The starterYoung Finance.
Image sourceYoung financial mapping, online public information.
Written by XiaoyuResearch Fellow, New Economist Think Tank.
Expert Advisor: Wang HaixiaSenior researcher of the New Economist Think Tank, director of the company's doxxing.
DesignEleven.
EditXu Aizhi.
Recently, with the demand for domestic mobile phones driven by Huawei and Xiaomi, the consumer electronics industry chain has also risen in an all-round way. In the consumer electronics industry, chips are the absolute soul. Now, under the leadership of Huawei, a number of excellent domestic alternative companies have emerged, including themRF chip leader - Zhuosheng Micro
Zhuosheng Micro is the company's leading front-end chip in the national frequency and is Huawei's official direct business.
A mobile phone that can support calling, texting, network services, and app applications usually contains five parts: radio frequency, baseband, power management, peripherals, and software. Radio frequency is generally the part of information sending and receiving, and it is also the core part of the mobile phone chip.
The RF module is the key component of the mobile phone, and the RF chip is the core of the RF module. The reason why mobile phones can communicate with base stations is to send and receive radio electromagnetic waves to each other. A series of circuits, chips, components, etc., which are specially responsible for sending and receiving wireless electromagnetic waves in mobile phones, are collectively referred to as radio frequency chips.
The company focuses on the research, design, development and sales of RF integrated circuits, and the core is to provide customers with RF switches, RF low-noise amplifiers, RF filters and other RF front-end discrete devices and application solutions for various modules, and also provide low-power Bluetooth microcontroller chips. The core products are mainly used in mobile smart terminals such as smart phones, smart homes, wearable devices and other electronic products, as well as communication base stations.
The former Zhuo Sheng Wei was once beautiful. After being listed in June 2019, the stock price soared all the way to 180 billion in two years. Revenue increased from less than 100 million in 2014 to a peak of 46 in 20213.4 billion, Zhuosheng Micro has become the RF chip giant behind Huawei from a small RF switch chip design company, and it is indeed a legend in the domestic chip industry.
However, the company's performance in 2022 suffered a "Waterloo". According to the financial report, the company achieved operating income of 36 in 20227.7 billion yuan, down 2063%, net profit attributable to shareholders of listed companies 106.9 billion yuan, down 4992%。The capital market reacted quickly, and the market value fell to about 45 billion, evaporating more than 100 billion.
Of course, Zhuosheng Micro also explained in the financial report that in 2022, the complex and changeable international form and macroeconomic changes will cast a shadow on the consumer market, and the consumer demand in the downstream smartphone market will be weak, which will put certain pressure on the company's operating performance in the short term. Behind this is also the biggest risk of Zhuosheng Micro - a single revenue structure.
From the perspective of revenue composition, the RF discrete devices and RF modules of Zhuosheng Micro's main business, corresponding to the downstream terminals, are used in the field of smart phones, which makes the company's performance must bear the high correlation with the sales volume of mobile phone terminals.
In the first half of 2023, the RF front-end chip industry chain is still in the process of destocking, affected by factors such as the global macroeconomic downturn, the demand for consumer electronics is still lower than expected, but with the continuous destocking of the industry, the inventory of downstream terminals and the company itself has improved.
According to the 2023 semi-annual report, Zhuosheng Micro achieved operating income of 16 in the first half of 20236.5 billion yuan, down 2549%, net profit attributable to shareholders of listed companies 36.7 billion yuan, down 5126%。Among them, the operating income in the second quarter of 2023 was 95.4 billion yuan, an increase of 3400%, the net profit attributable to shareholders of the listed company reached 33.6 billion yuan, an increase of 114 percent month-on-month66%。
The third quarter report of 2023 shows that the company's main revenue is 307.4 billion yuan, an increase of 1 year-on-year9%；Net profit attributable to the parent company 81.9 billion yuan, down 16 percent year-on-year85%；Among them, in the third quarter of 2023, the company's revenue reached 140.9 billion yuan, an increase of 4769%, an all-time high;Net profit reached 45.2 billion yuan, an increase of 34 percent month-on-month52%。
Although the half-year report and the performance of the first three quarters are still negative year-on-year, from a single quarter perspective, the profit in the second and third quarters has improved significantly from the previous quarter. According to the company's semi-annual report, there are two reasons for the month-on-month improvement in profits: first, the inventory of the mobile phone terminal market has gradually bottomed out, the sales volume has improved, and the pressure on inventory impairment has decreased;Second, module products continue to be recognized by customers.
