AirPods are selling like crazy. How much profit is behind the TWS industry chain?

Let us turn back the clock to an autumn day in September three years ago.

That day, Apple's autumn new product launch conference arrived as scheduled. When Apple CEO Cook showed off a pair of wireless headphones that looked like traditional Apple headphones without the cables on the stage under the attention of thousands of people, perhaps no one would have thought that this product, which was "ridiculed" when it was first launched, would firmly occupy half of the market with an annual shipment of 100 million units four years later. This product is the True Wireless Stereo (TWS) Bluetooth headset named AirPods.

According to Apple's first quarter 2020 financial report, its wearable devices, home products and accessories business, including AirPods, had a net revenue of US$10.01 billion, a year-on-year increase of nearly 26.7%, higher than the revenue and profit levels of many mobile phone companies. The emergence of Apple AirPods has created a different spark in the Bluetooth headset market, and its development momentum has gradually become a prairie fire. Market research firm Counterpoint Research predicts that global shipments of TWS headsets will reach 120 million pairs in 2019, and this figure is expected to reach 230 million pairs in 2020 with the emergence of a wave of phone replacements in the new year. At the same time, market research firm GFK predicts that the market size of TWS headsets in 2020 will also expand from US$5.4 billion in 2018 to US$11 billion in 2020.

▲Statistics and forecasts of global TWS headset market shipments from 2016 to 2020 (Source: Counterpoint Research)

Behind the TWS headset fire, the most critical fuse is undoubtedly the innovation and promotion of Bluetooth chip technology. For a long time, Bluetooth chips have not only been the core components that promote the development and application of Bluetooth headset technology, but also the market with the most intense supply chain competition. Today, the blowout development of the Bluetooth chip market is also closely related to the technological innovation of Android chip manufacturers. After Apple's AirPods series of headphones swept the market in 2016, its unique low-power stereo Bluetooth chip patent has always been a technical barrier between Apple and Android ecosystems. But in the past two years, with the continuous breakthrough of third-party Bluetooth chip manufacturers in technology, this barrier has finally been torn open, instantly igniting the TWS Bluetooth chip market. But for now, TWS Bluetooth chips are becoming a mixed market. On the one hand, while mid-to-high-end players such as Apple, Huawei, Hengxuan and Airoha are constantly expanding the market, various types of Bluetooth chips and solutions are emerging in an endless stream; on the other hand, players mainly in the Huaqiangbei camp are unscrupulously entering the low-end and "copycat" market. Not only that, from the two major smartphone user groups of Apple and Android, to domestic and foreign Bluetooth chip manufacturers, and then to chip manufacturers, mobile phone manufacturers and headset manufacturers, there are also fierce Bluetooth chip battles, which are constantly stimulating the market and consumer nerves, and forcing the traditional headset industry to accelerate innovation and transformation. This time, Zhidongxi conducted an in-depth investigation of the TWS Bluetooth chip market, analyzing the current Bluetooth chip market structure while also exploring the market strategies and "schools" of important players from its outbreak path. What contradictions and challenges are hidden under a seemingly promising development trend?

▲H1 chip in Apple AirPods Pro

Apple AirPods: A latecomer that ignited the TWS headset market

In fact, before Apple strongly challenged the traditional headphone market in 2016, the traditional headphone market was in a state of long-term saturation on the one hand, and faced a lack of innovation on the other. Around 2015, brands such as AKG, Audio-Technica, Beats and Sennheiser were still the main players in the traditional headphone market. Head-mounted and in-ear products continued to overwhelm the presence of earbuds, and the demand for functions such as noise reduction and built-in sound cards gradually increased. However, compared with devices such as smartphones and computers, the investment cost of headphone production at that time was relatively small, and the technical threshold was low and the production cycle was short. Therefore, a large number of small and medium-sized manufacturers quickly poured in, and the low-end headphone market gradually became saturated. While traditional headphone manufacturers turned to the high-end market segment, a potential competitor that emerged due to the needs of home audio and video, smart speakers, gradually emerged. Under this pattern, although TWS headphone products had already appeared at that time, it was still only a market for niche manufacturers. In addition, there were also players who made stereo Bluetooth headphones, but the products were still connected by a wire. The headphones launched by these manufacturers only attracted a small amount of attention and did not create a widespread sensation.

