Mature-process Foundries After Upbeat Q2 Results, but Second-Half Recovery Is Uneven

Mature-process foundries Globalfoundries, Hua Hong, Semiconductor Manufacturing International Corporation reported upbeat second quarter of 2024 earnings in the past week. Our Fair Value Estimates on GF and Hua Hong are unchanged at $42 and HKD 16.50 respectively, and on SMIC raised to HKD 14 from HKD 10.80. We find GF and Hua Hong to be fairly valued as their 2025 recoveries have been priced in and there is little change to our long-term view. SMIC remains overvalued after our fair value estimate hike, as we have little confidence in its long-term profitability given its heavy capital spending in the next few years. All three foundries have little to benefit from artificial intelligence until late 2025, in our view. We prefer Taiwanese foundries TSMC for its dominance in cutting-edge nodes and UMC for its disciplined approach balancing utilization and profitability.