Each round of information technology changes will bring about revolutionary changes in the industrial technology route and breakthrough innovation in business models, and will then give birth to new applications to drive the development of the entire electronics industry. Histori

(report producer/author: Zhongtai Securities, Wang Fang, Yang Xu)

Changes in terminal demand determine the development trend of the electronics industry, and continuous technological innovation provides growth momentum. Each round of information technology changes will bring about revolutionary changes in the industrial technology route and breakthrough innovation in business models, and will then give birth to new applications to drive the development of the entire electronics industry. Historically, from military industry, home appliances, large PCs, personal PCs, feature mobile phones to smartphones, all the trend of upward development of the entire electronics industry has begun to form from changes in terminal demand. And with the continuous technological innovation of terminal equipment and its extended products, the growth drivers of the electronics industry are emerging one after another. Each round of new terminal demand can often last for nearly 10 years from the rise, explosion, rapid development, and then into a mature stage.

The current point in time has brought about new diversification demands, promoting changes in human-computer interaction platforms. Unlike the electronics industry development trend led by the rise of single demand in the past, this round of information technology transformation is driven by a variety of new needs and new technologies such as smart Internet of Things, automotive electric intelligence, and the integrated development of VR/AR virtual reality. Among them, the development of electrification has created the possibility of informatization for automobiles, while intelligence, networking and sharing are the gradual realization of functional upgrades and module integration of automobiles, and promoting automobiles to transform from transportation tools into new human-computer interaction platforms. VR/AR uses virtual reality fusion technology to create an immersive interactive experience, which will gradually replace mobile phones and become a new generation of portable mobile human-computer interaction platform. In the future, VR/AR will also be integrated with smart cars to complete the coordinated development of two types of human-computer interaction platforms.

Permeability is a key indicator for judging the inflection point of terminal demand explosion. The rise of terminal demand is often accompanied by an increase in penetration rate. Take smartphones as an example: the penetration rate below 10% is the early stage of the industry's technology accumulation and product cultivation stage. This stage often corresponds to a variety of technical routes. The entire industry is in its infancy. For example, when the smartphone was born, there was a dispute between Saipan and the Android operating system. After the penetration rate exceeded 10%, the industry ushered in a turning point, hot products appeared and began to be popular in the market, and the industry entered a stage of rapid development. From the perspective of smartphones, the beginning of this stage was marked by the release of the first generation of iPhone phones in 2007. Since then, major manufacturers have competed for the blue ocean market; when the penetration rate reaches 50%, the industry's competitive landscape has become clear, and the leading brands have gradually established a stable market position, occupying the vast majority of the industry's share, and the incremental profits are basically the top. Brand division; when the penetration rate exceeds 70%, the industry begins to enter a mature stage, and it needs to rely on continuous technological innovation to drive the industry's growth, and the overall industry is biased towards cyclical fluctuations. In analogy, electric smart cars, VR and AR are emerging as new terminal demand, and their development history will follow similar evolution paths, and penetration will become a key indicator for judging the inflection point of the industry demand explosion.

1. Automobile: Electric vehicles lead the new trend of consumption, and the development of intelligence and networking strengthens the interactive attributes of human-vehicle

From the perspective of penetration rate, automobile electrification has accelerated its development, intelligence has ushered in the hottest, and networking is still in the early stages of development.

1) Electrification: It is expected that the penetration rate of electric vehicles in China and the world will exceed 10% from 2021 to 2022, and the industry has entered a period of explosive growth. The "three-electric system" has added a large number of new demands for electronic components and . a) Battery: The cost of the whole vehicle accounts for about 38%. CATL is firmly the leader in power lithium batteries in the world. Domestic manufacturers such as Biadi, Xinwangda, Guoxuan Hi-Tech and Yiwei Lithium Energy have also had the strength to compete globally; b) Motor & Electronic Control: Motor and Electronic Control account for 6.5% and 5.5% of the cost of the whole vehicle, respectively, of which IGBTh, DC/DC and film capacitors account for 44%, 8% and 6% of the cost of the electric control respectively. IGBT is highly elastic under the domestic substitution. It is expected that the global market size of new energy automotive IGBTs will increase by 17 times compared with 2020 in 2030, and SiC devices are expected to gradually take over the rapid growth of IGBTs in mid-to-high-end models; it is expected that the global market size of automotive thin film capacitors will reach 56% from 2020 to 2025.In addition, the "three-electric system" has also brought about the increase in demand for connectors, PCBs and other passive components .

2) Intelligent: Automotive intelligence is divided into intelligent driving and intelligent cockpit. Intelligent driving: a) In the perception layer, the vehicle-mounted camera has the clearest competitive landscape and the strongest growth certainty. It is expected that the CAGR will reach 20% from 2021 to 2030; the lidar is the most elastic, and the market size CAGR is expected to reach 90% from 2021 to 2030; the ultrasonic radar technology is mature, the market penetration rate is relatively high, and the price has dropped to a low level; millimeter-wave radar is mainly dominated by Tier1 manufacturers such as Bosch, Mainland, Delphi and Denso, and has achieved breakthroughs in some upstream fields in China. b) Decision-making level: computing power improvement and algorithm iteration are the key. The main players around the world are Nvidia, Qualcomm and Mobileye. The number of cooperative car companies and technical strength are in the leading position. The main players in China include Huawei , Horizon and Black Sesame. c) Control layer: E/E architecture gradually moves from distributed to centralized, and eventually to centralized computing architecture. Domestic manufacturers are entering the mid- and low-end automotive MCU field in the wave of stock out of stock. Smart seat cabin: The vehicle infotainment system, central control screen and LCD instrument have a high carrying rate, and the CAGR is expected to be 14%, 13% and 13% from 2020 to 2025, respectively; HUD is gradually developing from W-HUD to AR-HUD, and the CAGR of the global HUD market size is expected to be 42% from 2021 to 2025, of which the CAGR of the global AR-HUD market size is expected to be 62%.

3) Networking: Through V2X technology, the information interaction between the vehicle and the Internet (V2N), the vehicle and the vehicle (V2V), the vehicle and the object (V2I) and the vehicle and the human (V2P), realize the development of the integrated intelligent connected vehicle with intelligent vehicle collaboration, which will drive the demand for sensors, communication RF chips and data storage chips. At present, networking is still in the V2N (also known as the Internet of Vehicles) stage. It is estimated that the scale of China/global Internet of Vehicles market will be approximately 1.0/1.5 trillion yuan by 2025, and the CAGR will be 37%/19% respectively in 2020-25.

1.1 Electrochemical: Electric vehicles usher in a 10% penetration turning point, and the "three-electric system" drives the demand for electronic components

Driven by the global "dual carbon" strategy, China and the world have successively ushered in a 10% penetration turning point from 2021 to 2022, and automobile electrification has accelerated its development. According to the forecast of the China Association of Automobile Manufacturers, my country's total automobile sales will reach 26.1 million vehicles in 2021, of which 3.4 million new energy vehicles will be sold, an increase of 149% year-on-year. The penetration rate of new energy vehicles will quickly increase from 5% in 2020 to 13%, and 2021 will become the first year of China's electric vehicles. According to EVTank and Deloitte forecast, global automobile sales will slightly increase from 83.43 million to 87.6 million from 2021 to 2022, and new energy vehicle sales will increase from 6.08 million to 8.61 million, an increase of 42% year-on-year, and the penetration rate will increase from 7% to 10%. Therefore, the world will usher in a switching window for the rapid development of electric vehicles in 2022.