▲Earin launched the Bluetooth headset in 2015. At that time, the traditional headset market had been in a tepid state, and the turning point of all this started in 2016. In June 2016, the Bluetooth Special Interest Group (SIG) officially released the Bluetooth 5.0 standard, which brought important technical impetus to the Internet of Things (IoT) market with faster transmission speed, longer transmission distance and lower power consumption, and also became a booster for the development of Bluetooth headsets.

It was at this point that Apple launched AirPods.

According to data from a market research company Slice Intelligence, the first generation of AirPods headphones had already captured 26% of the wireless headphone market share just one month after they were launched, on par with the traditional American headphone brands Jaybird and Plantronics at the time. Behind AirPods, a Bluetooth chip called W1 played a crucial role. The W1 chip, which was born with the first generation of AirPods headphones, has faster and more stable Bluetooth connection performance, while consuming only one-third of the power of traditional Bluetooth chips. Although Apple has not revealed more information about the W1 chip, with its three major features, the W1 chip has also brought a more novel user experience to AirPods. In three years, AirPods shipments have soared from 15 million pairs in 2017 to 60 million pairs in 2019, directly accounting for 71% of the TWS headset market. So far, a battle for Bluetooth chips around TWS headsets has slowly unfolded.

▲TWS Bluetooth headset shipments in 2019 (Source: Strategy Analytics)

The three camps of high, medium and low-end are fighting fiercely, and the Android market ecology is complex

According to data from market research firm Counterpoint Research, global shipments of TWS Bluetooth headsets will reach 230 million pairs in 2020, a year-on-year increase of 91.6%. At the same time, the compound annual growth rate from 2019 to 2022 will remain at 80%, showing a blowout development. In the past few years when the TWS headset market has grown exponentially, downstream terminal manufacturers have flocked in, and at the same time, they have also brought huge demand for Bluetooth chips to upstream chip manufacturers, attracting a large number of players to join the game. According to data from Guosheng Securities' 2019 market research report, as of April 2019, there were 8 major chip manufacturers in the world, including Qualcomm, Airoha, Realtek, Hengxuan and Actions, which have launched a total of 18 TWS Bluetooth chip solutions. From a system perspective, TWS Bluetooth chips are mainly divided into two markets. One is Apple, which holds the W series and H series, and has taken half of the market without suspense; the other is the Android market with a complex ecology and high compatibility requirements. From a market perspective, before 2018, Apple's AirPods series occupied more than 70% of the market share. Although Apple's share was diluted in 2019 with the participation of more players, it still occupied more than half of the market. TWS headset Bluetooth chips are undoubtedly a hot commodity, attracting domestic and foreign chip manufacturers to make moves and compete with each other. However, due to the technological gap between China and foreign countries, Bluetooth chip solutions can be divided into three forces from the perspective of market positioning.

▲Some major players in the TWS Bluetooth chip market (I) Mid-to-high-end market: There are many giants in the first-tier mobile phones and chip manufacturers 1. Apple: The computing power of the H1 chip is comparable to that of the iPhone 4. After knocking on the door of the TWS headset market with the first-generation AirPods equipped with the W1 chip, Apple has worked harder in the research and development of Bluetooth chips. The AirPods Pro launched by Apple last year uses a self-developed Bluetooth chip with the model H1. The H1 Bluetooth chip supports the Bluetooth 5.1 standard. Compared with the W1 chip, the H1 has also improved to a certain extent in terms of performance such as connection, battery life and power consumption. Among them, the conversion speed between devices has increased by 2 times, the call connection speed has increased by 1.5 times, and the delay has been reduced by 30%. At the same time, the computing power of the H1 chip is comparable to that of the A4 chip installed on the iPhone 4 in the early years. But other than that, Apple did not disclose more information about the H1.

2. Qualcomm: Self-developed true wireless stereo technology In the field of TWS headphones, Qualcomm launched a number of Bluetooth chips such as CSR8675, QCC3026 and QCC5100 in 2018. Among them, the CSR8675 chip supports the Bluetooth V5.0 standard and uses active noise reduction (ANC) technology. It is Qualcomm's first Bluetooth audio system-level chip with integrated ANC function, which further improves the sound quality and noise reduction effect of the product. At present, this chip has been used in Sony's WF-SP700N headphones released in 2018. Although Qualcomm QCC3026 also supports the Bluetooth V5.0 standard, it does not use active noise reduction technology like CSR8675. In addition, QCC3026 uses Qualcomm TrueWireless stereo technology, which reduces the power consumption of the chip, while also improving performance and cost performance. This chip is used in Edifier and OPPO O-Free Bluetooth headphones.

