UBS turns bullish on China's power semiconductor cycle recovery, with CRM becoming the top pick

Overview

This report focuses on China's power semiconductor industry and UBS-covered names including CR Micro, Silan Micro, NCE Power, and StarPower. UBS believes investor concerns about the macro environment are obscuring changes such as tightening power semiconductor supply, improving prices, and resilient demand. As mature-node capex becomes more disciplined, some capacity shifts toward AI-related applications, and utilization rates at IDMs and specialty foundries rise, industry supply-demand dynamics are likely to improve starting in 2026.

Core views

The core view is that China's power semiconductors are likely entering a cyclical recovery phase: revenue growth recovering, gross margins bottoming out, net margins expanding, and EPS growth accelerating. UBS is more constructive on margin recovery for IDMs, especially CRM, whose power discrete and foundry businesses benefit from ASP recovery, higher capacity utilization, product mix upgrades, and mass production for external customers. Silan Micro benefits from high utilization across its 5-inch, 6-inch, and 8-inch silicon-based production lines, though re-rating upside is partly constrained by expansion in its analog business. NCE Power and StarPower are affected by foundry cost pressure and competition in automotive IGBT, leading to lower earnings forecasts, but their valuations and medium-term growth remain attractive.

Analysis framework

The report combines supply-chain interviews, company earnings and guidance, UBS Evidence Lab pricing data, industry capex trends, high-frequency EV and ESS demand data, the impact of the Nexperia event on domestic substitution of automotive MOS, and valuation frameworks such as P/BV, PE, and PEG to revise assumptions for revenue, margins, EPS, and target prices of power semiconductor companies.

Methodology notes

• Industry Cycle AnalysisSupply-Demand Cycle and Price Recovery Framework

  Determine the inflection point in industry supply and demand through utilization rates, capex, price increases, and inventory changes.

  The report believes utilization rates at power IDMs and specialty foundries have risen to high levels, while both global and Chinese companies have started raising prices from 2026 onward. Combined with low downstream inventories and the start of restocking, this supports the view of an industry cycle recovery.

• Earnings ForecastingEPS and Margin Revisions

  Adjust 2026-2028E EPS and NPM based on revenue growth, ASP, product mix, foundry costs, and scale effects.

  UBS raises EPS forecasts for CRM and Silan Micro, and lowers EPS forecasts for NCE Power and StarPower; however, it still expects covered companies overall to resume net profit growth in 2026-2028E.

• Valuation methodsP/BV, PE, and PEG Valuation

  For IDMs, the main references are P/BV and ROE recovery, while for Fabless/Fab-lite players the reference metrics are PE and PEG.

  CRM is valued at 3.5x 2027E P/BV, Silan Micro at 3.3x 2027E P/BV; NCE Power at 30x 2027E PE, and StarPower at 35x 2027E PE.

Asset mapping & comparison

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

• CR Micro

  Core beneficiary, UBS top pick

  Strengths

  Its power discrete devices and foundry businesses benefit from ASP recovery, higher capacity utilization, product mix upgrades, and mass production for external customers in 12-inch foundry; net margin expansion is expected to lead peers.

  Weaknesses

  2025E margins are still affected by prior price cuts and SG&A from new business expansion.

  Comparison

  UBS expects CRM's 2026-2028E net profit growth at 43%, above peers' 24-34%; net margin expansion is around 8 percentage points, above other companies' 3-4 percentage points.

  Risks

  Price increases falling short of expectations, slower-than-expected onboarding of external customers, slower-than-expected foundry ramp-up, and weakening macro demand.

• Silan Micro

  IDM beneficiary, rating upgraded to Neutral

  Strengths

  High utilization rates across its 5-inch, 6-inch, and 8-inch silicon-based production lines, with room for gross margin recovery.

  Weaknesses

  Current valuation is viewed as fair, and expansion in the analog business may limit further re-rating upside.

  Comparison

  Compared with CRM, Silan Micro also benefits from tightening IDM supply, but its earnings leverage and re-rating potential are more limited.

  Risks

  Investment in the analog business dragging returns, slower-than-expected recovery in gross margins for power discrete devices, and weaker-than-expected demand recovery.

• NCE Power

  Fabless power semiconductor company, Buy maintained

  Strengths

  Its automotive MOS has a high overlap with Nexperia products, so it could be an early beneficiary if OEMs or Tier 1 customers push for supply-chain diversification; it also has growth opportunities in energy storage and data center applications.

  Weaknesses

  Foundry costs are higher than expected, and the company's focus on expanding market share in 2025 puts pressure on gross margins.

  Comparison

  Compared with IDMs, NCE Power's margin recovery is constrained by foundry costs, but valuation is about one standard deviation below its historical average, leaving risk-reward attractive.

  Risks

  Further increases in foundry prices, market-share strategy suppressing gross margins, and a slower-than-expected pace of automotive localization.