Local vehicle brands are rising, and sales and market competitiveness are increasing day by day. Against the backdrop of strong support for national policies and accelerated construction of industrial chain supporting facilities such as infrastructure, new local brand car companies such as BYD, NIO , Xiaopeng , Ideal, Nezha, Zero-Road, and WM Motor have emerged in China. At the same time, domestic consumers have a high acceptance of electric vehicles. The huge domestic automobile consumption market has created an excellent survival soil for independent vehicle brand manufacturers, promoting the increasing sales and market competitiveness of independent vehicle brands. In the first three quarters of 2021, the sales of domestic traditional car companies BYD/ Wuling reached 33/310,000 units respectively, ranking second/third in the world in sales, with a market share of 7.7%/7.2% respectively; the new car-making force NIO sold about 67,000 units, ranking 18th in the world in sales, with a market share of about 1.6%.

"Three-electric system" is the core of electric vehicles, and the cost of the whole vehicle accounts for about 50%. The "three-electric system" includes batteries, electric drive and electronic control. The cost of the three in the "three-electric system" is 76%, 13% and 11%, respectively, and the corresponding cost of the whole vehicle is 38%, 6.5% and 5.5%, respectively.Among them, the battery is the energy source and cost core of electric vehicles; the main function of the motor is to convert the electrical energy of the power battery into mechanical energy that drives the car forward; the electrical control consists of inverter , power supply module, central control module, protection module and cooling system signal detection module, etc.

The supply chain reshuffles and reshapes the electric vehicle era, helping to replace electronic parts for automobiles in China. The automobile supply chain has a certain degree of closed loop, with high certification barriers, which are often difficult for new players to enter. Referring to the historical development of the US, Japan and Europe automobile industry chain, it is precisely the close cooperation between the US, Japan and Europe auto companies, Tier1 and local supply chain manufacturers that carried out in-depth cooperation and running-in in the early stage of product development, which enabled the US, Japan and Europe auto parts manufacturers to quickly develop products that meet the needs of vehicle manufacturers, and formed the core competitiveness of the strong to always be strong in the long-term development of the automobile industry. In the current wave of the development of intelligent electric vehicles of automobiles, the traditional supply chain system will be broken and reshaped, while China is at the center of the development of intelligent electric vehicles of automobiles, and local supply chain manufacturers will rise with the trend. Taking the "three-electric system" of the core of electric vehicles as an example: 1) In terms of batteries, the leading domestic battery manufacturers include CATL, BYD, Xinwangda, Guoxuan Hi-Tech and Yiwei Lithium Energy. In 21H1, CATL's market share exceeded 50% in China, with a global market share of about 31.8%, the world's largest share; 2) In terms of electric drive and electronic control, vehicle manufacturers, traditional Tier 1 suppliers and third-party suppliers competed. Relying on the layout of independent vehicle brands and the accumulation of third-party manufacturers, domestic manufacturers such as BYD, Weiran Power (NIO), Honeycomb Power (Great Wall), and Viagra Electric (Gely), as well as third-party manufacturers such as Founder Electric Drive, Huichuan Technology, Wolong Electric Drive, and Shanghai Electric Drive. The traditional Tier 1 suppliers are mainly Bosch. Overseas giants such as mainland China, Valeo, , Siemens, , etc. With the rise of independent vehicle brands and domestic "three-electric system" suppliers, it will naturally drive the domestic substitution of upstream automotive electronic components.

With the installation of the "three-electric system", automotive electrification has brought a large demand for electronic components. Electric vehicles use the power system as the source of power and have higher requirements for power conversion and power conversion, which accordingly increases the demand for electronic components such as power devices. The main increment comes from the electric powertrain part composed of the battery management module and the "three-electric system". According to Deloitte statistics, compared with traditional fuel vehicles, the value of bicycle electronic components added by the battery management module of pure electric vehicles is about US$130, while the value of bicycle electronic components added by the powertrain is as high as US$1,860. It is estimated that the BOM cost of electronic components of pure electric vehicles will reach US$2,875 in 2025, 4.5 times that of fuel vehicles (US$640).

From the perspective of electronic control cost splitting, IGBT, DC/DC and film capacitors are the main cost components. Electronic components involved in electronic control include IGBT power switches, DC/DC converters, current sensor , corrugated capacitors, and microcontroller , respectively, accounting for 44%, 8%, 11%, 6% and 11% of the total cost of electronic control. The motor includes permanent magnet synchronous motor and an AC induction motor. Taking permanent magnet motor as an example, permanent magnet is the main cost component of the motor, accounting for 45% of the total motor cost.

electronically controlled module requires a large number of power devices. It is estimated that the global/China new energy vehicle power semiconductor market size will reach US$181/91 billion respectively in 2030, 18 times the space in 10 years. The IGBT power switch is mainly used in the main inverter and OBC (car charger). In the main inverter, the DC current output from the battery is inverted into AC current to drive the car, and in the OBC, the AC current input from the externally is rectified into DC current to charge the new energy power battery. The DC/DC converter is mainly responsible for converting the high voltage of the battery into low voltages for other automotive electronics, and requires power devices such as high voltage MOSFETs. According to Strategy Analytics statistics, the proportion of power devices in automotive semiconductors has increased significantly from 21% of fuel vehicles to 55% of pure electric vehicles, and automotive electrification has brought a large number of new demand for power devices.According to our estimates, the market size of global/China new energy vehicle power semiconductors will reach US$77/4.1 billion by 2025, which is nearly 8 times higher than in 2020; by 2030, the market size of global/China new energy vehicle power semiconductors will reach US$181/9.1 billion by 2030, which is more than 18 times higher than in 2020.

IGBT is the core device of the inverter, with great elasticity under domestic substitution. With the acceleration of automotive electrification, the use of automotive IGBTs has increased significantly. In addition, the penetration rate of dual motors has increased the value of bicycles, and IGBTs have become the electronic component with the largest increase in automotive electrification. According to our estimates, the global/China new energy vehicle IGBT market size will reach US$15 billion by 2030, which is 17/19 times higher than US$9/400 million in 2020. Against the backdrop of the rise of local vehicle brands and the supply chain of the automobile industry, domestic manufacturers such as Times Electric, BYD, Shilanwei, Star Semiconductor, and Hongwei Technology are gradually entering the automotive-grade IGBT supply chain. However, the proportion of automotive-grade IGBT in China is still relatively low at present. With the dual help of accelerated expansion of automobile electrification and domestic substitution increase, domestic IGBT manufacturers will achieve leapfrog growth.

