​Vehicle camera volume and price increase, CMOS image sensor industry blossoms in many places

Source: SPDB International

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Let’s take the camera module of a mobile phone as an example. The camera module is a component that uses electronic sensors to convert optical images into electronic photos. The camera module of a smartphone is mainly composed of a CMOS image sensor (CIS), a lens, a voice coil motor (VCM) and other components.

From the perspective of bill of materials (BOM), image sensors, lenses, and voice coil motors are the three most important components. Generally speaking, image sensors account for more than 50% of the cost, lenses account for 10%-20%, and voice coil motors account for about 10%.

According to Yole's forecast, the market size of camera modules for consumer electronics and automobiles will increase from US$31.3 billion in 2019 to US$57 billion in 2025. The market size of each component in the camera module will also increase accordingly.

Camera module

For module assembly, it is necessary to continuously improve the manufacturing process to achieve the miniaturization of the camera module. This is in line with the trend of thin and light appearance of mobile phones. The popularity of full screens and the continuous increase in screen-to-body ratio have put forward higher requirements for front camera modules with ultra-small heads.

In addition, large-format and periscope camera modules are gradually becoming a direction for high-end camera modules. A reference indicator for the upgrade of the module industry comes from the proportion of high-end modules of Sunny Optical; this figure has increased from 5% in 1H19 to 12% in 1H20. There is still ample room for improvement in the future.

Lenses

The function of the lens is to collect light in the physical world and focus the imaging light onto the photosensitive chip. The upgrade of the lens mainly revolves around more pieces, larger aperture, and lower thickness. For example, the iPhone 7Plus is the first time that Apple has used a 6P lens in a module, and the iPhone 12 series is the first to use a 7P lens. According to TSR data, in 2019, the proportion of 6P and above lenses in smartphones was less than 25%, and there is still a lot of room for high-end lenses to penetrate.

Image Sensor

An image sensor is a semiconductor device that converts light signals transmitted from the lens into electrical signals. In line with the pixel upgrade mentioned above, the image sensor determines the size of the pixels that each mobile phone can capture. Currently, CMOS image sensors are the mainstream image sensor type for smartphones. The 50% material cost is also the most important factor affecting the price or cost of a single module.

Therefore, the rising cost of CMOS image sensors also directly affects the price of camera modules. The upgrade directions of CMOS image sensors include larger base, smaller pixel size, and evolution to DTI (Deep Trench Isolation) process.

Voice Coil Motor

The voice coil motor uses electromagnetic force to change the position of the motor, thereby changing the distance between the lenses to achieve the autofocus function. Anti-shake technology is an extension of the focus function. Optical anti-shake, micro-pan turret anti-shake, sensor displacement and other methods are all better ways to achieve mobile phone photography and videography in the future.

According to Deloitte's forecast, global electric vehicle sales will rise from about 2.2 million in 2020 to about 30 million in 2030, accounting for 32% of global auto sales . On the one hand, governments around the world are vigorously promoting the development of the new energy vehicle industry due to concerns about environmental pollution and oil supply. On the other hand, the rapid rise of new car-making forces such as Tesla and China has also injected innovative power into the new energy vehicle industry. As a result, the new energy vehicle industry is developing rapidly and vigorously.

In our first report covering new energy vehicles, we made predictions about China's new energy vehicles, predicting that China's new energy vehicle sales will have a compound growth rate of 11% in the next 15 years, and the industry is at the starting point of golden growth.

The explosive growth of new energy vehicles in China and overseas will accelerate the development of the entire automotive industry towards electrification, and will also accelerate the demand and upgrade of in-vehicle cameras. The in-vehicle camera industry is also expected to continue to promote the rapid development of the industry by taking over from smartphone cameras.

While global car sales have been sluggish in the past few years, vehicle cameras have shown a very impressive growth rate. According to TSR data, the number of vehicle cameras in the world reached 150 million and 180 million in 2018 and 2019, with year-on-year growth rates of 24% and 21% respectively.

In the past few years, car camera modules have been mainly used for relatively simple purposes such as reversing monitoring and driving records. In the past two years, new energy vehicle companies have significantly increased the number of on-board cameras, mainly for realizing primary autonomous driving functions (ADAS, Advanced Driver Assistance Systems).

Even the primary level of autonomous driving requires multiple cameras, including front view, rear view, surround view, side view and interior view cameras to achieve functions such as automatic cruising and automatic parking. Therefore, compared with ordinary fuel vehicles, new energy vehicles have room for several times the number of cameras.

