fell 34.72% for the month, ranking among the top 3 decliners in SW primary industries. Within the semiconductor sector, sub-sectors closely tied to AI computing and domestic substitution, such as semiconductor equipment (-7.35%) and integrated circuit packaging and testing (-15.38%), experienced significantly smaller declines compared to tracks like memory (-29.83%) and passive components (-42.16%).
Semiconductor Industry: Some sub-categories maintain a tight supply-demand balance, with product prices trending upward. Memory chips continue to see a tight supply-demand balance. AI infrastructure construction has significantly boosted rigid demand for memory, combined with overseas manufacturers strictly controlling capacity expansion, leading to sustained tight supply-demand dynamics for DRAM and HBM. Global leaders like SK Hynix and Micron saw notable monthly increases. The most prominent gap is in the high-end HBM segment, with order delivery cycles extending to 6-8 months. NAND flash prices remain stable and steady. Concurrently, the listing of a domestic leading semiconductor IDM manufacturer on the STAR Market marks a milestone, signifying the large-scale independent realization of domestic DRAM memory and a major step in domestic substitution. Meanwhile, a wave of concentrated price increases has begun in the global analog and power semiconductor sectors. Nearly 20 international leaders, including Texas Instruments and Infineon, announced price adjustments this month, covering general analog, power MOSFET, and IGBT categories, with increases concentrated between 5% and 15%. This is underpinned by rigid demand from AI server power, new energy vehicles, and energy storage, with industry capacity remaining saturated and delivery cycles lengthening. Domestic manufacturers are accelerating multi-scenario volume adoption, with low-end category localization rates steadily improving and continuous breakthroughs in mid-to-high-end products, leading to improved orders and capacity utilization rates. Computing chips and advanced packaging, as core industry pillars, continue their high-growth trend. High-end GPU and AI inference chip orders are full and supply is short. The large-scale implementation of Chiplet, 2.5D/3D advanced packaging technologies, catering to high-end computing chips and HBM integration needs, is underway. SEMI data shows full-year advanced packaging equipment growth will exceed 40%. Domestic packaging, testing, equipment, and materials companies are accelerating expansion and iteration, coupled with continued capital market support, making this a core driving force for semiconductor industry upgrades and domestic substitution.
Consumer Electronics Sector: An extreme structural divergence pattern where traditional terminal demand continues to weaken while AI innovation categories break through against the trend. The traditional consumer electronics market has entered a stagnant winter. According to Counterpoint, global smartphone shipments in Q2 fell 11% year-on-year, hitting the lowest level for the same period since 2013, with the full-year market expected to contract 12.9%. The PC market faces even greater pressure. According to IDC data, global PC shipments in Q2 2026 were 68.2 million units, down 4.9% year-on-year. Due to price increases across the semiconductor spectrum, the monthly hardware cost per computer has risen by up to 2,000 RMB. Combined with terminal manufacturers' weak ability to pass costs downstream, the industry's gross profit margin continues to be under pressure. Mainstream hardware products like Microsoft Xbox have announced price increases, highlighting the full supply chain cost pressure. While traditional terminals decline, AI intelligent upgrades have become the core growth engine, delivering significant structural increments. According to Gartner forecasts, AI terminal penetration will achieve a leapfrog improvement in 2026. AI PC penetration is expected to reach 24% for the full year, with shipments of 143 million units, accounting for over half of global PC shipments. The sales of AI phones and AI PCs will surpass non-AI terminals for the first time within the year. Foldable screen phones continue to lead the smartphone segment through form innovation, achieving a 17% positive annual growth rate to counter the overall industry decline. The popularization of mid-range models is opening market space, driving demand for supporting supply chains like flexible screens and precision hinges. Furthermore, innovative tracks like smart wearables, AR/VR, smart homes, and automotive electronics maintain steady growth, relying on applications such as health monitoring, smart interaction, and whole-home intelligence to continuously tap into new consumer demand. Within this, specific sub-hardware like e-sports displays achieved 12% counter-trend growth. Overall, the consumer electronics industry has completely moved past the stage of broad-scale growth, entering a structural development cycle focused on high-end, intelligent, and innovative products. The second-half new product peak season is expected to drive a marginal recovery for the supply chain.
Risk Warning: Risks of downstream demand falling short of expectations, risks of intensified competition within the industry, risks of new product development falling short of expectations, and risks of increased uncertainty due to supply chain shifts.
Comments