Internet of Things Drives Industrial Growth

Wherever there is an Internet, chips are needed. The rapid development of the Internet is a distinctive feature of this era. With the gradual completion of infrastructure, the networking and intelligence of large appliances, from PCs to smartphones, tablet computers, to ice, washing, air, etc., have a significant boost to the chip industry. Wearable devices, automobiles, and home appliances have also begun the process of networking and intelligence. The "Internet of Things" that connects everything in the future is already visible.

Internet of Things Drives Industrial Growth

The Internet of Things was a concept before and it has now started. An important factor is the development of high-speed wireless networks (3G/4G). The "things" to be connected to the Internet of Things are distributed in every corner. In the era of high-speed wireless networks, it is impossible to truly establish Internet of Things only by using two-dimensional codes and NFC tags.

High-speed wireless network is a necessary condition and a direct catalyst for the prosperity of smart terminals. It once gave birth to the prosperity of smart phones and tablet computers. High-speed wireless networks will certainly promote the prosperity of biological networking. It is not difficult to discover the history of the popularity of smart phones. Although the iPhone was invented by Apple in 2007, it was not until 2010 that the United States’ 3G network was popular that the volume of sales of the iPhone began to increase. Now, the start of the Internet of Things is right now.

From the Internet to the Internet of Things, the number of network connections will increase by several times. Wherever the Internet arrives, chips are needed, and the chip's output value space will expand several times. At present, the world’s integrated circuit foundry giant TSMC’s orders from the Internet of Things have already accounted for 20% of new orders. According to IDC's forecast, the scale of the industry of IoT in 2016 will surpass the scale of traditional intelligent industries represented by smart machines, tablet PCs and embedded products, and its demand for chip products will also increase at the same time.

The rise of the domestic integrated circuit industry

The global boom of the integrated circuit industry has provided a good environment for domestic industry development. Not only that, on the basis of the boom cycle, the domestic industry has also superimposed the technological progress cycle and policy support cycle. With favorable conditions and availability, the IC industry has also shown more growth characteristics in China. Since 2013, global chip industry sales have started a new round of growth cycle.

We believe that the current boom cycle will be mild, and the growth rate of output value will be between 5% and 10%, but it will last 3 to 5 years, which will be significantly different from the PC era boom and the replacement cycle and The situation in which technological progress has greatly fluctuated.

The market may worry that although the smartphone market is large enough, it is already close to saturation and shipment growth is limited. How do we continue to drive IC output growth? We believe that based on the following two reasons, the demand-based IC demand will continue to grow rapidly at least in the next two to three years:

First, the rapid increase in the penetration rate of global smart machines can last another two to three years.

Although the penetration rate of domestic smartphones is already high, globally, the penetration rate of smart machines was only 54.6% in 2013 (smart phones shipped 1 billion, and all mobile phones shipped 1.83 billion). Looking forward to the next two to three years, smart phone shipments will still maintain a steady growth of around 20%. It is mainly driven by countries such as India and Brazil.

Second, the value of a stand-alone chip from 3G to 4G will be no less than the replacement of a smart phone from a function machine, and the penetration of 4G phones will continue to increase for at least 3 years.

From 3G to 4G, the number of AP cores increases, the baseband frequency increases, the process technology is more advanced, and the storage capacity is larger. The value of a single smart machine chip will increase by about 50%. In terms of absolute numbers, from a functional machine to a smart phone, the value of a single mobile phone chip is increased by 29 U.S. dollars. From a 3G smart phone to a 4G smart phone, the value of a single mobile phone chip will increase by another 24 U.S. dollars. The amount is almost equivalent.

From a global perspective, 4G handsets are in the fast penetration phase after the start, with a penetration rate of 14.8% in 2013 and 18.8% in 2014Q1. We expect that the 4G penetration rate can maintain at least 3 consecutive years of high growth, reaching around 50%.

From 2G to 3G, the smart phone process has been completed, and the intelligentization of products such as LCD TVs is still in progress. We call the intelligentization of consumer electronics such as set-top boxes, LCD TVs, game consoles, air conditioners, and other home appliances as "deep intelligence of consumer electronics."

Why did the sales of chips in the consumer electronics industry suddenly rise? In addition to the emergence of new products such as the iPad, the new round of Internet revolution and deep intelligence has greatly increased the value of a single consumer electronics chip. Take the LCD TV as an example: The traditional LCD TV chip is mainly composed of audio and video codec and graphics processing functions. It basically depends on the embedded MCU+ASIC. The new Internet smart TVs running Android system, in addition to the above chips, almost need to add a new set of chipsets, which makes a single LCD TV chip value has increased several times, adding 30 to 50 US dollars each.

It is estimated that between 2013 and 2018, the number of Internet TV terminals (including set-top boxes and networked game consoles, etc.) that are sold annually in the world will exceed 100 million units, corresponding to the new chip demand of 3 to 5 billion US dollars.

LCD TVs are consumer electronics products with fast networking and intelligent progress. Following LCD TVs, the networking and intelligence of other consumer electronics products such as air conditioners, refrigerators, washing machines, and smart lighting products have started and are now becoming household appliances. The competitive focus of the company.

Technology Cycle Provides Cornering Overtaking Opportunities

The origin of the domestic IC industry's growth is the full participation of the company from the PC era to the mobile age and the Internet of Things. The transition of the PC to the mobile era has almost completely reversed all previous technologies and market rules. The domestic IC industry has the opportunity to grow several times, and some of the world-class IC companies are born.

During the 20 years from 1989 to 2009, WinTel Group has firmly controlled the personal computing terminal market, and also solidified the pattern of the chip industry. Chip suppliers such as CPUs, graphics cards, and memory have not experienced major changes in 20 years. These IDM vendors ruled industry.

The domestic IC industry started late. High technical barriers and market barriers segregated the domestic industry from the rest of the industry for several decades. Until 2007, the domestic IC output value accounted for only 9.4% of the world. This also includes the number of foreign-funded factories in China. With the removal of foreign-funded companies based in China, the global share of the output value of land-based ICs is expected to be below 4%, and they are all low-end peripheral products. Compared with the output of domestic terminal products accounting for half of the world, it is almost negligible.

After 2007, Apple and Android smart devices emerged and quickly ruled the personal computing device market, completely changing the game rules of the chip industry. This change has greatly reduced the IC industry's barriers to new entrants, especially chip design and packaging testing, and it is possible for domestic companies to actually enter the mainstream market.

From 2007 to 2011, domestic IC output value increased by 1.7 percentage points over the four years. From 2011 to 2013, it increased by 2.1 percentage points in two years. With the elimination of market and technical barriers, the domestic IC industry is accelerating.

The policy cycle helps development by leaps and bounds

According to the internal logic of global technology and market development, the rise of China's IC industry is also a definite trend. Why do we still need investment funds, antitrust, and resource integration? These can help industries achieve leapfrog development and take the industry to a new level in a relatively short period of time.

In addition to the United States, the emerging regions such as Japan, South Korea, and Taiwan, China's IC industry can not be separated from the government's strong support.

At present, the domestic policy is more market-oriented, and it is more likely to produce practical results. Second, more attention should be paid to the role of leading companies in promoting the industry. From the specific measures, we believe that the following two are the most influential: First, to raise large-scale investment in industrial fund specialization; second, adopt three-dimensional measures including anti-monopoly measures to support the development of local enterprises in all aspects.

So far, policies and funds have revitalized the long-running domestic integrated circuit industry. Local companies have sought to leapfrog development through industrial integration and capital operations. The overseas giants have also come to the domestic IC hot spot to seek gold and seek development opportunities through cooperation with local companies.