Combined with global car sales, we estimate that the average number of cameras per car has increased from 1.2 in 2017 to 2.1 in 2020. We expect this number to continue to rise. By 2025, ordinary fuel vehicles will be equipped with an average of 2.5 cameras per car, while new energy vehicles will be equipped with an average of 8 cameras per car. Therefore, the global demand for in-vehicle cameras is expected to maintain an annual growth rate of 15% in the next five years.

The upgrade direction of vehicle camera modules is mainly to achieve a higher level of autonomous driving on the basis of ensuring safety. Therefore, the upgrade requirements of vehicle cameras are not much different from those of mobile phone cameras, and the same goal is to see farther and more clearly.

At present, the configuration of in-vehicle cameras is still relatively low. For example, the camera pixel of NIO's latest ET7 is only 8 million pixels. However, from the perspective of industry demand, it is still hoped that in-vehicle cameras can recognize more information at a longer distance, or recognize more details for objects at a closer distance. This drives the increase in the potential value of a single in-vehicle camera module.

At present, the front-view camera has the most important task of identifying roads and objects, so the requirements for the front-view camera are the highest. According to industry knowledge, the price of a front-view camera module is close to 1,500 yuan, while the price of an ordinary car camera is around 200 yuan.

In addition to cameras, vehicle-mounted radar is also one of the future directions. Vehicle-mounted radar includes ultrasonic radar, millimeter-wave radar, laser radar, etc., which are mainly used to detect distance and are a supplement to the content recognition of vehicle-mounted cameras.

According to the position and function of the camera in the car, it is mainly divided into front view, rear view, surround view and interior view. At present, the most demanding car camera is the front view camera, which is mainly responsible for detecting the road and objects in front of the vehicle.

Therefore, it is the most valuable or expensive camera module at present. The status of the rear, surrounding and even the driver inside the vehicle are all areas that need to be closely monitored for vehicle autonomous driving.

Although the mission of a camera is to see clearly, which is the same requirement for mobile phones and cars, there are still big differences between car cameras and mobile phone cameras.

First, there is a big gap between the market size of car cameras and mobile phone cameras. At present, the shipment of mobile phone cameras is about 5 billion, and the future growth space is about 6.5 billion. The industry growth rate will decline in the next few years.

At present, there are about 170 million car cameras, and the growth space in the next five years will nearly double to 320 million. Assuming that the price of car cameras is 10 times that of mobile phone cameras, in five years, the market size of car cameras will be close to half of the market size of mobile phone cameras.

Secondly, there are differences in the specific requirements of mobile phones and cars for cameras. Generally, the external shooting conditions of mobile phones are better, so they pursue the imaging results of photos that are closer to reality and pleasing to the eye.

Currently, the shooting of still photos is more important, although the demand for video shooting is also increasing. The car's camera needs to cope with various harsh environments, such as rain, darkness, etc., so how to maintain the stability of video shooting in different environments is the biggest consideration.

In summary, car cameras have high requirements for safety and reliability, but the current shooting performance requirements are lower than those of mobile phones. However, with the advancement of autonomous driving, we believe that car cameras are expected to repeat the upgrade trend of mobile phone cameras.

Optical companies, especially module manufacturers, have begun to deploy upstream components for camera modules. On the one hand, this can increase the company's performance, and on the other hand, it can build a moat for its own module business. Among them, Sunny Optical is a company that has been relatively early and successful in this regard.

Sunny Optical not only assembles camera modules, but also supplies lens components for cameras. These two businesses complement each other and have both achieved relatively high scales in the industry.

Other module manufacturers including O-Film and Q Technology are also developing lens businesses with higher gross profit margins. Q Technology acquired the ability to supply lenses by investing in Xinjuke, and is also introducing lens products into mobile phone brand cameras. While O-Film built its own lens production line, it also acquired Fujifilm lens-related patents to accelerate its own lens layout.

Largan, a leading company in the lens industry, is also developing voice coil motor (VCM) business. The company hopes to increase its growth by providing customers with smaller products through the combined design of its own lenses and VCM products.

We believe that vertical integration in the optical industry will become a trend in the industry. The scale of module and lens factories is one of the barriers for leading companies, which also makes other small manufacturers or players lose the qualification to continue to compete. The integration of upstream and downstream resources can improve the efficiency of industry resource utilization, increase industry profits to a certain extent, and bring growth to their own performance.

Mobile phone camera module

The Android camp has a high degree of industry concentration and fierce competition, with the main players being manufacturers from mainland China. Sunny Optical, O-Film and Q Technology are the top three players in the camera module industry, with Chinese mobile phone brands as their main customers. After the Android camera module manufacturers experienced a decline in industry profits due to the competition for Huawei customers in 2018, the overall competitive environment has stabilized in the past two years.

