Hot topic: Interconnect chips make a big contribution, Lanqi Technology's net profit increased sixfold year-on-year

Recently, Lanqi Technology Co., Ltd. released its financial report for the first half of 2024.

The report shows that the company achieved operating income of 1.665 billion yuan during the period, an increase of 79.49% over the same period last year;

The net profit attributable to shareholders of the listed company reached 593 million yuan, a year-on-year increase of 624.63%;

Basic earnings per share was 0.52 yuan, and net profit increased more than six times compared with the same period last year.

It is particularly noteworthy that many financial indicators of Lanqi Technology in the second quarter hit historical highs.

Among them, the net profit attributable to the owners of the parent company after deducting non-recurring gains and losses reached 325 million yuan, an increase of 91.33 times year-on-year and 47.81% month-on-month, setting a new historical high for the company's net profit attributable to the owners of the parent company after deducting non-recurring gains and losses in a single quarter.

In the second quarter, many financial indicators of Lanqi Technology reached historical highs.

According to the data, the net profit attributable to the owners of the parent company after deducting non-recurring gains and losses was 325 million yuan, a year-on-year increase of 91.33 times and a month-on-month increase of 47.81%, setting a new historical high for the company's net profit attributable to the owners of the parent company after deducting non-recurring gains and losses in a single quarter.

The company's sales revenue of interconnect chip product line was 833 million yuan, a month-on-month increase of 19.92%, which also set a new single-quarter record for the product line. The gross profit margin was 63.68%, an increase of 2.75 percentage points month-on-month.

Interconnect chips make a big contribution, accounting for 90% of total revenue

① With the recovery of the semiconductor industry and the increase in market demand, the sales revenue of the company's interconnect chip product line and Jintai server platform product line have achieved significant growth;

② Thanks to the rapid development of artificial intelligence technology, the sales of some of the company's AI high-performance chips have increased significantly, becoming a new profit growth point for the company.

Lanqi Technology's interconnect chip business, which is the mainstay of its revenue, accounts for the vast majority of its total revenue, more than 90%.

According to public information, the company achieved revenue of 1.665 billion yuan in the first half of the year, of which the interconnect chip product line contributed approximately 1.528 billion yuan, accounting for more than 90%; and the Jintai® server platform product line contributed approximately 130 million yuan.

The interconnect chips referred to by the company mainly include memory interface and module supporting chips (such as RCD chips based on DDR5), and [capacity] chips (such as PCIe Retimer chips, MRCD/MDB chips, CKD chips, etc.).

Lanqi Technology stated that since 2024, with the gradual recovery of industry demand, the market penetration rate of DDR5 has increased, and the demand for the company's memory interfaces and module supporting chips has achieved a restorative growth.

At the same time, some of the company's new AI chip products began to be shipped on a large scale, bringing new growth points to the company.

Currently, the market penetration rate of DDR5 is in a stage of rapid growth. It is expected that the DDR5 memory interface chip will undergo a sub-generation iteration this year, and the second-generation product will replace the first-generation product and become the mainstream in the market.

As major PC manufacturers release new models, it is expected that the market share of DDR5 third-generation RCD chips will gradually increase in the second half of 2024.

The launch of new products during the product iteration period is expected to drive up the average selling price (ASP) of Lanqi Technology's interface chips.

Solid growth foundation for core business

① Lanqi Technology's core business products have a relatively high gross profit margin. The company operates in a fabless model and focuses on the design and marketing of memory interface chips. This link occupies a relatively high value position in the entire industrial chain, thus ensuring that its main products have a significantly high gross profit margin.

Between 2019 and 2020, Lanqi Technology's gross profit margin even exceeded 70%. Although the gross profit margin subsequently declined due to factors such as rising upstream raw material costs, its gross profit margin remained above 60%.

In industry comparison, Lanqi Technology's gross profit margin even surpassed that of Pianzihuang, a pharmaceutical industry giant with strong market barriers, and in the past five years, its gross profit margin was also significantly higher than that of Weilan Technology, North Huachuang, GigaDevice and other companies.

② Lanqi Technology's main downstream market is AI PC and server manufacturers. This field is accelerating its development with the penetration of AI technology, and the chip market has broad prospects.

According to agency forecasts, global AI PC sales will increase from 50 million units in 2024 to 120 million units in 2025, and market penetration will increase from 22% to 43%.

At the same time, it is expected that China's AI PC sales will increase from 20 million units in 2024 to 40 million units in 2027, and the market penetration rate will increase from 55% to 85%.

