Espressif Systems' revenue grew 9.75% in 2020, and is expected to have the largest market share in the Wi-Fi MCU field

On February 26, Espressif Systems released its 2020 annual report. The company achieved operating income of RMB 831.2865 million, an increase of 9.75% over the same period in 2019; net profit attributable to shareholders of listed companies was RMB 104.0520 million, a decrease of 34.35% over the same period in 2019.

Espressif Technology said that in the first half of 2020, the global epidemic spread, the company's business spread all over the world, and the production of downstream customers was affected to varying degrees, which led to a 9.31% year-on-year decrease in the company's operating income; in the second half of the year, as the epidemic was controlled, the company's operating income increased by 23.94% year-on-year. The company achieved operating income of 831.2865 million yuan for the whole year, an increase of 9.75% over the same period in 2019. The net profit attributable to shareholders of the listed company was 104.0520 million yuan, a decrease of 34.35% over the same period in 2019, mainly due to the slowdown in the growth of operating income due to the impact of the epidemic, while the company continued to increase its R&D investment, resulting in a rapid increase in R&D expenses.

In 2020, the company sold a total of 167,454,900 chips and modules, an increase of 16.68% over 2019. Under normal circumstances, as sales volume increases, the unit price of our products to customers tends to decline. At the same time, due to the scale effect brought about by the increase in sales, the unit cost also decreases accordingly. In 2020, due to the special impact of the epidemic, the company implemented a special price reduction strategy in the first quarter of 2020, and the price was significantly reduced, resulting in a comprehensive gross profit margin of 41.29% in 2020, a decrease of 5.74 percentage points from 2019.

Expanding from Wi-Fi MCU to Processing + Connectivity

As the company develops, Espressif's products have expanded from the Wi-Fi MCU segment to the "processing" + "connectivity" segment. "Processing" covers AI and RISC-V MCU, and "connectivity" covers wireless communication technologies based on Wi-Fi and Bluetooth LE. The research and development scope includes chip design of related technologies and investment in underlying software technology.

Except for the ESP8089 single Wi-Fi chip released in 2013, which is used in the tablet and set-top box markets, all others are used in the field of Internet of Things. Currently, there are four major IoT chip product series: ESP8266, ESP32, ESP32-C and ESP32-S. Since the ESP32 series, Bluetooth and AI algorithm functions have been added, and chip products have developed into the AIoT field.

Espressif has a leading market position in the field of Wi-Fi MCU communication chips for the Internet of Things. According to the 2017, 2018 and 2019 research reports released by TSR, a semiconductor industry research organization, the company is one of the main suppliers in the field of Wi-Fi MCU chips for the Internet of Things, and its products have strong import substitution capabilities and international market competitiveness. From 2017 to 2019, the company's product sales market share remained at around 30%, ranking first. Other competitors with a relatively large market share include MediaTek, Realtek, Cypress, Qualcomm and NXP (acquired Marvell WiFi in 2019). As of the announcement date of this annual report, the relevant survey report for 2020 has not yet been released. According to the company's preliminary communication with TSR, it is expected that the company's products will have a market share of more than 35% in the Wi-Fi MCU field in 2020, still ranking first.

In terms of new products, Espressif has invested in the research and development of Wi-Fi 6 chips and has now entered the product verification stage. It is expected to release related product lines within 2021.

At the same time, Espressif is integrating RISC-V into its products, which will reduce licensing fees in the future and ultimately reduce the price of IoT terminals. Currently, the ESP32-S2 chip has integrated a self-developed coprocessor (ULP) based on the RISC-V instruction set, and the ESP32-S3 chip has integrated a self-developed single-core 32-bit MCU based on the RISC-V instruction set, with a frequency of up to 160MHz. The company has already started to reserve underlying R&D technology and will continue to expand it in future products.