SiC MOSFET has better power conversion performance than IGBT, and the cost and yield improvement are expected to gradually enter the mid-to-high-end models. Compared with the Si-based semiconductor material , the third-generation semiconductor materials represented by GaN and SiC have a wider bandwidth, higher breakdown electric field, higher thermal conductivity, higher electron saturation rate and higher radiation resistance. It is more suitable for the production of high temperature, high frequency, radiation resistance and high power devices. SiC-based MOSFETs have higher power conversion efficiency and smaller volume than IGBTs.

Currently, the international mainstream SiC substrate sizes are 4 inches and 6 inches. Due to the small wafer area and low chip cutting efficiency, the cost of SiC substrate is high. In addition, the manufacturing and packaging yields in subsequent processes have kept the cost of SiC devices high. According to data from the Chinese Academy of Sciences, at the same level, the price of SiC MOSFET is 4 times higher than that of Si-based IGBT. However, given the excellent performance of SiC MOSFETs, high-end models such as Tesla Model 3, BYD Han EV four-wheel drive version have begun to adopt SiC MOSFET devices. At present, the entire industry chain from design, manufacturing, packaging and testing to terminal applications is actively deploying SiC devices. With the accumulation of technology iteration and process knowledge how to promote yield improvement and cost decline, SiC devices will enter more mid-to-high-end models, thereby opening up the SiC application market.

Automotive electrification also brings about the increase in demand for basic electronic components such as connectors, PCBs and passive components. 1) Connector: It is estimated that the global/China automotive connector market size will reach 156.3 billion yuan in 2025, and the CAGR from 2020 to 2025 will reach 14%/19% respectively. The major domestic manufacturers include Dianlian Technology, Ruikeda, etc. 2) PCB: It is estimated that the global/China car-mounted PCB market size will reach 826/36.1 billion yuan in 2025, and the CAGR from 2020 to 2025 will reach 18%/24% respectively. The major domestic companies include Shiyun Circuit, Shanghai Electric Co., Ltd. , Jingwang Electronics, Dongshan Precision , Shenghong Technology, etc. 3) Film capacitor: It is expected that the market size of automotive film capacitors in China will reach 117/6.2 billion yuan in 2025, and the CAGR from 2020 to 2025 will reach 56%/63%, respectively. The major domestic manufacturers include Fara Electronics and Jianghai Co., Ltd. . 4) MLCC: It is expected that the market size of automotive MLCC in China will reach 48/2 billion yuan in 2025, and the CAGR from 2020 to 2025 will reach 17%/22%, respectively. The major domestic manufacturers include Sanhuan Group and Fenghua Hi-Tech. (Report source: Future Think Tank)

1.2 Intelligence: L2 crosses the window period to L3, ADAS and the smart cockpit industrial chain bloom together

policies drive the intelligent development of automobiles. In 2015, the document " Made in China 2025" released by my country mentioned intelligent connected vehicles for the first time. Subsequently, the country carried out top-level planning in various aspects such as technical standards of intelligent connected vehicles, self-development of core components, and application pilot projects, and continued to promote the process of intelligent automobile development.In November 2020, the Ministry of Transport and five other departments jointly released the "Intelligent Connected Vehicle Technology Roadmap 2.0", which clarified the development goals of my country's intelligent connected vehicle industry in different periods: by 2025, the sales of new L2 and L3 cars will reach 50%, and the assembly of C-V2X (cellular vehicle networking) will reach 50%; by 2030, the sales of new L2 and L3 cars will exceed 70%, and the sales of new L4 cars will reach 20%, and the assembly of new C-V2X cars will be basically popular. In May 2021, the country identified 6 cities as the first batch of pilot cities for the coordinated development of smart city infrastructure and intelligent connected vehicles, marking the entry of the stage of deep integration of automotive intelligence and network integration.

From the perspective of penetration rate, 2022 will be a window period for L2 to cross from L3, driving the rise of the entire smart car industry chain. According to Roland Berger's forecast, the penetration rate of European L1/L2 class functional vehicles will reach 66%/14% in 2020, and the penetration rate of L1/L2/L3/L4&L5 class functional vehicles will reach 46%/39%/14%/1% respectively in 2025. Considering the rapid advancement of European automobile intelligence, we appropriately lower the penetration rate of high-level smart car , and refer to the penetration targets set by my country in the previous article, and make appropriate linear extrapolation in the range from 2020 to 2025 and 2025 to 2030.

According to our calculations, the penetration rate of L2-level cars has entered a rapid development stage of 20-50%, and the L2-level autonomous driving function will gradually become the standard for mid-to-high-end models. According to the " Automotive Automation Grading ", starting from L3, the autonomous driving system will replace the driver to monitor the driving environment and become a smart car in the true sense. On December 10, 2021, the Mercedes-Benz L3-class automatic driving system obtained the road permit from the German Federal Traffic Administration, and took the lead in sounding the charge of intelligent automobiles. We expect L3-level smart cars to be implemented in a small scale in 2022, further promoting the development of intelligent automobiles. 2022 will become the first year of global autonomous driving. Business layout and industrial investment in intelligent automobiles will also accelerate. Smart cars will lead a new round of industrial development.

Automobile intelligence includes three parts: intelligent driving, intelligent cockpit and intelligent services. The realization of intelligent driving requires perception, analysis, judgment and effective processing and execution of the surrounding environment of the car to achieve anthropomorphic action execution. It is the cornerstone of automobile intelligence, involving three levels: perception, decision-making, and execution. The smart cockpit improves driving control experience and ride entertainment through interactive methods such as images, voice, touch, and gestures. It is the entrance to human-vehicle interaction. It consists of the smart cockpit interior and cockpit electronics. The cockpit electronics include head-up display (HUD), full LCD instrument panel, central control screen, in-car infotainment system, streaming media rearview mirror, rear LCD display and vehicle network module, etc. Intelligent services connect cars with people and their social life, and are an extension and expansion of automobile intelligence, including aftermarket services, travel services, social and life services, etc.

From the perspective of intelligent driving, the perception layer generally adopts a multi-sensor fusion scheme, combining sensors with different functions to complement each other to achieve redundancy. The sensing layer sensor mainly includes vehicle cameras, mm wave radar , lidar, ultrasonic radar and inertial navigation equipment (GNSS and IMU). Different sensors have their own advantages and disadvantages in terms of perception accuracy, perception range, anti-environmental interference and cost. Since current autonomous driving manufacturers are unable to fully compensate for the defects in hardware in environmental perception through deep learning algorithms, using multi-sensor fusion scheme to collect massive amounts of information for decision-making analysis is currently the mainstream solution to improve perception accuracy and credibility.

car cameras have the strongest certainty in growth and the best competitive landscape. Car cameras are low-cost and can achieve most ADAS functions through algorithms and become an important sensor for the perception layer. Currently, the average number of major models on the market is about 9. At the same time, the market for on-board cameras is moderate. According to ICVTank data, the top four lens manufacturers account for nearly 80% of the market share. In addition, ADAS lenses have a high technical barrier, and the certification cycle of car companies is 3-5 years. New entrants face extremely high entry barriers and have an excellent industry competitive landscape.Among them, Sunny Optics has a market share of more than 30%, making it the world's largest supplier of automotive lenses; Lianchuang Electronics is the only two domestically competitive automotive lens manufacturers. It is a supplier of Tesla and NIO ADAS lenses, and has strategic cooperation with Mobileye, Nvidia and Huawei. Weil Co., Ltd. is a leading supplier of domestic automotive lens CIS sensors, and is actively expanding overseas markets and continuously increasing its global market share.