For the semiconductor industry, inventory is a leading indicator of performance reversal, and in the downward cycle of the industry, which company can digest inventory in advance can be the first at the turning point of the cycle.
From the perspective of inventory scale, the proportion of inventory in total assets in the first half of 2023 decreased by 381%。According to the financial report, in the second quarter of 2023, due to factors such as the improvement of terminal inventory, the boost of consumption activities in the domestic mobile phone market, and the gradual increase in the shipment of DIFEM and L-DIFEM products with integrated self-produced filters on the client side, the operating income increased quarter-on-quarterWith the gradual improvement of the company's inventory level, the inventory impairment pressure in the second quarter decreased slightly from the previous quarter, and the company's inventory impairment amount in the second quarter was 54,815,43037 yuan, a decrease of 2276%。
By Q3, the inventory scale continued to decline. At the end of the third quarter of 2023, Zhuosheng Micro's inventory was 139.1 billion yuan, down 28%, the number of days of inventory turnover decreased to 262 days, and the inventory gradually recovered to a reasonable level.
The change of business model is also one of the factors for the improvement of Zhuosheng Micro's performance.
Before 2021, Zhuosheng Micro has been showing people with a high proportion of R&D, high gross profit, and low fixed assets, and the listing announcement of Zhuosheng Micro disclosed that the company is only engaged in the research and development, design and sales of integrated circuits, and the rest of the links are entrusted to wafer manufacturers and packaging and testing factories. The business model is a fabless model, which can effectively reduce the financial risks caused by large-scale fixed asset investment and achieve a higher return on investment.
However, there are also some drawbacks in this model compared with the vertically integrated manufacturing model in Europe and the United States, on the one hand, the production process is controlled by others, and the production capacity and quality control cannot be guaranteed.
In general, the RF front end consists of power amplifiers (PAs), filters, RF switches, and low-noise amplifier (LNA) devices. Among them, filters and power amplifiers are the most technically difficult and have the largest market capacity. At the same time, from the perspective of the value chain of the corresponding segments, the value of filters accounts for more than 50%, the value of power amplifiers exceeds 30%, and the remaining RF switches and others can only account for less than 20%.
However, the two types of products with large value of filters and power amplifiers are basically concentrated in the hands of global giants, and domestic companies can basically only make low-end chips. Even so, many companies have chosen to make power amplifiers, because the market is larger, the technical difficulty is relatively high, and the competition is of course the most intense.
Zhuosheng Micro may be based on the experience of the initial entrepreneurial failure, and did not confront the giants, but chose the leftovers that the giants do not look down on - RF switches and low-noise amplifiers, similar to the niche market, the competition is not so fierce, the technology is more mature, and the market demand is also good. In addition, the unit price of RF switches and LNA (Low Noise Amplifiers) is only 0About 2 yuan, the low unit price weakens the sensitivity of downstream customers to the first. After gaining a firm foothold in the niche market, it will gradually move towards difficult products.
In order to enhance the stability and risk prevention ability of the first chain, in 2022, the company's business model will officially shift from the fabless model to the fab-lite model, and adopt the vertical integration operation and fabless parallel mode to carry out the research and development of key technologies and processes and the industrial production of products, forming a complete ecological chain from R&D and design, wafer manufacturing, packaging and testing to sales.
Although the performance will decline in 2022, Zhuosheng Micro has not slowed down in R&D investment, which is also a characteristic of the semiconductor industry, and it must be driven by technology in order to maintain high profits.
