Power Semiconductor Supply Remains Tight, SiC Penetration Accelerating

Overview

UBS Global Research has released an in-depth report on China’s power semiconductor sector, asserting that supply conditions will remain 'tighter-for-longer,' while silicon carbide (SiC) penetration is accelerating across multiple end markets. Based on this outlook, the report raises earnings estimates and target prices for Silan Micro (Shilan Wei), CR Micro (Huasun Wei), and NCE Power (Xin Jieneng), upgrading Silan Micro from Neutral to Buy. StarPower (Sida Bandao) sees its earnings forecast lowered due to increased depreciation costs from its fab-lite transition, though its long-term SiC capabilities are still recognized.

Core views

The report's core thesis revolves around two key themes: 'supply tightening + SiC penetration'. Supply side: UBS highlighted in its April industry report that supply constraints are a critical driver of the cyclical recovery. Subsequent feedback from the global power semiconductor supply chain further confirms that tightness may persist longer than expected, driven by two factors: first, major power IDMs continue to exercise capex discipline despite rising capacity utilization trends; second, downstream demand resilience has exceeded expectations, spanning new energy, grid infrastructure, core AI, and physical AI (e.g., robotics). Infineon's announcement on May 27 of a second price hike in 2026 serves as evidence of ongoing supply tightness. Globally, power semiconductor stocks have risen 135% year-to-date, compared to only 34% for Chinese peers. UBS believes Chinese power semiconductor stocks have significant catch-up potential, particularly among IDMs. SiC penetration: After years of price declines, SiC is now demonstrating compelling cost-performance advantages over silicon-based alternatives, especially in efficiency, reliability, and thermal tolerance. SiC adoption is accelerating across three key areas: - EVs: The shift toward 800V architectures continues, with multiple automakers launching new SiC-equipped models in 2026, some priced below 100,000 yuan, enabling SiC penetration into lower-end vehicles; - Energy Storage (ESS): Flagship ESS products from Sungrow, Tesla, and BYD all feature SiC, significantly boosting system conversion efficiency; - AI Data Centers (AIDC): The transition to 800V DC platforms makes SiC a critical material in power conversion stacks. UBS Global estimates that power semiconductor content per GW will surge from $80 million in Rubin NVL72 racks to $180 million in Rubin Ultra NVL576 racks. At the company level, Silan Micro and StarPower—both with in-house SiC production lines and strong technical capabilities—are viewed as primary beneficiaries of SiC adoption. Silan Micro’s 6-inch SiC line is fully utilized, and its 8-inch line is ramping smoothly with solid order backlog. While StarPower faces short-term pressure from its fab-lite transition, its SiC revenue continues strong growth, supporting long-term re-rating potential.

Analysis framework

UBS's analytical framework can be summarized as a five-step process: 'Cycle Positioning → Supply-Demand Verification → Technology Trend Identification → Stock Selection → Valuation Anchoring'. Step 1, Cycle Positioning: Industry cycle phase is assessed by tracking capacity utilization and pricing trends at global power IDMs and specialty foundries. Key signals include price increases by global and domestic discrete power device makers at the beginning of 2026. Step 2, Supply-Demand Verification: The 'tighter-for-longer' supply view rests on two verifiable assumptions—capex discipline and resilient downstream demand. The report cites capex plans and utilization rates from major players like Infineon, ON Semi, STMicro, Silan Micro, and CR Micro, along with supply chain feedback on both AI and non-AI demand. Step 3, Technology Trend Identification: SiC penetration is evaluated through 'price-performance' analysis. The report quantifies SiC’s advantages in EVs, ESS, and AIDC (e.g., 70–90% reduction in energy loss, improved system efficiency) and tracks product launches by leading companies. Step 4, Stock Selection: Within the coverage universe, preference is given to IDMs with in-house SiC lines, high capacity utilization, and visible ROE improvement (e.g., Silan Micro, CR Micro), while also monitoring fabless/fab-lite firms with differentiation in specific niches (e.g., MOSFETs, data centers) such as NCE Power and StarPower. Step 5, Valuation Anchoring: For IDM/fab-lite firms, P/BV valuation is used, benchmarked against historical or sector-average P/B levels; for fabless firms, P/E valuation is applied, referencing historical P/E multiples. Valuation upside is driven by anticipated ROE improvements and growth re-rating from rising SiC business contribution.