lidar accelerates its entry into the car during the window period between L2 and L3, driving optical parts manufacturers to take off. Lidar is currently the most accurate sensor, with an accuracy of 10 times that of millimeter-wave radar. It can accurately obtain external environmental information and perform 3D modeling, and has irreplaceable advantages in high-level autonomous driving with strict requirements on information accuracy. However, due to the high cost, lidar is currently an optional vehicle for L1/L2. With the transition from L2 to L3 and L4, the advantages of laser radar have begun to be highlighted. L3/L4/L5 requires 1/2/4 lidars respectively; coupled with the continued decline in the cost of laser radar, lidar is expected to become the standard configuration for L3-level models. Yole expects that the penetration rate of lidar will reach 11% in 2032. The lidar system includes light emission modules, light reception modules, scanning modules and information processing modules. As 2022 ushers in the window period from L2 to L3, lidar products previously designated by car companies will be launched one after another, which will drive the rise of the entire lidar industry chain. Currently, the main domestic lidar solution providers include Hesai Technology, Sagito Juchuang and 0000 Technology , optical component manufacturers include Yongxin Optical , Tengjing Technology, Lante Optics, Fujing Technology, etc., as well as lidar emission module manufacturer Juguang Technology and transmitter chip manufacturer Changguang Huaxin, etc.

lidar is the most elastic among all perception layer sensors, and it is expected that the average annual compound growth rate of market size will reach 90% from 2021 to 2030. According to our estimates, the market size of lidar will grow from 500 million yuan to 174.3 billion yuan from 2021 to 2030, with a CAGR of up to 90%; the market size of automotive cameras will grow from 32 billion yuan to 169.8 billion yuan, with a CAGR of 20%. In addition, ultrasonic radar technology is mature, the market penetration rate is high, and the price has dropped to a low level. Domestic manufacturers such as Audivi have entered this market. We expect the average annual compound growth rate of ultrasonic radar from 2021 to 2030 to be about 10%; the millimeter-wave radar market is mainly occupied by Tier1 manufacturers such as Bosch, Mainland China, Delphi and Denso. Domestic companies have achieved local breakthroughs in upstream RF front-end MMIC (mono-chip microwave integrated circuit) chipsets, high-frequency PCBs and other links. We expect the average annual compound growth rate of millimeter-wave radar from 2021 to 2030 to be about 14%.

From the perspective of decision-making level, chip computing power improvement and algorithm iteration are the main themes. With the improvement of the autonomous driving level, the environmental complexity and operational diversity that the chip needs to handle increases the computing power demand. The computing power demand for the L2 level is below 10TOPS, and the L3/L4/L5 level is increased to 30-60/100/1000TOPS. At the same time, decision planning is divided into three levels: path planning, behavioral decision-making and motion planning. The implementation of functions of each link is based on the corresponding algorithm. Therefore, the core competitiveness of the decision-making level of autonomous driving in the future will depend on the decision-making algorithm.

Currently, the main players in the world's autonomous driving chip are Nvidia, Qualcomm and Mobileye. The number of cooperative car companies and technical strength are in the leading position. The main players in China include Huawei, Horizon and Black Sesame.1) The MDC600 platform launched by Huawei integrates 8 Ascend 310 AI chips, with a computing power of up to 352TOPS, and supports L4 level autonomous driving. In addition to being applied on BAIC Jihu Alfa Huawei Hi version and Xiaokang Slis, it has also launched in-depth cooperation with car companies such as SAIC , GAC, Changan , Geely, JAC , FAW Hongqi, Dongfeng Automobile ; 2) Horizon's latest 5th generation chip in 2021, benchmarking against Nvidia Orin and Mobileye EyeQ5, can support L4 autonomous driving level, and the computing power reaches 128TOPS, the Journey Series chips are already equipped with or will soon be equipped with Changan UNI-T, Qirui Ant, SAIC Zhiji, Trumpchi GS4 Plus, Lantu FREE, Sihao QX, Chase MAXUSMIFA and other models; 3) Hei Sesame releases the new generation A1000pro in 2021, with a computing power of up to 196 TOPS.

From the perspective of the control layer, the key lies in the timeliness and effectiveness of command execution. The E/E (electronics and electrical) architecture gradually moves from distributed to centralized, and eventually to centralized computing architecture. With the advancement of automotive electronic intelligence, distributed ECUs (electronic control units) are gradually concentrated in the domain, and DCUs (domain controllers) integrate multiple types of ECUs to achieve centralization of control functions, thereby reducing the length of the vehicle wiring harness and reducing costs while reducing space, power consumption and complexity of electronic and electrical architectures. Further, with the deepening of intelligence, the demand for computing power will be greatly improved, and the network bandwidth of traditional E/E architectures will be difficult to adapt to the transmission of huge amounts of information, and the E/E architecture will evolve towards the central computing architecture to achieve faster information transmission and processing.

Considering the change of E/E architecture, reduce MCU usage and intelligent improvement, MCU computing power increases ASP, the market size of in-vehicle MCUs will maintain stable growth. The essence of a car controller is an MCU, and automotive-grade MCUs are the most difficult position to break through due to their long certification cycle and high reliability requirements. It is estimated that the global/China automotive MCU market size will reach US$88/3.1 billion in 2025, and the CAGR will be 7%/9% from 2020 to 2025. At present, domestic manufacturers have entered mid- and low-end automotive MCUs that are not closely related to automobile safety performance, such as wipers, windows, remote controls, ambient light controls, and dynamic flow lights, and are expected to continue to expand their market share under the trend of domestic substitution.

From the perspective of smart cockpits, the in-car infotainment system (IVI), central control screen and LCD instrument have a high carrying rate. HUD (head-up display) is the key development direction in the future, gradually developing from W-HUD to AR-HUD. 1) IVI: It is estimated that the market size of global/China IVI in 2025 will be RMB 2727/88.5 billion, respectively, and the CAGR from 2020 to 2025 will reach 14%/14%. 2) Central control screen: It is estimated that the global/China central control screen market size will be 1786/57.9 billion yuan in 2025, and the CAGR will reach 13%/13% from 2020 to 2025. 3) LCD instrument: It is expected that the market size of global/China LCD instruments will be RMB 139.6 billion in 2025, and the CAGR from 2020 to 2025 will reach 13%/13%. 4) HUD: It is estimated that the global/Chinese HUD market size will be RMB 385/12.5 billion respectively in 2025, and the CAGR from 2020 to 2025 will be RMB 42%/42%. Among them, the market size of W-HUD in the global/China is 197/6.4 billion yuan in 2025, and the CAGR from 2020 to 2025 was 33%/33%; the market size of AR-HUD in the global/China is 188/6.1 ​​billion yuan in 2025, and the CAGR from 2021 to 2025 was 62%/63%. From the perspective of domestic manufacturers, Desai SV is the leading domestic supplier of in-car infotainment systems, HUD suppliers include Huayang Group, Crystal Optoelectronics, etc., and automotive screens include Changxin Technology, Longli Technology, Weishi Electronics, Laibao Hi-Tech, Ofilm, etc.

