Rising costs and profit divergence: Early signs of the semiconductor industry's price increase trend

Securities Times reporter Ruan Runsheng

Since 2026, upstream materials, wafer foundry, and packaging segments in the semiconductor industry have all raised prices one after another, pushing industry costs higher and gradually forming an across-the-board pattern of price increases across the entire industrial chain.

The impact of the price-hike wave has already shown up in the quarterly reports. Among them, the storage industry is the “profit vanguard” benefiting from the price-hike trend, while sub-sectors such as power semiconductors show a pattern of performance differentiation. In addition, more than 80% of listed companies in the industry saw their operating costs increase year-on-year. Overall, in the first quarter of 2026, more than half of (Shenwan) semiconductor listed companies reported a year-on-year increase in net profit attributable to shareholders, and the industry’s overall gross margin improved by 2.49 percentage points quarter-on-quarter.

The Storage Sector Becomes the “King of Profit Growth” in A-shares

The first quarter is traditionally a seasonal lull for the semiconductor industry, but this year the global market has displayed a “slow season that isn’t slow” pattern. According to the latest report from the European Semiconductor Industry Association, in the first quarter global semiconductor sales reached $298.55 billion, up nearly 80% year-on-year, with memory up more than 2 times year-on-year.

Excluding SMIC and Huanng (Huahong) companies that have not yet disclosed their first-quarter reports, A-share semiconductor listed companies in total generated about 170.4 billion yuan in operating revenue in the first quarter, and net profit attributable to shareholders was nearly 23.9 billion yuan. Moreover, the weighted average growth rate of net profit attributable to shareholders outpaced revenue growth; gross margin improved by 2.49 percentage points quarter-on-quarter, and overall profitability recovery was significant. Driven by a super cycle of price increases, the storage industry remains firmly seated in the “top echelon” of profit-growth leaders in A-shares.

In the first quarter, DeMinLi’s net profit attributable to shareholders increased by more than 49 times year-on-year, ranking first among A-share companies in quarterly profit-growth rate. Storage industry listed companies such as JiangboLong, Buwei Storage, Puran, Dawei Shares, and GigaDevice entered the top twenty in the industry for profit-growth rate. Gross margin also shows a similar trend: DeMinLi and Buwei Storage’s gross margin increased by more than 50 percentage points year-on-year in the same period, and storage companies such as Jiangbolong and Dongxin also achieved substantial gross margin improvements.

In recent institutional research sessions, DeMinLi executives emphasized that this storage cycle is a new phase of industry development shaped by multiple factors converging—an AI-driven explosion in demand and the concentration of industry supply resources toward high value-added fields, among others.

DeMinLi executives explained that, based on currently available public information, demand in high-value areas such as AI servers and data centers remains strong, and supply is expected to remain tight throughout the year.

However, since the start of this year, there have been repeated reports that prices in certain storage categories have retreated, prompting market attention on whether storage price increases can be sustained. Because storage module manufacturers need to face cost risks arising from upstream storage original equipment manufacturers’ price hikes, listed companies in the storage industry have generally increased inventory, and some firms have experienced pressure on operating cash flow. By the end of the first quarter, Jiangbolong’s inventories were close to 18 billion yuan, up about 50% year-on-year; its net operating cash flow turned negative. In addition, DeMinLi and Buwei Storage also surpassed the 10 billion-yuan inventory threshold.

“Scale is very important for the storage industry.” In an interview with Securities Times recently, Yan Shuyin, vice president of Jiangbolong and general manager of its enterprise storage business division, said that as AI brings changes to the storage supply relationship, during periods of resource shortages, upstream storage resources will certainly tilt toward more competitive fields and customers. The company will continue to intensify product innovation on the basis of its existing advantages.

Performance Differentiation in Power Semiconductors

Besides the storage sector, this year’s power semiconductors and the discrete devices industry have also seen multiple rounds of price-increase announcements.

In February, Silan Microelectronics issued a price-increase letter, effective from March 1, 2026, raising prices by 10% for small-signal diodes, trench TMBS, and MOS-class chips. In addition, China Resources Microelectronics announced that starting February 1 it would initiate price increases for its entire series of microelectronic products, with the minimum increase being 10%; Hongwei Technology also issued a price-increase letter. Overall, the main factors mentioned for the price increases all pointed to rising prices of upstream materials such as non-ferrous metals.