Because Apple's camera modules use a different packaging process than Android, Apple's camera module manufacturers are relatively independent of Android suppliers. Currently, Apple's camera supply chain is mainly composed of Japanese and Korean players. The former Sony South China plant acquired by OFILM (with plans to sell it to Wingtech Technology) is the only Chinese manufacturer.

Mobile phone lens

The lens industry has a high degree of concentration. Although the industry competition is intensifying, it is still relatively mild. There is a big gap between the top two players in the industry and the third and subsequent players, because the top two players in the industry can better enjoy the industry dividends.

The industry leader is Largan, whose customers include all the top smartphone companies and has a high share in high-end lens projects. Largan currently occupies the vast majority of non-Android customers. The other two suppliers of this customer are Taiwan's Yujing Optical and Japan's Kangdazhi.

Sunny Optical is the second-ranked player in the industry. According to shipment estimates, Sunny Optical's share in the Android market exceeds that of Largan Precision.

The industry barriers are high, and production capacity and yield are two factors that block most players. The intensified industry competition comes from: 1) latecomers such as AAC, O-Film, QTech, etc. have begun to deploy and ship low-end lenses, 2) the industry leader Largan Precision may enter the mid- and low-end lens competition due to the decline in high-end demand in 2020. However, the industry profit margin is high, and mobile phone lenses continue to evolve in the direction of 8P, 9P and large aperture. The industry space is increasing, which is conducive to easing competition and accommodating more players.

Car Camera Module

The concentration of vehicle camera modules is relatively dispersed. The main suppliers are still Tier 1 automotive suppliers. Currently, smartphone module manufacturers are entering the field of vehicle camera modules, and are expected to replace Tier 1 suppliers and become the main supplier of vehicle cameras in the future.

Car lens

The industry concentration is high and the competition is relatively mild. Sunny Optical is the leader in the automotive industry, occupying a 30%-40% market share, and its share is still increasing. The second and third players are Japanese and Korean manufacturers. The long certification cycle for automotive products is also one of its barriers.

Automotive CMOS Image Sensor

The industry concentration is high, the competition is relatively mild, and the industry growth rate will be high in the future. The industry leader is ON Semiconductor, the industry second is OmniVision, and Sony ranks third. OmniVision has strong product strength in automotive high-end CMOS. Sony is increasing its investment in automotive CMOS image sensors, which may lead to intensified competition in the future. However, the industry will maintain a high growth rate in the next 10 years, and high investment is easier to be absorbed by the industry growth rate.

In the next two years, mobile phone modules will continue to rise

Sunny Optical is in the first echelon in the field of Android camera module assembly. Sunny Optical, O-Film and Q Technology are currently the three largest players in the Android camp. As the concentration of top mobile phone brands increases, the concentration of these three module factories also has room for further improvement.

Sunny Optical's mobile phone camera module shipments in 2020 increased by 10% year-on-year, a growth rate higher than the industry average, showing Sunny Optical's ability to gain market share. We expect Sunny Optical's camera module shipments in 2021 and 2022 to increase from 2020. The main driving forces come from: 1) the overall recovery of the mobile phone industry, and 2) Sunny Optical has a large room for improvement among Korean customers.

From the perspective of camera module product portfolio, the proportion of Sunny Optical's high-end camera modules (mainly including periscope cameras and large-format cameras) still has a lot of room for improvement. The growth momentum still comes from the demand for camera upgrades from mobile phone brands.

In the long run, we believe that the ceiling of Sunny Optical's camera modules has not yet arrived. Currently, Sunny Optical's camera modules have a relatively low share among Korean customers, which does not match the proportion of mobile phone lenses. Therefore, Sunny Optical still has a relatively large potential space among this customer.

Competition in the camera module industry has slowed down, which is conducive to maintaining a stable gross profit margin in the industry. Although we believe that the top smartphone brands will change in 2021, the top smartphone brands are already customers of module manufacturers such as Sunny Optical and Q Technology, so the switching of module factory customers will also be relatively smooth.

At present, module manufacturers are willing to focus on increasing profits when their market share is relatively stable. Therefore, we expect Sunny Optical's module business gross profit margin to be relatively stable. The increase in the proportion of high-end modules provides some room for Sunny Optical's module gross profit margin to increase.

In general, Sunny Optical's share in high-end camera modules is higher than that of Q Tech, O-Film, etc. This can be seen from the fact that the unit price of Sunny Optical's camera modules is always higher than that of its competitors. We believe that Sunny Optical can maintain its advantage in this regard.