1.3 Networking: Create intelligent services and strengthen human-vehicle interactive experience

V2X and bicycle intelligence are the two major paths to realize autonomous driving. Similar to vehicle-mounted sensors (camera, lidar, millimeter wave radar, etc.), V2X is designed to obtain the movement status of other vehicles and pedestrians, and is not easily affected by factors such as weather, obstacles, and distance.

V2X communication mainstream technologies include DSRC and C-V2X. V2X has two major standard systems: DSRC and C-V2X. 1) DSRC system: The communication standards are IEEE 802.11p and 1609.x, formulated by IEEE (American Institute of Electrical and Electronic Engineers) based on WIFI, and the standardization process began in 2004.2) C-V2X system: Technology based on cellular mobile communication systems, including LTE-V2X and 5G NR-V2X (i.e. 4G\5G), is standardized later, but it has greater technical advantages and performs better in terms of reliability, delay, transmission rate and other indicators. In addition, since DSRC needs to build a larger number of roadside unit RSUs when forming networks, the deployment cost is higher; while C-V2X can directly use 4G/5G networks, which is low deployment cost.

China promotes C-V2X, and the United States' attitude has begun to turn to C-V2X. Overall, DSRC started early and received support from Europe, America, Japan and South Korea, as well as OEMs and Tire1. However, due to the advantages of deployment costs and technical indicators, C-V2X has been vigorously promoted by China, chip factories and module factories. 1) China: In 2015, Chinese companies such as Datang and Huawei began to take the lead in actively promoting LTE-V2X standardization work in the global mainstream communication standardization organization 3GPP. In 2018, the Ministry of Industry and Information Technology officially released the 5905~5925MHz (20MHz) direct-connected communication frequency plan for the Internet of Vehicles, indicating that the Chinese government fully supports LTE-V2X based on cellular networks. 2) United States: The United States has been supporting DSRC before, but its attitude has begun to change in recent years. In November 2020, the FCC recently voted on the reallocation of 5.9GHz, demarcating 20MHz for C-V2X. 3) Europe: Its recently released C-ITS (Cooperative Intelligent Transportation System) tends toward DSRC.

The global vehicle network market size is expected to reach 1.5 trillion in 2025, with a CAGR of 19% in 2020-25. In 2020, the penetration rate of the Internet of Vehicles in China/global China was 49%/45%, and the corresponding market size was 212.6 billion yuan and 643.4 billion yuan, respectively. It is estimated that by 2025, the China/global penetration rate of the Internet of Vehicles will reach 76%/59%, respectively, with a corresponding market size of 1.0/1.5 trillion, and the CAGR will be 37%/19% respectively in 2020-25.

C-V2X fans include Qualcomm, Huawei, American and European auto companies; DSCR is supported by automotive semiconductor manufacturers and Japanese auto companies. The industrial chain of V2X core components includes chip companies, module manufacturers, Tier 1, and car companies. Among them, tier 1 can do both basic standards, while the other three types of manufacturers in the industrial chain are inclined in terms of routes. In the chip link, most of the manufacturers that support DSRC are mainly engaged in automotive chips, including NXP, Renesas, and Cypress, while those that support C-V2X are communication baseband manufacturers Qualcomm and Huawei. Among car companies, most of them support DSRC are Japanese companies, while C-V2X is European and American companies and Chinese companies. The core of the

V2X chipset is the baseband chip, and it also requires MCU, memory chip, power management, etc. Here we take NXP's V2X solution as an example. Its core chips include baseband chips, including DSRC baseband (NXP can provide SAF5400 products) and C-V2X baseband, control unit MCU, memory chip (including NAND Flash and DRAM), power management chip, CAN control chip, etc.

2.AR/VR: VR accelerates penetration, and AR imagination space is huge.

ARVR is expected to become a new generation of human-computer interaction platform, and the upstream supply chain will fully benefit. The 20-year explosion of consumer-grade headsets has brought about a turning point in the C-end market of the VR industry. It is expected to increase rapidly in the next five years, and the penetration rate will continue to increase; AR technology is becoming more mature, and the optical waveguide + MicroLED solution has made breakthroughs, and technology giants are making plans one after another, waiting for the industry to blossom. AR/VR is expected to become a new generation of human-computer interaction interfaces, and core VR/AR upstream components such as optics, displays, and sensors will be the first to benefit, with certainty growth opportunities.

2.1 VR: The inflection point of the game console penetration rate has reached, and the industrial chain arms race has begun

VR The industry has opened a new round of prosperity cycle, and shipments have climbed rapidly. The launch of Oculus Rift products in 2013 opened the first year of civil use in the VR industry. The market popularity reached a high point in 2016. Subsequently, due to the unclear business model and the immature software and hardware and ecology, the VR industry experienced the bottleneck period of the industry from 2017 to 2019. In 2019, the first year of 5G commercialization began, and the VR industry ushered in another round of rapid development. Judging from the global VR shipment volume, the impact of the epidemic in 2020 increased the demand for VR products, and Quest2's hardware upgrades and cost-effectiveness have become a catalyst to drive the development of the VR industry and accelerate the penetration process of VR in traditional game consoles.According to VR gyroscope statistics, benefiting from the significant increase in sales of the Oculus Quest series, the global VR headset shipments reached 6.7 million units in 2020, an increase of 72% from 3.9 million units in 2019. In addition, according to Statistics, the global VR equipment shipments will reach 17 million units in 2021, a year-on-year increase of 154%. The global VR equipment shipments will reach 59.7 million units in 2025, and the CAGR from 2021 to 2025 will reach 37%.

penetration rate ushered in a turning point, and VR growth is highly certain. According to our calculations, from the perspective of game console penetration rate, VR has reached the penetration rate turning point of 10%. In 21 years, VR has a penetration rate of 16% in game consoles, with high growth certainty. The rapid development of the entire industrial chain has already reached a certain foundation.

From the perspective of terminal brands: Oculus is the world's number one, and the Chinese market has great potential for domestic brands

1) Oculus is firmly ranked first in the global market. In 2013, the launch of Oculus Rift products opened the first year of civil use in the VR industry. Subsequently, major manufacturers such as Microsoft, Sony, and HTC entered the market and now they have achieved increased volume. According to data released by Counterpoint, Oculus's share soared from about 30% in the first three quarters of 2020 to 75% in Q1 in 2021, ranking first. Its explosive product, Oculus Quest 2, had a cumulative sales of 4.6 million units as of the first quarter of 2021, and its single product market share reached 35%.

2) Chinese market Pico and Dapeng VR occupy half of the market. Since Oculus has not been sold in China, Pico and Dapeng VR two domestic manufacturers occupy half of the Chinese market. According to IDC data, Dapeng VR ranked first in the Chinese market for two consecutive quarters in 2020, and made joint efforts in PC headsets, VR all-in-ones, VR solutions and other aspects. In Q2 and Q3 2020, Dapeng VR ranked first for two consecutive quarters with a market share of 31% and 32%, and ranked second for Q1 and Q4.