Methodology notes

• Valuation MethodPB valuation

  P/BV (Price-to-Book Value) Valuation

  For capital-intensive semiconductor IDMs, P/BV is a commonly used valuation method because these firms experience volatile earnings but relatively stable assets. UBS applies P/BV to Silan Micro, CR Micro, and StarPower. The core logic is that when the industry cycle turns upward and capacity utilization improves, ROE expansion drives P/BV rerating. In the report, Silan Micro’s target P/B rises from 3.6x to 5.2x, reflecting expectations of ROE improvement from 3.3% to 12%.

• Valuation MethodPE/PEG valuation

  P/E and PEG Valuation

  For fabless or asset-light semiconductor design firms, P/E and PEG (Price/Earnings to Growth ratio) are more appropriate. NCE Power is assigned a 40x target P/E, implying that high growth (37% EPS CAGR) justifies a premium valuation. The report also uses PEG for cross-comparison—the peer group’s average 2026E PEG is 1.2x, below China’s average of 1.5x, suggesting attractive relative valuations among growth stocks.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply-Demand Analysis in the Power Semiconductor Industry

  Power semiconductors are highly cyclical, with pricing and profitability heavily dependent on supply-demand balance. In this analysis, UBS focuses on capex, capacity utilization, and line conversions (e.g., TSMC shifting some capacity to advanced packaging) on the supply side, and tracks end-market health in EVs, energy storage, data centers, and industrial sectors on the demand side. When disciplined supply meets resilient demand, a 'tighter-for-longer' supply landscape emerges—a defining characteristic of this cycle versus prior ones.

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Chain Transmission

  Technology-Cost-Penetration Transmission Logic in the SiC Industry Chain

  As a third-generation semiconductor material, SiC commercialization hinges on a virtuous cycle of 'technology maturity → cost reduction → penetration increase.' UBS observes that after years of price declines, SiC has now reached a point where its total system-level cost—including efficiency gains—is competitive with silicon-based solutions. Identifying this 'cost-performance inflection point' is key to judging SiC’s shift from a 'premium option' to a 'mainstream standard.'

• Company Fundamentals & Financial FrameworkROIC–WACC spread

  Linkage Between ROE Improvement and Valuation Re-rating

  The report repeatedly emphasizes ROE improvement as the core driver of valuation uplift. Financially, when a power IDM’s ROE rebounds from cycle lows (e.g., Silan Micro’s 3.3%) to above historical averages (e.g., 7–12%), the market typically assigns a higher P/B multiple. This 'ROE-P/B' linkage is a classic framework for cyclical stock valuation. UBS derives target P/B levels by forecasting the path of ROE recovery.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Silan Micro (Shilan Wei, 600460.SS)

  Power IDM, leading SiC positioning, primary beneficiary of supply tightness

  Strengths

  6-inch and 8-inch SiC production lines operational, 6-inch line at full capacity, robust order backlog; both silicon and SiC lines exceeding capacity utilization expectations; clear ROE improvement trajectory

  Comparison

  SiC revenue accounts for ~10%, tied with StarPower as the most exposed SiC names in coverage, but IDM model provides advantage over fabless during supply constraints

  Risks

  Slower-than-expected EV and green energy transition; weaker-than-expected downstream demand; intensified domestic competition; slower-than-expected capacity ramp-up

• CR Micro (Huasun Wei, 688396.SS)

  Power IDM, foundry business benefits from supply tightness

  Strengths

  Foundry segment has upside potential in tight supply environment; proven ability to gain market share via external customer partnerships; full capacity utilization

  Comparison

  SiC revenue accounts for ~3%, lower than Silan Micro and StarPower, but foundry business offers greater operating leverage

  Risks

  Slower-than-expected EV and green energy transition; weaker-than-expected downstream demand; intensified domestic competition; inability to meet market demand

• NCE Power (Xin Jieneng, 605111.SS)

  Fabless design firm, differentiated positioning in MOSFETs and high-end applications

  Strengths

  More favorable competitive landscape in MOSFET vs. IGBT; R&D capabilities in data centers, robotics, and low-altitude aircraft; growing auto MOS market share

  Weaknesses

  No captive manufacturing, resulting in weaker pricing power vs. IDMs during supply tightness

  Comparison

  Valuation below other power semiconductor peers, NTM PE of 40x slightly above historical average but supported by cyclical tailwinds

