Can Tesla drive the new energy vehicle market back to health?

The automotive semiconductor market is becoming one of the most promising semiconductor application markets. Especially driven by Tesla, the market penetration rate of new energy vehicles will continue to increase rapidly, bringing huge market demand and industrial opportunities to domestic semiconductor manufacturers.

This can be seen from the delivery of Tesla Model 3 manufactured in China, and the plan to achieve domestic substitution of all parts by the end of the year. New energy vehicles will bring broad development space for domestic semiconductor manufacturers.

For Zhongying Electronics, which has deep accumulation in the fields of industrial control MCU and lithium battery management chips, entering the new energy vehicle market through technology extension is the only choice for it to face industrial opportunities. Song Yonghao, general manager of Zhongying Electronics, said: "Industrial control MCU and lithium battery management chips are currently the main business of Zhongying Electronics and the company's largest source of revenue. However, the technology and core competitiveness in this area have been almost built. For the company's longer-term development and the sense of accomplishment of engineers, we must continue to open up new application areas and breakthroughs. The application direction that has a greater technical relevance to our main control chip and lithium battery management chip technology and can be developed and broken through is undoubtedly the new energy vehicle field."

It is reported that SinoWing Electronics set the tone for  the strategic layout of IIoT three years  ago, simultaneously aimed at the new energy vehicle market, and has started to invest in the field of new energy vehicle electronics. At present, SinoWing Electronics has invested in the research and development of the body control MCU part. The company currently has accumulated chip-related technologies such as air conditioning control, frequency conversion control, motor control, and lithium battery management. The long-term technology extension direction is very suitable for the field of new energy vehicle electronics.

Horizontal integration reaches inflection point

According to a report by Market Research Engine, the Industrial Internet of Things (IIoT) market will grow at an annual compound growth rate of more than 8% in the next few years. By 2022, the IIoT market is expected to exceed US$176 billion, with the key driving factor being the development of technologies such as semiconductors and electronic devices.

As early as three years ago, SinoWing Electronics had already targeted the IIoT market and formulated a strategic layout. It is undoubtedly optimistic about the development of the IIoT market and based on its own product advantages. SinoWing Electronics is known for its technical products such as MCU and lithium battery management chips, and has already entered the IIoT market. However, in order to achieve a comprehensive layout of the IIoT strategy, horizontal integration of products is essential. Because in terms of industrial applications, the sensor sensing of IIoT applications + MCU computing + RF product (BLE + WiFi) transmission to achieve terminal interconnection is the most basic structure, and each link is indispensable.

In Song Yonghao's view, to realize the IIoT layout, the horizontal integration of chips will involve  Wi-Fi  and BLE, MCU and MEMS. Now SinoWise has made achievements in the MCU field, and the BLE business has also been launched. In 2019, a MEMS team was also established. The Wi-Fi team is urgently needed to be supplemented.

In the past year, Zhongying Electronics has been looking for high-quality Wi-Fi targets. On the last day of 2019, Zhongying Electronics, Zhongying Technology, a wholly-owned subsidiary of Zhongying Electronics, Lanzhi Electronic Technology (Chengdu) Co., Ltd., Shanghai Lanzhi Semiconductor Co., Ltd., Lanzhi Technology (Shanghai) Co., Ltd., and Lanzhi Technology Hong Kong Co., Ltd. jointly signed the "Asset Acquisition Agreement". Zhongying Electronics and Zhongying Technology will purchase patents and teams related to the Wi-Fi direct connection and solutions business (collectively referred to as the "Wi-Fi business") currently operated by the seller, its affiliates and the seller's designated entities in accordance with the terms and conditions agreed in the acquisition agreement.

Song Yonghao emphasized that we already have a very clear understanding of the MCU ecosystem. After acquiring the assets related to Lanzhi's Wi-Fi business, we can do more technical certification and redistribution and division of labor in the MCU ecosystem. Through horizontal integration, we can drive synergy and enhance core competitiveness. It is expected that the output value of the company's MCU business will have a 1:4 driving value. In the future, with the accumulation of technology, the general connection method of IIoT will inevitably change, and the ecosystem will be broken and redistributed, which will realize the redistribution and combination of hardware, algorithms, and software functions. Therefore, the key to the future success of the IIoT market lies in who can master the ecosystem, which requires the comprehensive layout and integration of enterprises.