3. Huawei HiSilicon: Power consumption is 50% lower than Apple H1. Huawei's Freebuds 3 true wireless headphones launched in 2019 are equipped with HiSilicon's self-developed Kirin A1 Bluetooth chip. It is understood that the Kirin A1 chip supports Bluetooth 5.1 and Bluetooth low power 5.1 dual standards, which greatly enhances the chip's anti-interference ability, noise reduction ability and sound quality, and realizes dual-channel Bluetooth connection. Huawei said that compared with Apple's H1 chip, the Kirin A1 chip has a latency of 190nm, power consumption is reduced by 50%, and performance is improved by 30%. The Freebuds 3 headphones shipped more than one million pairs within 100 days of being launched in China.

(II) Low-end and mid-range market: Traditional chip players have extensive layout 1. Airoha: Supports Bluetooth 5.0 + Bluetooth Enhanced Data Rate Airoha was founded in 2001 and is a power amplifier (PA) company acquired by MediaTek for US$1.3 billion in 2017 to further layout the IoT market. In the field of Bluetooth chips, Airoha has developed a number of Bluetooth chips such as AB1526P, AB1532 and AB1536, and its customers include manufacturers such as Philips, Lenovo, Edifier and Hywit. Among them, the AB1532 chip supports Bluetooth 5.0 + EDR (Enhanced Data Rate), has built-in high-performance signal processing (DSP), and adds low-power voice wake-up. In terms of sound quality, it also supports High-Res high-resolution music and automatic compensation of high, medium and low frequencies, and supports multiple MICs. 2. Hengxuan: Using 28nm process, BGA packaging technology Compared with Airoha, Hengxuan, founded in 2015, is still a relatively young IC design company, mainly developing wireless audio platform RF SOC chips. For the TWS headset market, Hengxuan has launched the BES2000 series chips since 2016, and also released the BES2300 Bluetooth chip in 2018. TWS headsets such as Huawei Freebuds, Huawei Freebuds 2, Honor FlyPods and Meizu POP all use its solutions. It is reported that BES2300 adopts 28nm process technology and BGA (Ball Grid Array) packaging technology, and supports external sensor devices and eMMC flash memory. In addition, it also supports Bluetooth 5.0 standards, as well as low-frequency forwarding technology and dual-mode Bluetooth 4.2, adopts an adaptive active noise reduction solution, technology, supports the third-generation FWS full wireless stereo technology, dual microphones, etc. 3. Ziguang ZTE: A new player in TWS chips, with a delay reduction of more than 30%. As an important domestic IC design and R&D manufacturer, it has long had a relatively deep accumulation and experience in the fields of baseband chips, AIoT chips and wireless connection chips. In 2019, Unisoc officially launched the Ivy 5882 Bluetooth chip, which supports the Bluetooth 5.0 standard, has low power consumption, and can play continuously for more than 4 hours. In terms of delay, the binaural delay of Ivy 5882 is more than 30% lower than the market average. At the same time, the chip also has a dual main ear effect and supports seamless switching, further enhancing the user's switching experience. It is understood that related products equipped with Ivy 5882 Bluetooth chips have been mass-produced and launched in 2019, but Unisoc did not disclose specific customer information.