Mobile phone lenses continue to grab market share, narrowing the gap with industry leaders

Sunny Optical ranks second in the mobile phone lens industry, and Largan is the current industry leader. The barriers to entry in the lens industry are relatively high. The current industry leaders can both meet the larger production capacity requirements of mobile phone brands and achieve a higher yield rate. It is difficult for new entrants to achieve both of the above.

In 2020, Sunny Optical shipped 1.53 billion mobile phone lenses, a year-on-year increase of 14%, higher than the industry growth rate. According to our estimates, Sunny Optical's share of Chinese brand mobile phone lenses is close to 40%, and its share of Korean brand customers is around 35%, which is higher than Largan's share in these two major customer systems.

Sunny Optical has always aimed to enter the lens business of all the top smartphone brands. In terms of non-Android customers, Sunny Optical has a large gap in market share with the leading company Largan. However, with the continuous expansion of production capacity and increase in the proportion of high-end products in recent years, Sunny Optical has already occupied a place in the high-end projects of the Android mobile phone camp and gradually narrowed the gap with Largan. Therefore, we believe that Sunny Optical's business with non-Android customers will progress smoothly, which will further open up space for Sunny Optical's mobile phone lens business.

Mobile phone lens is an industry with relatively high gross profit margin. The gross profit margin of the industry leader Largan is between 60%-70%, while Sunny Optical's gross profit margin is between 40%-50%. The higher pricing power of the industry leader also gives other players in the industry more profit space, especially the second largest player in the industry. Therefore, with the scale effect brought by further expansion of production in the future, Sunny Optical's mobile phone lens gross profit margin will also have room to rise.

Car lenses lead the industry

Sunny Optical has been developing automotive optical products for more than ten years. At present, Sunny Optical's share of automotive lenses in the industry is between 30% and 40%. Even in 2020, when the automotive industry was hit by the epidemic, Sunny Optical's shipments of automotive lenses reached 56 million, a year-on-year increase of 12%. In the second half of 2020, after Europe resumed work and production, the growth rate of automotive lenses recovered rapidly.

We believe that with the recovery of the automotive industry and the increase in sales of new energy vehicles, the growth rate of demand for automotive lenses in 2021 will be higher than that in 2020. It is expected that the shipment volume of the automotive lens industry will maintain a growth rate of 15% in the next two years, and Sunny Optical is expected to achieve a 20% shipment growth rate on the basis of increasing its market share. And due to the increase in the number of cameras installed on a single vehicle, the automotive lens industry will maintain a high growth rate in the next five years, and Sunny Optical will also fully enjoy the industry dividends.

As mentioned in the industry section, in the early stages of the upgrade of automotive cameras, there is still a great demand for clearer and farther vision, which also provides Sunny Optical with room to increase the value of a single lens.

Multi-point layout of vehicle-mounted products

In addition to the automotive lenses that have been deployed for many years, Sunny Optical is also actively deploying automotive optics-related products, including automotive camera modules, head-up displays (HUD), laser radar and other products. These are the hardware foundations that must be equipped for automotive intelligence. At present, these products still contribute relatively little to Sunny Optical's revenue. We expect that in the future, automotive camera modules and head-up display products will likely achieve relatively significant revenue contributions to Sunny Optical the fastest.

New energy vehicle companies are all making full efforts to develop autonomous driving (ADAS). For example, among the new forces in car manufacturing, Xiaopeng upgraded the front camera from binocular to tri-camera during the XPliot upgrade process, and also upgraded the millimeter-wave radar from 3 to 5. Therefore, not only will the penetration rate of new energy vehicles in the industry increase, but the use of optical products per vehicle will also increase.

With Sunny Optical's own manufacturing capabilities for mobile phone camera modules and its qualifications for supplying automotive lenses, we believe it is only a matter of time before Sunny Optical enters the automotive camera market and supplies it in large quantities. Currently, automotive camera modules and head-up displays are expected to contribute to revenue the fastest.

Although the business volume of these new automotive products is still relatively small, we believe that with the upgrading and popularization of intelligent vehicles and autonomous driving (ADAS), these optical components will have a large room for growth, laying the foundation for Sunny Optical's development in the next 5-10 years.

Q Technology: Expanding customers, vertical integration, and planning for the future

As a first-tier player in the mobile phone camera module industry, Q Technology has benefited from the industry recovery and is optimistic about the growth trend in the next two years: In 2020, Q Technology achieved an improvement in its product portfolio. In 2021 and 2022, as the global smartphone market recovers and multi-camera penetration continues to increase, Q Technology's camera module shipments are expected to continue to increase.