3) All-in-one machine is the mainstream, with different functions of PCVR and split VR positioning. Currently, all-in-one phones represented by Quest2 are the mainstream form of consumer VR; PC VR focuses on the B-end market and high-end players. In the first half of 2021, only two PC VR headsets, HP Reverb G2 eye tracking version and HTC Vive Pro 2, were released, priced from US$1,000; split VR is positioned at the peripheral accessories of the mobile phone, focusing on movie viewing, screen projection and 3DOF gaming functions.

VR The hardware industry chain is mainly composed of chips, sensors, optical devices, and other structural components. The first three items are the key layout that determines the performance, interactive fluency and immersive experience of VR equipment. Other structural parts mainly take over the business advantages of the mobile phone industry chain, and are mostly suppliers corresponding to the mobile phone industry chain. The rise of the VR market will also drive the growth of supply chain manufacturers such as optical lens modules, batteries, PCBs, functional/structuring components, and OEM.

cost split: chips account for the highest proportion. Currently, mainstream VR headsets are as an example. The BOM cost is about US$350 (equivalent to RMB 2,370), of which the chip cost is about RMB 1,050, accounting for the highest proportion of 44%; the camera module is about RMB 400, accounting for 17%; the handle is about RMB 400, accounting for 17%; the packaging assembly (shell, headband, etc.) is 300, accounting for 13%; the screen is 220, accounting for 9%.

Part split: Benefit penetration continues to increase, with certain growth opportunities

1) Optics: The mainstream uses Fresnel lens solutions, and short-focus solutions are gradually emerging. The Fresnel solution reaches a field of view of 100°, with mature and stable technology and low cost. It represents the product such as consumer VR main players Quest 2, Pico Neo 3, etc., but this solution also has the problem of large size and not supporting derivatization adjustment; the two VRs released by arpara in the first half of 2021, Panasonic and Pegatron released the models adopted short-focus solutions, with both field angles reaching 90°, and also supporting diopter adjustment. The volume and weight of the short-focus solution of the headset are significantly reduced compared to the Fresnel solution. In particular, arpara released the first 6 DOF short-focus VR all-in-one machine. It is expected that more and more all-in-one machines will adopt short-focus solutions starting in the second half of the year. Domestic players in terms of optics include Sunny Optics, Lianchuang Electronics, Crystal Optoelectronics, etc.

2) shows: Fast-LCD is the mainstream, and the future direction is Micro-OLED, 4K production capacity is stable, and 5K is gradually installed.In 2018, BOE developed the VR dedicated screen Fast-LCD and successfully applied it to Huawei VR2, Oculus Go and other products. With its advantages of high response speed, high definition and low cost, it quickly became the mainstream of VR display. The FAST-LDC screen with 4K resolution is currently stable in production capacity, low cost, and the refresh rate can reach 70Hz-90Hz, making it the first choice for VR headsets; the 5K resolution is gradually installed, and the two headsets released by the 21H1 HTC Vive and arpara have reached the 5K level. The main monitors include domestic industry leaders such as BOE, Shenzhen Tianma, and Lans Technology.

3) Chip: Domestic products have a large room for catch-up. The XR2 chip based on Qualcomm Snapdragon 865 is the absolute main chip of VR all-in-ones, dominating the consumer VR all-in-ones of 2000-4000 yuan; mid- and low-end phones use traditional mobile phone SOCs, and the performance meets the requirements and the cost is relatively low; there is currently a big gap between domestic chips and foreign countries. In 2020, the Telecom Tianyi Small V all-in-ones use Quanzhi VR9 chip, but only focuses on low-end movie viewing functions; Dream Glass 4K uses Rockchip Mali-T864 GPU. Although there is still a big gap with Qualcomm XR2 in performance, domestic chips have broken through in the VR/AR field. Although the performance of the XR2 chip has been greatly improved compared to that of a large game on an all-in-one machine, it is still a bit difficult to operate if the effect is fully opened. Moreover, with the improvement of resolution and refresh rate in the future, the requirements for rendering, computing, storage and other processing will continue to increase. It is expected that the increase in the computing power of VR chips will be the general trend. In the medium and long term, with the introduction of 5G cloud computing, it is expected to reduce the computing power requirements of terminal equipment, and some computing can be completed in the cloud, which also provides an opportunity for domestic chips to overtake.

In the field of VR chips, Quanzhi Technology and Ruixin Micro have become solution suppliers for all-in-one SoCs; Weier Co., Ltd. and Jingfang Technology have expanded their business to VR CIS modules through years of layout accumulation in smartphones, in-vehicle cameras and other fields.

4) Sensor: VR sensors involve sound, image, motion capture, etc. In the sensor stage: The main domestic target is Goertek Co., Ltd., which has been deployed in the VR market since 2012 and has a deep accumulation of sensor technology.

5) From the assembly stage, Goertek is the only one in the industry, and the industry has the potential for rapid growth.

Goertek: Deeply bind VR customers and fully enjoy the growth dividends of the VR industry. Goertek has reached long-term and in-depth cooperation with leading VR industry manufacturers, including Facebook, Sony, HTC, Pico, Huawei, iQiyi, Samsung, etc. At present, Facebook's Quest2 is exclusively manufactured by Goertek. The shipments of mid-to-high-end VR headsets produced by Goertek account for more than half of the global total, and has become the largest VR OEM manufacturer. Facebook, Sony and Pico, which have the top 3 market share, have been working with Goertek since the first generation of VR products. Years of cooperation experience have allowed Goertek to gain an in-depth understanding of the VR design concepts, requirements for subsystems/functions and development directions of various manufacturers, and to develop and improve adaptable components, algorithm solutions and system integration solutions in advance. After the catalysis of the epidemic and 5G network support jointly promote VR to enter a stage of rapid development, leading manufacturers have increased their shipments, and Goertek fully enjoys the growth dividends of the VR industry.

From the perspective of future growth drivers: 1) Application service providers have entered the market to promote the development of the hardware market, such as Facebook's acquisition of Oculus, Byte's acquisition of pico, enriching the VR content ecosystem; 2) Consumers' habits are successfully cultivated, terminal shipments grow rapidly, driving the enthusiasm for investment in the industrial chain, gradually breaking through various key technologies, and accelerating the implementation of new VR products.