(III) Low-end market: Huaqiangbei camp is fighting at low prices 1. Jie Li: Using intelligent lossless noise reduction algorithm Jie Li Technology, founded in 2010, mainly designs and develops wireless connection chips for IoT terminal markets such as AI smart speakers, Bluetooth headsets, and Bluetooth speakers. For the TWS Bluetooth headset market, Jie Li has successively released a number of Bluetooth chip solutions such as AC6907A, AC693X and AC6936D since 2016. Among them, AC693X supports Bluetooth 5.0 and low-power Bluetooth (BLE) 5.0 standards. In terms of performance, the chip has master-slave switching and bilateral call functions, and uses ultra-small packaging and charging management technology to further reduce chip power consumption. On the other hand, the AC6936D chip supports the Bluetooth 5.1 standard and uses an intelligent lossless noise reduction algorithm. It can achieve binaural high-definition calls and seamless master-slave switching, and the power consumption is 6mA. It is reported that the MEES F2 headphones equipped with Jie Li AC6936D chip won the German Red Dot Design Award in 2019. 2. Zhongke Lanxun: Supporting Bluetooth Dual Standards Although it was established 6 years later than Jerry, Zhongke Lanxun's momentum of catching up should not be underestimated. Zhongke Lanxun mainly focuses on high-performance headphones, audio and the Internet of Things, and its customers include manufacturers such as Philips, Audio-Technica, Sony and HiVi. In the field of Bluetooth chips, Zhongke Lanxun has launched a number of chip solutions such as BT8912B, BT8852A, AB5376A and AB5377T. Among them, the BT8912B chip supports Bluetooth 5.0 and BLE standards, supports GPIO (general purpose input/output) wake-up or interrupt, and master-slave switching.

The price war of TWS Bluetooth chips is intensifying

From the perspective of the market layout of high-end, mid-range and low-end Bluetooth chips, it is not difficult to find that most of the high-end market has been divided up by foreign companies such as Apple, Qualcomm, Broadcom and Cypress, while the low-end market is mainly distributed by companies in Taiwan such as Airoha, Realtek and Vision Semiconductor, and the low-end market is almost dominated by Chinese mainland companies, such as Jie Li, China Science and Technology Blue Coat and Actions. This has also formed a situation in the Bluetooth chip market that some industry insiders often compare to "European and American companies eat meat, Taiwanese companies drink soup, and mainland companies gnaw bones."

Although TWS headphones seem to be a very small device, in fact, its industrial chain is not simple. In terms of built-in components, in addition to the main control chip, the Bluetooth chip, it also needs to integrate storage chips, MEMS sensors, voice acceleration sensors, batteries and other equipment. It is precisely based on this complex industrial chain that the domestic TWS chip market is polarized. On the one hand, a few manufacturers such as Huawei HiSilicon and Ziguang Zhanrui, which are deployed in the mid-to-high-end market, need to continuously improve chip performance, integrate innovative technologies, and take into account chip cost performance; on the other hand, a large number of manufacturers are driven by huge commercial interests and are rushing into the low-end market. By using cheap Bluetooth chips and supporting components, they attack the TWS headset copycat market. This has also led to serious homogeneity in the low-end market of TWS headphones in my country. Among them, the shipping cost price of a pair of "high imitation AirPods" headphones is less than 20 yuan, and the selling price is even less than 10 yuan.

From another perspective, the surge in players in the low-end Bluetooth chip market has also triggered a fierce Bluetooth chip price war among manufacturers, especially in the Huaqiangbei camp. Among them, Jier Technology and Zhongke Lanxun staged an unusually "exciting" price war last year. In order to harvest more market share, both parties continued to play low-price cards and repeatedly broke the bottom line of Bluetooth chip prices. It is understood that when the Bluetooth chips of other manufacturers were still at a price level of about 10 yuan, the chips of Jier and Zhongke Lanxun had been killed to 1.6 yuan each, which led to a rapid increase in the shipments of Bluetooth chips of both parties in the short term. In general, the current domestic TWS Bluetooth chip market is driven by the market blue ocean. Although the market scale is still expanding and developing, there are also market chaos to varying degrees, resulting in unbalanced development of the overall Bluetooth chip market, serious homogeneity, and innovative technology needs to be improved. But we also found that there are players who entered the market early, such as Realtek, Airoha and Zhuorong, as well as latecomers like Huawei HiSilicon, Unisoc and Hengxuan, and latecomers can also divide up a lot of "cake". This also shows from the side that the entire TWS Bluetooth chip market is not yet mature and finalized. As the TWS headset market gradually becomes saturated, Bluetooth chip headsets may usher in a more intense reshuffle.