  Risks

  Slower-than-expected recovery in consumer and industrial demand; unexpected weakness in automotive and solar demand; intensified domestic competition; slower-than-expected IGBT module development

• StarPower (Sida Bandao, 603290.SS)

  Fab-lite model, leading domestic SiC technology capabilities

  Strengths

  Proven track record in IGBT domestic substitution; strong SiC revenue growth; in-house SiC line currently ramping

  Weaknesses

  Fab-lite transition increases depreciation burden, pressuring near-term profits; cautious outlook on automotive IGBT pricing

  Comparison

  SiC revenue accounts for ~15%, highest in coverage, but largest earnings forecast cut (25–37%)

  Risks

  Intensifying IGBT competition leading to market share loss or margin erosion; slower-than-expected SiC MOSFET adoption in EVs; geopolitical risks affecting overseas expansion

Key data

• Silan Micro Target PriceRmb46.20Rating upgraded from Neutral to Buy, target P/B increased from 3.6x to 5.2x
• CR Micro Target PriceRmb83.40Maintained at Buy, target P/B increased from 3.5x to 4.1x
• NCE Power Target PriceRmb81.30Maintained at Buy, target P/E increased from 30x to 40x
• StarPower Target PriceRmb166.60Maintained at Buy, valuation method shifted from P/E to P/BV, target P/B set at 5.0x
• Silan Micro 2026-28E Revenue CAGR16%Previously forecast 14%, driven by SiC line ramp-up and new energy demand
• CR Micro 2026-28E Revenue CAGR18%Previously forecast 17%, benefited by foundry business amid supply tightness
• NCE Power 2026-28E Revenue CAGR28%Previously forecast 23%, driven by strong demand from data centers and new energy
• StarPower 2026-28E EPS CAGR44%Previously forecast 34%, though 2026-28E EPS estimates were cut by 25–37%
• Power IDM Net Margin Improvement5–8 percentage points2026–28E, for Silan Micro and CR Micro
• Silan Micro ROE Improvement PathFrom 3.3% (2025) to 12.0% (2028E)Mid-term target 7–12%
• Global/China Power Semiconductor YTD Performance135% / 34%China lags significantly, offering catch-up potential
• AI Data Center Power Semiconductor Content ChangeFrom $80m/GW to $180m/GWDriven by 800V DC transition from Rubin NVL72 to Rubin Ultra NVL576 racks

Impact & implications

UBS believes the market may be underestimating the persistence of power semiconductor supply tightness and the pace of SiC adoption. Chinese power semiconductor stocks have significantly underperformed their global peers year-to-date. As the 'tighter-for-longer' supply dynamic and rising SiC penetration gain recognition, Chinese power IDMs could benefit from dual catalysts of valuation rerating and earnings upgrades. Specific investment implications: Power IDMs (Silan Micro, CR Micro) are preferred due to full capacity utilization and strong pricing power, with clearer ROE improvement visibility than fabless/fab-lite peers. Companies with leading SiC positions (Silan Micro, StarPower) are well-positioned for long-term technological shifts. NCE Power, with differentiated exposure in MOSFETs and high-end applications (data centers, robotics, low-altitude aircraft), also offers re-rating potential. For the industry overall, SiC’s expansion beyond EVs into energy storage and data centers clarifies the technology upgrade path. Firms leveraging a 'silicon + SiC' dual-engine strategy will likely hold stronger competitive advantages in the future.

Risks

• EV and green energy transition slower than expected
• Downstream demand (consumer, industrial, automotive, solar) weaker than expected
• Increased competition in China’s power semiconductor industry, potentially leading to oversupply and price wars
• Slower-than-expected SiC capacity build-out and ramp-up
• Escalation of geopolitical tensions affecting overseas business expansion
• Technology obsolescence risk, products failing to meet market needs
• Macroeconomic volatility impacting overall semiconductor industry health

What to watch

• Capacity utilization and capex changes at global and domestic power IDMs
• Progress of SiC penetration in lower-end EVs, energy storage, and AI data centers
• Product pricing dynamics from major manufacturers (e.g., Infineon continuing price hikes)
• SiC line ramp-up and order developments at Silan Micro and StarPower
• Product progress at NCE Power in high-end applications such as data centers and robotics
• Progress of StarPower’s fab-lite transition and associated depreciation impact