Industry space: It is estimated that the VR equipment market space will reach US$19.2 billion in 2025, 8.2 times that of 2020, with a CAGR of up to 34%, among which the screen/chip growth rate is the fastest.Currently, the unit price of mainstream VR equipment is between US$300 and US$400, and the unit price of high-end versions and commercial VR headsets is higher. We assume that US$350 is used as the average price of VR equipment in 2021. According to the industry chain survey, the asp of chip/screen/camera module/handle/packaging assembly (including shells, headbands, batteries, etc.) is about US$154/31/60/60/45. Due to the increase in the demand for rendering and computing power processing, it is expected that the asp of VR chips will remain unchanged. The market space of VR chips in 2025 will be US$9.2 billion, and the CAGR from 2021 to 2025 will be 37%. In terms of

VR screen, we expect Fast-LCD will remain mainstream in the next two years for price-performance considerations. Due to the improvement of resolution, asp remains unchanged. After that, with the high contrast, high color gamut, and low latency, asp will increase by about 3% every year. The market space for VR screens in 2025 will be US$2 billion, and the CAGR from 2021 to 2025 will be 40%. Due to technological progress and scale effects, camera modules/handle/packaging assembly machines will decline by about 5% each year. In 2025, the market space of VR camera modules/handle/packaging assembly machines will be US$29/29/22 billion, and the CAGR is 30%. Overall, we expect the VR equipment market space to reach USD 19.2 billion in 2025, 8.2 times that of 2020, with a CAGR of up to 34%.

2.2 AR: The market size is imaginative

AR Currently there are three main product forms: head-mounted, handheld, and space display; in terms of physical forms, it is divided into glasses/helmets/mobile phones. Compared with VR, AR has a wider application.

AR industry is still in B-end business scenarios because its form and price have not yet reached the consumer level. In 2021, it is expected that the yield and mass production problems of optical waveguide lenses and MicroLED microdisplay screens will be broken. AR glasses will improve and improve in power consumption, volume, weight, and field of view angle. AR glasses will become closer to the form of ordinary glasses. According to Strategy Analytics data, 81% of AR shipments in 2020 will come from the B-side. Overall, it is still time for the AR industry to enter the C-end market, and it is necessary to promote the AR industry and work together with the industry.

AR industry chain: It has a high similarity to the VR industry chain, and the main difference is the perceptual interaction and display module.

1) Terminal: Because the integrated system has high requirements for chips and batteries, it is difficult to achieve lightweight at present. Currently, most AR terminal products are split-type.

2) Chip: Qualcomm chips dominate, and domestic chips have room to catch up. Mainstream AR products use Qualcomm XR1 or XR chips. Yingmu Technology INMO X uses the Unigroup Zonri T770 chip for the first time. The T770 is the world's first 6nm process 5G chip. It adopts an 8-core architecture, including four A76 cores, four A55 cores, and integrates four Mali-G7GPU graphics cores. The 770 has a quad-core ISP, which can achieve 4K@60fps encoding and decoding capabilities, 120Hz high-frequency refresh, and supports 108MP sensor.

3) Display: Micro-LED is the trend. Currently, Micro-OLED screens are more suitable for free surfaces and BirdBath optical solutions. Because the free surfaces and BirdBath optical loss are low, the 1080P resolution Micro-OLED is mature and stable, becoming the golden partner of free surfaces and BirdBath; while the optical waveguide solution has high brightness requirements, it is difficult for Micro-OLED to meet the needs of optical waveguide solutions in terms of brightness. At this stage, L-COS and DLP solutions are more suitable for optical waveguide solutions. Micro-LED is considered the ultimate solution for optical waveguide display.

4) Optics: The upgrade path is clear, and optical waveguides are the development direction. Unlike VR, AR lenses need to see-through, which not only sees the real external world, but also sees virtual information, so the imaging system cannot block the front line of sight. This requires adding one or a set of optical combiners to integrate virtual information and real scenes through "layer" form, complement each other, and "enhance" each other. Currently, BirdBath and free surface solutions are mature, with large field of view angles that can be mass-produced, and have an advantage in cost. Four models of the optical waveguide solution were exposed in the first half of the year. Lingxi Weiguang released the two-digit dilated array optical waveguide module 2D-1, claiming that it can be mass-produced. It is expected that with the breakthrough in mass production technology of optical waveguides, the penetration rate will gradually increase.

5) Perceptual interaction: Two of the two AR glasses released in the first half of 2021 have the functions of hand gesture recognition, which is an important way of AR perception interaction in the future. Currently, more mainstream AR glasses such as HoloLens 2, Magic Leap one, and Nreal light are available. The configuration of a depth camera module has the rigid demand for gesture recognition.

Future development driving force:

1) Technology leaders such as Facebook, Microsoft, and Apple are actively planning AR. In September, Facebook released AR glasses produced in collaboration with Ray-Ban; in March, Microsoft released Microsoft Mesh, a writing platform based on mixed reality and Microsoft Azure cloud. Users in different physical locations can experience mixed reality through various devices, including remote holography, and the effect is collaboration, etc. In June, Apple WWDC 2021 released Arkit5.0 and Reality Kit 2.0. Apple maps will support AR navigation. In addition, Apple expects to launch a blockbuster MR headset product in the second half of 222.

2) Remote collaboration opens up application scenarios, and the metaverse explosion drives the development of VR/AR. The isolation of the new crown epidemic has spawned the demand for remote writing. 5G+cloud XR technology is gradually implemented. In October, AR remote collaboration service provider TechSee received US$30 million in C financing. It is expected that remote collaboration based on AR will become an important application implementation scenario for B-end in the next few years. In addition, with the popularity of the metaverse concept, many major manufacturers are scrambling to make plans. VR/AR, as the key entrance to the metaverse, has huge imagination space.

consumer-grade headset is expected to ignite the AR market, and ASP may decline. The price of consumer AR headsets is expected to drop further over time, with the average selling price dropping from over $800 in 2020 to below $500 in 2026 (a 38% drop). AR headset devices at various price points are expected to exist on the market, ranging from flagship products over $1,000 to entry-level products under $500. As AR headsets become popular in the mass market, products under $500 are expected to dominate the market.

2. Energy technology transformation: In the era of "parity" internet access, new and old energy is accelerating the switching between old and new energy sources

Energy transformation is in full swing, photovoltaic energy storage is accelerating installation, and power electronics are benefiting as a whole. Against the backdrop of "carbon neutrality", photovoltaic power generation ushered in the era of parity, installation costs continued to decline, and the industry entered a turning point of accelerated growth, driving the expansion of demand for related electronic components. Domestic photovoltaic inverter companies such as Huawei are leading the world in the market and are expected to promote the domestic production process of photovoltaic inverters IGBT/film capacitor/inductor. In addition, the key to energy transformation lies in the development of energy storage. The high growth of the energy storage market is high, which will effectively drive the strong demand for lithium batteries and related electronic components.