Three major competition focuses of TWS Bluetooth chips

As a market where "old trees sprout new shoots", TWS Bluetooth headsets are, to a certain extent, ushering in a new stage of development under the innovation of Bluetooth transmission technology and the development of the IoT market. However, from a technical point of view, there are still many problems that need to be solved in TWS Bluetooth chips. Among them, the power consumption, transmission, delay, noise reduction and high-definition audio encoding and decoding technology of Bluetooth chips are still important technical nodes for the next generation of breakthroughs. 1. Reduce power consumption Although manufacturers such as Qualcomm, Airoha and Hengxuan have launched a number of low-power chips, the battery life performance of TWS headsets is still a problem that needs to be strengthened. On the one hand, TWS headsets need to be independently powered as wearable devices; on the other hand, they also need to be paired and connected with smartphones. Therefore, the low power consumption of Bluetooth chips is one of the basic performance requirements for TWS headsets to be widely used. At the same time, as users use more applications such as video and audio, AI voice wake-up, etc. on TWS headsets, and as manufacturers integrate more electronic components such as noise reduction chips and sensors inside the headsets, there are more stringent requirements for the low power consumption performance of Bluetooth chips. 2. Improve transmission efficiency In terms of transmission, the mainstream transmission technologies on the market are Apple's "monitoring" and Android's "forwarding". Simply put, "monitoring" mainly refers to the two earphones being able to decode the encrypted signals sent by Bluetooth, automatically transmit audio and activate the microphone, based on a one-to-one link in advance. This method can reduce the time of data transfer and further improve transmission efficiency. The "forwarding" method requires the main earphone to receive the data and then transmit it to the other earphone. Compared with the "monitoring" method, not only does it increase the transfer time, but it also causes delays and high power consumption problems to a certain extent, and it is also easy for the left and right ears to be out of sync. However, due to patent issues, manufacturers cannot use Apple's "monitoring" solution. Therefore, how to solve the transmission problem caused by secondary forwarding has become a technical direction that many manufacturers need to break through. At present, mid-to-high-end manufacturers including Qualcomm, Huawei, and Airoha have solved this problem to a certain extent through dual-channel transmission solutions.

3. Reduce latency From the application point of view, in addition to conference calls, TWS headphones are also often used in users' entertainment scenarios such as music, videos and games, which places higher demands on the chip's connection and latency performance. Apple's H1 chip is relatively outstanding in this regard. Compared with the first-generation AirPods equipped with W1, its second-generation AirPods headphones can achieve 2 times the device switching speed, 1.5 times the call connection speed, and more than 30% game audio delay. In addition, there are Bluetooth chips such as Huawei A1, Qualcomm QCC5126 and Realtek RTL8763B, which have achieved optimization in terms of latency. But for manufacturers, this is still a technology that needs to be conquered and improved in the long term.

Nowadays, mobile phone manufacturers such as Apple, Huawei, and Google have begun to develop more abundant voice assistants, AI translation, bone voiceprint ID recognition, health tracking and other technologies on TWS headphones, integrating more performance and experience into the headphones, making the platform trend of TWS headphones gradually obvious. This trend has further stimulated the innovation and development of Bluetooth chip technology, which means that the technical challenges faced by Bluetooth chips are far more than this.

Conclusion: An important weapon behind subverting the traditional headphone industry

From the initial innovative new form of Bluetooth headset products, it has developed into the hot TWS headset market with explosive momentum, and Bluetooth chips have become an indispensable key weapon behind this change. At present, under the broad development prospects of Bluetooth chips, on the one hand, due to the low market saturation and maturity, there is still a lot of room for development in terms of market development, innovative technology and application exploration; but on the other hand, the complex industrial chain ecology of TWS headsets with low technical barriers has also attracted many players to enter the market. Price wars, counterfeit high imitations and other phenomena have led to a more obvious polarization trend in the market and unbalanced development. But in the final analysis, how to bring users a more comfortable and convenient experience is undoubtedly one of the next important breakthroughs for TWS Bluetooth chips. At the same time, with the widespread popularization of Bluetooth 5.0 technology and the influence of consumption trends in the wearable device market, the development momentum of TWS headsets will usher in explosive growth in the next few years, and further generate greater supply demand for Bluetooth chips. Now, TWS headsets, like smartphones, are slowly becoming one of people's "senses". In the future, with the introduction of new Apple TWS headsets and the further development of the Android market, more and more consumers will become users of TWS headsets. Behind the unstoppable development of the TWS headset market, Bluetooth chips will also face greater challenges and opportunities.