Global server shipments are expected to reach approximately 13.65 million units in 2024, a year-on-year increase of 2.05%, mainly driven by the growth of AI servers.

It is estimated that the market penetration rate of AI servers will reach 12.1% in 2024, and the shipment volume will reach 1.65 million units, a year-on-year increase of 37%.

③Memory interface chips belong to the field of high-performance, high-speed, nonlinear analog and mixed analog and digital circuits. Similar to CATL, product research and development is difficult and requires long-term accumulation of intellectual property rights and R&D experience.

In addition, key and basic patents are already held by industry-leading companies, making it difficult for other companies to enter the market.

During the continuous upgrading process of products from DDR2 to DDR5, market concentration has gradually increased, and the number of global manufacturers has decreased from more than a dozen to three.

At present, only Montage, Renesas and Rambus can provide the first generation of mass-produced DDR5 products, and Renesas and Montage can provide a full set of DDR5 module products including RCD, DB, PMIC, SPD and TS, forming a stable three-legged market structure.

The increase layout and development logic of core chip products

① PCIe Retimer chip: As one of the only two manufacturers in the world that can produce PCIe 5.0 Retimer chips, it provides stable and reliable high-speed data transmission and low-latency interconnection solutions for key application scenarios such as AI servers.

In a typical configuration, a mainstream AI server equipped with 8 GPUs needs to be equipped with 8 or 16 PCIe 5.0 Retimer chips.

Thanks to strong global demand for AI servers and the company's continued growth in market share, the company's PCIe Retimer chip sales have achieved rapid growth.

After shipments reached approximately 150,000 units in the first quarter of 2024, shipments increased to approximately 300,000 units in the second quarter.

②MRCD/MDB chip: An advanced upgrade solution for the RCD/DB chip in the traditional RDIMM memory module. It has a more sophisticated design, supports higher transmission rates, and has higher value.

MRDIMM adopts the architecture of [1 MRCD with 10 MDBs], which will significantly increase the industry's demand for MDB chips.

The company is a leader in the field of memory interface chips and is the main developer of international standards for MDB chips.

At present, server high-bandwidth memory modules using Lanqi Technology's MRCD/MDB chips have begun large-scale trials in major cloud computing and Internet companies at home and abroad.

In the first quarter of 2024, the company's MRCD/MDB chip sales exceeded 20 million yuan in a single quarter; sales in the second quarter exceeded 50 million yuan.

③CDR chip: When the data transmission rate of DDR5 memory is increased to 6400MT/s or higher, the memory modules on the PC side (such as UDIMM for desktops and SODIMM for laptops) will need to use a dedicated clock driver chip, namely the CDR chip.

Thanks to the development trend of the AI ​​PC industry and the upcoming release of a new generation of CPU platforms that support 6400MT/s memory rates, related memory module manufacturers have begun to purchase CKD chips in large quantities for inventory.

In the second quarter of 2024, the company's CKD chips began to be shipped on a large scale, with quarterly sales revenue exceeding 10 million yuan for the first time.

④MXC chip: CXL memory module has become an effective means of expanding DRAM storage with its excellent memory expansion capabilities, efficient data processing and accelerated computing speed.

Samsung Electronics has launched its first 128GB DRAM product supporting the CXL 2.0 standard, accelerating the commercialization of next-generation memory solutions.

Montage Technology's MXC chip has been adopted as the core controller of this solution; and the MXC chip has successfully passed multiple rigorous tests of the CXL Alliance, becoming the world's first memory expansion controller product to pass such tests.

Ending:

With the advent of the AI ​​era, the company's four new chips are expected to inject new growth momentum into the company.

In this rare period of opportunity, the increase in the value of traditional chips and the combination of three new technology chips indicate high certainty in downstream demand.

Given that production of each chip is limited to only two companies worldwide, it can be expected that its gross profit margin will be protected.

Based on the information currently available, it is expected that the company's performance will continue to maintain a good momentum before the interim report in the first half of 2025, and is expected to achieve month-on-month growth for three consecutive quarters.

Some references: Zhangtong News Agency: "Net profit increased sixfold! The performance of this chip giant in Shanghai has skyrocketed", Science and Technology Innovation Board Daily: "Lanqi Technology: Net profit increased more than 6 times", Xiaoyi Investment Research: "The strongest domestic AI chip oligopoly, net profit soared 14000%", Fukai Finance: "Lanqi Technology is weak", Woze Cycle: "Once-in-six-year opportunity period"

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