Since the fourth quarter of 2020, Zhuosheng Micro has continued to promote the construction of Xinzhuo semiconductor industrialization projects, and continuously increased R&D investment and talent reserves. According to the financial report, in 2023, the company will invest 70,410 in the first half of the year to carry out the construction of Xinzhuo semiconductor industrialization project350,000 yuan, with a total investment of 573,819060,000 yuan.
In 2021 and 2022, the company will increase R&D expenditure, mainly for the construction of process R&D platform for SAW filter products, and with the production line officially put into use, the proportion of fixed assets will increase to 20% from 22Q3.
At present, mid-to-high-end mobile phones have generally adopted modular RF components, that is, discrete devices with two or more functions such as RF switches, low-noise amplifiers, filters, duplexers, and power amplifiers are integrated into a module, so as to improve integration and performance and make the volume miniaturized.
At present, Zhuosheng Micro also has this technology, such as DIFEM, L-DIFEM, LFEM, LNA Bank products and so on. According to the 2023 semi-annual report, the sales proportion of Zhuosheng Micro's module products is also gradually increasing. From 2020 to 2022, the company's RF module sales accounted for as follows: 91%, and 3042%。In the first half of 2023, RF module sales accounted for 3198%, an increase of 1 over the same period last year22 percentage points.
Combined with the trend of RF front-end modularization, the filter will become the key to the moduleAmong similar companies in China, only Zhuosheng Micro has the ability to produce its own filtersIt is expected that the proportion of modules in revenue will further increase in the future, and the gross profit margin of modules will also remain at a high level.
RF front-end chips are the core components of mobile intelligent terminal products, and smart phones are the products with the highest penetration, the most diverse forms and the largest demand among mobile intelligent terminals. Therefore, the downstream application industry of Zhuosheng Micro is mainly smart phones, and the shipment of smart phones affects the performance development of Zhuosheng Micro.
According to data from Canalys, an independent analyst, global smartphone shipments in Q3 2023 will be close to 300 million, a year-on-year increase of **1%;Shipments reached 294.6 billion units, a double-digit increase month-on-month, and the leading manufacturers have entered the recovery track.
In the third quarter of 2023, shipments in China's smartphone market were flat for two consecutive quarters**, down 5% year-on-year to 66.7 million units. The phenomenon of mobile phone sales bottoming out is obvious, but the performance of different regions and brands will be significantly different in the future. The agency also said that China's mobile phone market shipments showed signs of recovery, which is expected to drive the improvement of the fundamentals of the industrial chain.
With the continuous development of 5G technology, 5G mobile phones are gradually popularized, which will bring huge market demand to the RF chip industry. As a leading enterprise in the national frequency chip industry, Zhuosheng Micro is expected to benefit from the popularization of 5G mobile phones and achieve faster development.
From the performance statement of the third quarter, Zhuosheng Micro revealed that the company's RF front-end discrete devices and RF module products can not only be used in mobile phone terminals, but also can be used in smart wearables, communication base stations, automotive electronics, Bluetooth headsets, VR AR equipment and Netcom networking equipment and other fields that require wireless connection. The Internet of Things market will be the next wave of consumer electronics sector blue ocean, in other words, the company is getting rid of the shackles of mobile phone sales, product adaptation is wider, if it can form production capacity, it will drive the increase in performance.
In general, Zhuosheng Micro's independent production of SAW filters represents the beginning of domestic RF to move towards the middle and high-end, and is expected to further increase the share of domestic head mobile phone manufacturers. From the perspective of the downstream application industry, the signs of smartphone sales bottoming out are obvious, but the performance of different regions and brands will be significantly differentiated in the future, and it remains to wait when the Internet of Things market will be able to form production capacity.
The growth of consumer electronics manufacturers, whether the company's technology and R&D can complete effective breakthroughs is important, but the real inflection point is the innovation and development of smart wearables, communication base stations, automotive electronics, etc. to drive a new round of demand growth.