However, judging from listed companies’ performance, the discrete devices industry in the first quarter did not display the “collective” profitability recovery seen in the storage industry. The number of companies with year-on-year increases versus decreases in net profit attributable to shareholders was split evenly, showing severe performance differentiation, and operating costs generally increased.

Among them, Yuanjie Technology benefited from strong expansion in demand for data center CW light-source products, along with optimization of product mix. In the first quarter, net profit attributable to shareholders rose by nearly 12 times year-on-year. Gross margin jumped from about 45% in the prior-year period to about 78%, ranking first among A-share semiconductor companies by gross margin. In addition, companies such as Yangjie Technology and Silan Microelectronics had net profit attributable to shareholders among the leading positions within their respective sub-sectors in the first quarter, with each growing by roughly 40% or more year-on-year, but *ST Wentai and Starda Semiconductor saw net profit attributable to shareholders fall year-on-year.

On the other hand, among the power semiconductor companies that announced price increases this year, only some firms such as Silan Microelectronics saw quarter-on-quarter growth in gross margin in the first quarter.

Beyond raw material price hikes, storage price hikes, and price increases across wafer foundry and packaging segments have generally raised operating costs for most semiconductor sub-sectors.

As a leading domestic DPU and CPU provider, Hygon Information’s operating costs increased by about 80% year-on-year last year, while revenue grew by roughly 57% year-on-year; in the first quarter of this year, operating costs increased further year-on-year. In its annual report, the company stated that due to rising upstream raw materials and storage auxiliary materials, unit procurement costs increased significantly. At the same time, tight capacity for foundry packaging and testing also drove growth in processing costs, resulting in a certain increase in unit product costs.

Accelerating the Shift to Domestic Capacity

Against the backdrop of generally higher operating costs, semiconductor listed companies have also stepped up efforts to shift toward domestic capacity.

Considering its strategic layout for end-to-end localization, ThinkForce proposed a differentiated price-increase strategy. In its price-increase letter released in March, ThinkForce said it would uniformly raise the prices of smart security and AIoT products manufactured at Samsung wafer fabs by 20% on top of the existing prices; and raise the prices of smart security and AIoT products manufactured at Jinghe Integrated wafer fabs by 10% on top of the existing prices.

ThinkForce told Securities Times that demand in the security and AIoT fields is relatively strong, providing a favorable market environment for the company’s products. In addition, companies on the phone and automotive sides will continue to reasonably plan product procurement and supply, ensure customer demand, and adjust relevant product prices based on market conditions to maintain business sustainability.

“To optimize our cost structure and supply-chain resilience, the company is currently working with Jinghe Integrated to strengthen cooperation in areas such as process development, product innovation, and capacity supply,” a company executive told the reporter.

In the first quarter, ThinkForce’s gross margin increased by nearly 3 percentage points year-on-year to 25.74%, and net profit attributable to shareholders increased by nearly 24% year-on-year.

Regarding the current industry price-hike wave, an industry insider cited an analysis report to tell the reporter that fluctuations in upstream raw material prices, high wafer manufacturing costs, and tight supplies of high-end packaging resources have squeezed profit margins for manufacturers. Price increases alone cannot resolve this contradiction; the deeper reason points to a mismatch between supply and demand.

Taking the wafer foundry industry as an example, leading firms such as TSMC have put all their efforts into advanced process technologies and packaging processes, and some have exited the market for mature process nodes, reducing total market supply. Meanwhile, with the surge in computing demand driven by artificial intelligence, capacity for other low-profit products has been squeezed as well.

SMIC executives said in a February earnings call that due to incremental market formation from applications of artificial intelligence, data centers, edge devices, and the local automotive industry chain, demand for memory and BCD has increased significantly. This has squeezed capacity for producing CIS, display drivers, and standard logic products. Combined with some peer companies exiting such capacity supply, supply volumes for the aforementioned bulk products have become smaller.

GigaDevice executives also recently said in research visits that strong AI demand growth has substantially boosted demand for adjacent chips and components, and combined with tight raw material supply, capacity pressure has hit the entire industrial chain from wafer foundry to packaging and testing.