Kaiyuan Securities: Downstream terminal markets are recovering across the board, and localization of electronic components is accelerating

According to Jiwei.com, the downstream terminal markets of the electronics industry are recovering and the process of domestic substitution is accelerating. Since Q2 2020, the demand in my country's consumer electronics, new energy vehicles, industrial control, home appliances, communications and other markets has shown a significant growth trend, driving the demand for electronic components such as power semiconductors, semiconductor design, semiconductor manufacturing, PCBs and consumer electronics modules.

In order to allow investors to better understand the current development progress of domestic substitution and the investment ideas of various popular tracks in the electronic technology industry, on December 24 (Thursday) at 15:30, Jiwei.com invited Liu Xiang, deputy director of Kaiyuan Securities and chief analyst of the electronics industry, to be the guest of the 25th "Kaijiang" to give a wonderful speech on the theme of "Strengthening the country's strategic scientific and technological strength and comprehensively looking at China's electronic hard technology industry."

As the era of intelligence approaches, the demand for electronic components, as the basic components of electronic products (intelligent manufacturing), will usher in explosive growth. What are the development trends and opportunities of related electronic components? What strategies are needed for related investments? Liu Xiang, deputy director of Kaiyuan Securities and chief analyst of the electronics industry, analyzed these questions one by one.

PCB demand is recovering, and HDI and automotive PCB investment opportunities are great

PCB is an important electronic component as the support of electronic components. With the recovery of automobile sales, the downstream demand of PCB industry is recovering. With the trend of automobile electrification and new energy vehicles, the automotive PCB market is expected to accelerate the expansion, and domestic manufacturers will gradually replace the share of foreign manufacturers.

The recovery of PCB demand has pushed copper clad laminate manufacturers to raise prices and absorb the pressure of rising raw material prices, and the price increase time is 1-2 months earlier than in previous years. In previous years, copper clad laminates were subject to routine price adjustments because downstream PCB manufacturers made sales budgets for the following year and prepared some copper clad laminate inventory in the fourth quarter. This round of price increases was due to insufficient production caused by the epidemic in the first half of the year, and the overseas market entered the peak season for consumer electronics. Combined with the replenishment demand in the first half of the year, demand recovered rapidly, and copper clad laminate manufacturers raised prices earlier than in the past.

Therefore, the focus of competition among manufacturers has shifted from manufacturers with a higher share of smart factory production capacity having more advantages in winning orders to using refined management capabilities to control cost differences between manufacturers.

It is worth noting that domestic manufacturers have replaced the original manual production model with advanced smart factory production, and the gap between the advanced PCB production capacity of various manufacturers is becoming increasingly difficult to widen. In addition, after the new production capacity is put into use, the competitive difference depends not only on the degree of production line automation, but also on the division of labor and cost control capabilities for segmented products. The latecomer advantages of domestic manufacturers in these aspects are gradually becoming prominent.

In addition, from the perspective of the development trend of PCB product structure, the high-density demand for consumer electronic terminals has forced PCBs to switch from ordinary high-layer hard boards to HDI products. In the past, domestic manufacturers were constrained by investment barriers and equipment delivery cycles, and their production capacity was limited. In 2021, domestic manufacturers will usher in the first year of HDI products, and the expansion of production capacity will be concentrated in the second half of 2021. At present, the products are still mainly first- and second-order, and will gradually introduce third-order and any-layer processes in the future.

Liu Xiang said that from the perspective of manufacturers' production scale advantages, cost management capabilities and downstream demand recovery, he is optimistic about the development opportunities of domestic HDI and automotive PCB manufacturers.

The market is recovering across the board, and domestic substitution is accelerating

As the downstream terminal market of the electronics industry has fully recovered, domestic substitution has begun to accelerate. Since Q2 2020, the demand in my country's consumer electronics, new energy vehicles, industrial control, home appliances, communications and other markets has shown a significant growth trend, driving the demand for power devices and other products.

In terms of power devices, overseas manufacturers are gradually abandoning mid- and low-end devices and shifting their limited wafer production capacity to high-end products such as automobiles and industrial control, freeing up development space for domestic manufacturers.