In fact, the acquisition of Lanzhi Wi-Fi business-related assets, in addition to horizontal integration, is also a new opportunity for SinoWise Electronics to achieve steady performance improvement and usher in a turning point through its IIoT layout. As Song Yonghao said, industrial control MCU and lithium battery management chips are currently SinoWise Electronics' main businesses and the company's largest source of revenue.

Driven by these two major businesses, Zhongying Electronics' revenue and net profit have achieved positive growth for seven consecutive years since 2013, and it has also increased its share capital and distributed dividends for all seven years.

According to Zhongying Electronics' latest 2019 performance report, during the reporting period, the company achieved revenue of 834 million yuan, a year-on-year increase of 10.1%; net profit attributable to shareholders of listed companies was 189 million yuan, a year-on-year increase of 12.5%; the company's overall sales of industrial control chips have grown steadily, and the main control chips, lithium battery management chips and AMOLED display driver chips have been introduced by customers in large quantities, driving Zhongying Electronics' revenue and net profit to achieve double growth again. In the future, Zhongying Electronics is also confident that it will continue to increase its capital and distribute dividends.

As Zhongying Electronics supplements its Wi-Fi business, it will drive the steady growth of MCU and lithium battery management chip businesses. With the explosion of domestic substitution and IoT market, especially driven by the combination of MCU in Wi-Fi/BLE, this year's shipments are expected to increase exponentially, driving the company's performance to continue to climb positively, and the company's comprehensive strength will also enter a new level.

Specifically, in the field of industrial control MCU, Zhongying Electronics is an international leader in this field. Among them, the main control chips for white appliances have been competing in the market with major international brands in Europe, the United States and Japan, and a large number of imports have been replaced in the field of main control chips for home appliances. With the increase in the proportion of smart applications in home appliances in 2020, the number of product introduction projects of Zhongying Electronics in the home appliance application market has increased, and customers have also added designs for variable frequency air conditioner main control chips. After the introduction, these products will have the opportunity to gradually transform into order growth in the future, steadily increasing the localization rate of chips.

In terms of lithium battery management chips, with the accelerated popularization of mobile phone fast charging applications, the demand for accurate measurement of lithium battery management chips has increased, and a higher proportion of mobile phones will use lithium battery measurement chips, and the market is in a growth period. Zhongying Electronics also stated that lithium batteries are increasingly widely used, and the company has launched a number of new lithium battery management chip products to enrich its product line. The products are used in mobile phones, laptops, power tools, electric bicycles and other products, including communication base stations using lithium batteries. The application scenarios of the products continue to increase, and the company continues to enrich its product line.

The new products launched by Zhongying Electronics' AMOLED display driver chips are accelerating customer verification and introduction. Also benefiting from the incremental market of smart terminal AMOLED, the company will have substantial breakthroughs in OLED driver chips this year. Previously, Zhongying Electronics' subsidiary Xinying Technology launched FHDAMOLED display driver chips in the second half of 2018, and the cumulative sales have exceeded tens of millions of yuan.

On the basis of Zhongying Electronics' seven consecutive increases in revenue and net profit, the company's market shipments of main control chips and lithium battery management chips have gradually and steadily increased, and can support the company's investment in research and development to develop new products and target new markets.

"At present, our technology and core competitiveness in the field of main control chips and lithium battery management chips have been almost built. For the long-term development of the company and the sense of accomplishment of engineers, we must continue to open up new application areas and breakthroughs." Song Yonghao said, "The application direction that is closely related to our main control chip and lithium battery management chip technology and can be developed and broken through is undoubtedly new energy vehicles, because in terms of industrial control applications, whether it is anti-interference MCU or lithium battery BMS application, it is natural to think of the new energy vehicle market when extending upward."