• StarPower

  Fab-lite power semiconductor company, Buy maintained but earnings forecasts cut

  Strengths

  Actively expanding into new applications and overseas markets; if IGBT prices improve along with the industry, net margins could recover.

  Weaknesses

  Competition in the automotive IGBT market is intensifying, and UBS has lowered its revenue and gross margin assumptions.

  Comparison

  Compared with MOS suppliers, UBS is more cautious on the valuation of IGBT companies; StarPower is valued at 35x 2027E PE, close to the low end of its NTM PE range.

  Risks

  Automotive demand below expectations, intensifying IGBT competition, and weaker-than-expected overseas expansion.

• China Power Semiconductor Industry

  Industry cyclical recovery theme

  Strengths

  Slower capex at mature nodes, capacity reallocation toward AI-related demand, high utilization at IDMs and specialty foundries, price increases, and resilient demand from new energy and energy storage.

  Weaknesses

  Traditional applications such as consumer electronics and industrial demand are still affected by macro volatility.

  Comparison

  Compared with traditional applications, new energy, energy storage, and AI power applications are seen as more resilient and longer-term growth demand sources.

  Risks

  Macro stagflation, rising energy costs, slowing demand after EV subsidy withdrawal, and a weaker-than-expected recovery in traditional applications.

Key data

• Revenue CAGR of Covered Companies11% in 2023-2025E, rising to 17% in 2026-2028EReflects cyclical recovery, domestic substitution, new energy, and AI power demand.
• Net Profit CAGR of Covered Companies36% in 2026-2028E, versus -17% in 2023-2025EThe recovery in profit growth comes from improving revenue and margin expansion.
• CRM Net Profit GrowthEstimated at 43% in 2026-2028EAbove the peer range of 24-34%.
• Net Margin ExpansionExpected to expand by 3-8 percentage points in 2025-2028E4-8 percentage points for IDMs, and 3-4 percentage points for Fabless/Fab-lite players.
• CRM EPS RevisionRaised by 1-22% in 2026-2028EDriven by ASP recovery, improved profitability in the foundry business, and mass production for external customers.
• Silan Micro EPS RevisionRaised by 5-16% in 2026-2028EMainly reflects gross margin improvement driven by high utilization of silicon-based production lines.
• NCE Power EPS RevisionCut by 4-16% in 2026-2028EMainly reflects higher-than-expected foundry costs and the company's focus on market share in 2025, resulting in lower gross margins.
• StarPower EPS RevisionCut by 18-28% in 2026-2028EMainly due to more cautious automotive demand assumptions and intensifying competition in automotive IGBT.
• EV SalesChina's March EV wholesale volume was 1.12 million units, up 55% month-on-month and broadly flat year-on-yearDemand was better than market expectations, with strong export performance.
• Energy Storage TendersChina's March battery energy storage tenders increased 16% month-on-month, with total tenders of 27.5GW in 1Q 2026, up 31% year-on-yearSupports resilient demand for ESS-related power semiconductors.
• BEV Semiconductor BOMAbout US$1,400/BEV in 2025, expected to reach US$1,600-2,500/BEV by 2030Based on Infineon data, showing rising long-term power semiconductor content in xEVs.
• Pricing DataUBS Evidence Lab data show prices for multiple product categories rose 1% month-on-month and 6% year-on-year in MarchSupports the view of an improving pricing environment.

Impact & implications

If the report's view plays out, the market's focus on power semiconductors may shift from macro pressure and historical price declines toward supply constraints, realized price increases, margin recovery, and EPS upgrades. IDMs benefit more directly from capacity, utilization, and product mix upgrades, with CRM offering the greatest re-rating elasticity. Although Fabless/Fab-lite players face foundry cost pressure, low valuations may still offer attractive risk-reward if domestic substitution of automotive MOS, energy storage, and AI power demand continue.

Risks

• Macro uncertainty and Middle East conflict could drive up energy costs, potentially suppressing demand in traditional applications such as consumer electronics and industrials.
• Auto demand may come in below expectations after EV subsidy reductions, affecting demand for automotive power semiconductors.
• Further increases in foundry costs may compress gross margins for Fabless/Fab-lite companies.
• Intensifying competition in automotive IGBT may drag on StarPower's earnings recovery.
• There is uncertainty around the sustainability of price increases and restocking.
• If AI power demand and capacity reallocation fall short of expectations, the tightening supply thesis may weaken.

What to watch

• Subsequent price hike announcements and execution by global and Chinese power semiconductor companies.
• Progress of CR Micro's onboarding and mass production for external customers in its 12-inch foundry.
• Whether utilization rates at power IDMs and specialty foundries remain high.
• Whether domestic substitution of automotive MOS after the Nexperia event evolves from short-term replacement into a sustained supply-chain shift.
• The continuity of China's EV sales, exports, and ESS tender data.
• Whether capex plans of companies such as Infineon, STM, ON Semi, and Silan Micro remain disciplined.
• The pace at which AI drives demand for power devices from the grid, cabinets, and core systems to Physical AI applications.