Improving the camera product portfolio to maintain first-tier competitiveness

QTech, along with Sunny Optical and O-Film, is currently the world's top three Android camera module manufacturers, ranking

First echelon. From the perspective of production capacity, Q Technology (55kk/month) ranks third, only behind O-Film and Sunny Optical.

In 2020, QTech shipped 390 million camera modules, down 3% year-on-year, slightly lower than the 410 million in 2019. However, the proportion of QTech's high-end camera modules has increased significantly, with the proportion of cameras with more than 10 million pixels rising from 54% in 2019 to 71% in 2020, especially the proportion of cameras with more than 32 million pixels, which increased from 11% in 2019 to 26% in 2020. QTech's product portfolio has improved significantly.

High-specification cameras require higher precision, so they also take more time to manufacture, which takes up more production capacity. Therefore, for QTech, although the number of cameras did not increase in 2020, the improvement of product portfolio also requires more production capacity.

We expect that QTech's camera product portfolio will have room for improvement in 2021 and 2022, and the proportion of products with more than 3200 pixels is expected to continue to increase to 30% and 33%. The improvement of the product portfolio also leaves room for QTech's average unit price to increase.

We mentioned above that the CMOS image sensor (CIS) is the most important component in the camera module and accounts for about 50% of the material cost of a module.

An image sensor is a semiconductor device whose function is to convert the optical signals of images in the physical world into electrical signals in electronic circuits. These electrical signals are processed by the mobile phone processor to form the photos seen on the phone.

Therefore, CMOS image sensors may be applied wherever there are cameras. The application areas are not only mobile phones and cars, but also other fields such as security, medical, and industry. According to Frost & Sullivan, the compound growth rate of CMOS image sensor shipments from 2015 to 2020 was 11%, reaching 6.6 billion units, and the compound growth rate of shipments from 2020 to 2024 is expected to be 8%. The market revenue scale of CMOS image sensors will also climb from US$17.5 billion in 2020 to US$23.8 billion in 2024, and the compound growth rate is close to the growth rate of shipments.

The vehicle-mounted CMOS places more emphasis on the ability to see objects clearly in harsh environments.

 For example, the requirements of vehicle-mounted CMOS for HDR (High Dynamic Range) are relatively high. HDR capability refers to the ability to better distinguish the details of highlights and shadows in an environment with a large difference in light and dark. This is more likely to occur at the entrance of a tunnel, where the light-dark contrast is high;

 For another example, automotive CMOS also needs to have the ability to prevent LED flicker, that is, the impact of LED lighting on the imaging caused by vehicles traveling in the opposite direction. If autonomous driving is to be achieved, these technologies are necessary for automotive CMOS.

Automotive CIS, perfect layout, enjoy growth

OmniVision ranks second in the world in automotive CMOS image sensors

Similar to Sunny Optical, OmniVision Technologies is one of the few optical companies that has perfected both the mobile phone and automotive fields, and OmniVision is also a rare optical semiconductor device company.

In the automotive CMOS image sensor industry, there are currently two major players, ON Semiconductor and OmniVision Technologies. Currently, ON Semiconductor has a higher market share than OmniVision Technologies. The third player is Sony, the leader in mobile phone CMOS. According to the market information we surveyed, Sony is increasing its investment in the automotive market because it is optimistic about the future market space of automotive CMOS image sensors.

Unlike mobile phone products, automotive products have extremely high requirements for safety performance. Therefore, the certification cycle for suppliers to enter each car company or each Tier 1 supplier is much longer than the certification cycle for mobile phone customers. Certification of automotive products usually takes 2 to 3 years. OmniVision Technologies has passed the certification of mainstream car companies or Tier 1 manufacturers on the market, so it can quickly respond to the current market's explosive demand. OmniVision's foundry TSMC also stated in its January 2021 earnings conference that it would give priority to solving the supply problem of automotive chips.

There is huge room for upgrading car cameras

In terms of quantity, the average number of cameras per car in the world is only 2.1. We expect that by 2025, the average number of cameras per car in the world will be 3.5. On the one hand, new energy vehicles are pursuing intelligence and their penetration rate is increasing. On the other hand, traditional fuel vehicles also have safety and driving convenience considerations, so more cameras are added for assistance.

In terms of camera configuration, the pixels of automotive cameras are still relatively low. The industry's most advanced automotive camera sensors have only advanced to around 13 million pixels. In addition, automotive cameras need to meet technical requirements such as anti-LED flicker. Because automotive cameras are still in the early stages of the upgrade path, each generation of product upgrades will have the opportunity to achieve a 30%-50% price increase. Therefore, we are also optimistic about the future trend of increasing both volume and price of OmniVision's automotive CMOS image sensors.

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