From a global perspective, 12-inch wafer capacity has been the mainstream new construction direction in the past few years, while 8-inch wafer capacity has grown slowly. As industry demand rapidly recovers, 8-inch wafer foundry resources are even more scarce.

Against the backdrop of continued development of downstream industries such as 5G communications, new energy vehicles, and new energy power generation industries, Liu Xiang predicts that industry demand will remain highly prosperous, the tight wafer production capacity will be difficult to alleviate in the short term, and there is a high possibility of an overall price increase for power devices, and the industry is expected to usher in an increase in both volume and price.

As one of the important components, the market size of RF devices has been growing rapidly, and domestic manufacturers have the opportunity to seize the opportunity and grow rapidly.

According to data from Kaiyuan Securities Research Institute, the scale of global RF front-end chips reached 13.1% from 2011 to 2018, and reached US$17 billion in 2019, with an estimated CAGR of 16% from 2018 to 2023; in 2018, the global RF switch market size was US$1.7 billion, and its CAGR is expected to be 16.6% from 2018 to 2023; in 2018, the global power amplifier/receiver/WiFi connection module was US$6 billion/2.5 billion/2 billion, and is expected to reach US$10.4 billion/2.9 billion/3.1 billion in 2025, with a CAGR of 8%/2%/6%; the antenna module is expected to have a CAGR of up to 68% from 2018 to 2025.

Panels, Mini LED, and 5G mobile phones deserve attention

After the epidemic, with the economic recovery and the big event year next year, TV consumption will be stimulated in 2021, and the demand for TV panels will grow explosively. Omdia data shows that the shipment volume of LCD TVs of the top 15 TV brands in the world is expected to increase by 9% year-on-year in 2021.

Liu Xiang said that based on factors such as event preparations, Samsung's capacity withdrawal and the progress of domestic new capacity ramp-up, it is expected that the global supply and demand of large-size LCD panels will maintain a tight balance from 2021Q1 to 2021Q3, and panel prices are expected to continue to rise, which deserves special attention.

In addition, as technology gradually matures and costs decrease, Mini LED begins to become competitive in the market, which is also worthy of attention.

From the performance point of view, Mini LED backlight display can be dimmed in a full matrix manner, such as low-resolution black and white images, to enhance the high contrast and high resolution of the display image to achieve HDR effect. From the cost point of view, with the increase in the speed of LED devices and the decline in the price of Mini LED chips, the cost of displays using Mini LED backlight has been significantly reduced.

Liu Xiang said that Mini LED is about to be mass-produced, with equipment manufacturers taking the lead, while chip manufacturers are accelerating their layout and packaging companies are actively positioning themselves in the market.

In addition to panels and Mini LED, the development of 5G technology has spawned a new wave of smartphone replacement, and its development and market conditions cannot be ignored.

Smartphones are now entering an era of stock replacement, and penetration rates have reached a bottleneck, making it difficult for the total market to grow. Component manufacturers are accelerating the introduction of assembly business through acquisitions, reflecting cost advantages through vertical integration, and expanding their own business space. At the same time, brand manufacturers are also seeking to break through.

With the rapid development of 5G technology, smartphones are becoming more and more cost-effective. Global 5G smartphone shipments have increased significantly, and the penetration rate is expected to increase further.

In addition, due to the impact of trade frictions on Huawei, brand manufacturers in various price ranges will enter a stage of reshuffle. As for overseas brands, Liu Xiang predicts that Apple will usher in a peak period of phone replacement in 2021. The last round of Apple phone replacement occurred in 2017, with the product series of iPhone 7 and iPhone X. The iPhone series products from 2018 to 2019 are all derivatives of iPhone X, which have limited appeal to consumers. Starting from 2019, Android manufacturers' promotion of 5G has further squeezed Apple's sales.

Currently, iPhone users are facing problems such as insufficient battery power and are in urgent need of upgrading their phones, so there will be a wave of Apple phone replacement next year. In the domestic market, smartphones priced below US$400 are still the main shipment range in the domestic mobile phone market.