1. New energy power generation: Photovoltaic parity grid is used to accelerate installation, electronic components open up new growth space

Policy support promotes the photovoltaic industry to gradually mature. In 2013, the "Several Opinions on Promoting the Healthy Development of the Photovoltaic Industry" was released, and various measures were proposed in terms of prices, financial subsidies, taxes, project management and grid-connected management, and policy support for the photovoltaic industry began. After that, the 13th Five-Year Plan will formulate photovoltaic development goals and promote the rapid development of the photovoltaic industry. In 2018, the "531" new photovoltaic policy clearly stipulates that the scale of photovoltaic construction will be controlled and subsidized. The photovoltaic industry will transition from "policy-driven" to "market-driven", forcing the industry to actively reduce costs and accelerate the arrival of the era of photovoltaic parity.

photovoltaic grid parity, installation costs continue to decline, and the industry has entered a turning point of accelerated growth. In 2021, the policy stipulates that new registered projects will no longer be subsidized, marking the entry of photovoltaic power generation into the era of parity. With the innovation and optimization of battery technology and production processes, the cost of photovoltaic kilowatt-hour continues to decline. The global photovoltaic kilowatt-hour cost in 2020 was 0.057USD/kW, with a decrease of 85% from 2010 to 2020. Domestic photovoltaic electricity prices also fell significantly. In 2020, the benchmark on-grid electricity price of photovoltaic power generation in Class I regions fell to 0.35 yuan/kWh, which is already lower than thermal power. In addition, the installed capacity cost has dropped significantly. In 2020, the total installed capacity cost of photovoltaics fell to 883USD/kW. The cost-effectiveness of photovoltaic installed capacity has become prominent, and the industry has entered a turning point of accelerated growth.

carbon emission reduction targets combined with the decline in photovoltaic installation costs, driving the rapid growth of photovoltaic installation scale.Domestic, the installed capacity of photovoltaics in the first half of 2021 was suppressed by the price of raw materials. As of September, the domestic installed capacity was only 26GW. With the price of silicon materials falling, the installed capacity for the whole year is expected to reach 50GW. As the cost of photovoltaic installation continues to decline, the "dual carbon" goal will usher in a peak in market-oriented construction during the "14th Five-Year Plan" period, and the average annual new capacity of photovoltaic installed capacity in China is expected to be 70-90GW. The cumulative installed capacity in 2025 is expected to reach 643GW, and the proportion of power generation will reach 8.2%, an increase of 4pct from 2020. Overseas, in order to achieve carbon emission reduction tasks, many countries have carried out photovoltaic installation plans, and the market growth is highly certain. According to GWEC's forecast, the global photovoltaic new installed capacity will reach 370GW in 2025, with a cumulative installed capacity exceeding 2,000GW, and a CAGR in five years will reach 23%.

Photovoltaic acceleration installation drives the expansion of inverter demand, and the string inverter market is developing rapidly. Photovoltaic power generation generates DC voltage, while transmission systems use AC voltage, so DC/DC and DC/AC conversion need to be implemented through an inverter before it can be incorporated into the power grid or used for load use. Inverters can be divided into centralized, string-type, distributed and micro-inverters according to applicable occasions. Currently, centralized inverters and string-type inverters are mainly used in the market. Centralized inverters convert the aggregated DC power into AC power, with high system power and low cost, and are suitable for large photovoltaic power stations; string inverters convert the DC power generated by components into AC power and then summarize it. They have the advantages of high power generation, high reliability, high safety, and easy installation and maintenance. They are the preferred solution for distributed photovoltaic power generation, and they also expand to the scenario of centralized ground power stations. Data shows that the proportion of distributed installed capacity in 2021H1 increased to 65%, and the shipment of serial inverters in 2020 reached 66%. In the future, with the acceleration of distributed photovoltaic projects in the whole county, the proportion of distributed photovoltaic installed capacity is expected to increase further, and serial inverters will still dominate.

photovoltaic inverter consists of an input filter circuit, a DC/DC MPPT circuit, a DC/AC inverter circuit, an output wave circuit, and a core control unit circuit. From the perspective of splitting the cost structure, devices such as IGBT, capacitors and inductors account for 13%, 10% and 16% respectively. In the future, each component will fully benefit from the accelerated expansion of photovoltaic inverters demand.

my country's photovoltaic inverter companies have a market share in the world and are expected to help the domestic production process of core devices such as IGBT. In the global photovoltaic inverter market in 2020, Huawei and Sungrow Power Supply accounted for a total of 42%, ranking as the leader in photovoltaic inverters. At present, the domestic production rate of core devices of photovoltaic inverters such as IGBT, film capacitors and inductors is still not high. The global IGBT market is basically dominated by leading overseas manufacturers such as Infirm. As domestic photovoltaic inverter companies such as Huawei actively promote domestic production, the domestic replacement process of core devices of photovoltaic inverters will be accelerated.

1) IGBT: The inverter is the core device that implements DC/AC. According to our estimates, the market space for photovoltaic inverter IGBT in 2025 will reach 7.5 billion yuan, with a 5-year CAGR of 23%. Centralized inverters use IGBT module solutions, while serial inverters use IGBT single-tube solutions. As string inverters become the mainstream in the market, the design and manufacturing process level of IGBT single tubes is continuously improving, and it is expected that the penetration rate of IGBT single tubes in photovoltaic inverters will continue to increase. It is estimated that the global markets of photovoltaic inverter IGBT single-tube and IGBT modules in 2025 will be RMB 3.3 billion and RMB 4.2 billion, respectively, and the CAGR will be 42% and 15% respectively. In addition, the packaging difficulty of IGBT single tube is lower than that of IGBT modules, and the superimposed demand is rapidly expanding, which is expected to become a breakthrough point for domestic power semiconductor companies to achieve domestic substitution of photovoltaic IGBTs.

2) Film capacitor: plays a filtering role in photovoltaic inverters, and is widely used for its advantages of high voltage resistance and high frequency performance. We expect the global photovoltaic thin film capacitor market size to reach 6.2 billion yuan in 2025, with a 5-year CAGR of 23%. The input filter circuits, DC boost circuits, drivers and controllers, output filter circuits, etc. of photovoltaic systems all require filter capacitors to be used for DC filtering, AC/DC conversion, and ensuring output power quality. The output voltage of the photovoltaic inverter usually needs to reach hundreds of volts, and thin-film capacitors with high voltage resistance, good high frequency characteristics, and can maintain stability for a long time.

film capacitor industry competitive landscape is scattered, and domestic manufacturers are accelerating breakthroughs. From a global perspective, the competitive landscape of the film capacitor market is scattered, with CR5 only 40%, Panasonic, Kimi and Fara Electronics occupying the top three, with market share of 9%, 8% and 8% respectively. With the support of domestic inverter manufacturers for the domestic supply chain, the strength of domestic thin film capacitor companies has been continuously improving. The leader Fara Electronics has a market share of the top three in the world, and has global competitiveness and is in the first echelon of the world.

3) Inductor: The market space for photovoltaic inverter inductors is expected to reach 10 billion yuan in 2025, with a CAGR of 23% in five years. From the perspective of competitive landscape, the global inductance market is mainly dominated by Japanese manufacturers. In 2019, the top four manufacturers with market share were TDK, Murata, Sun Yudian and Qilixin, with a total market share of 61%, and the mainland manufacturer Shunluo Electronics has a market share of 7%, ranking fifth. Driven by the domestic production of the domestic photovoltaic inverter supply chain, domestic manufacturers are expected to achieve share improvements with their technological breakthroughs and cost advantages. (Report source: Future Think Tank)

2. Energy Storage: Energy storage ushers in accelerated development, and power electronics benefit as a whole

Energy transformation is in full swing, and the development of energy storage is the key. Affected by the natural environment, the output characteristics of new energy such as photovoltaics and wind power are intermittent, random and volatile, which increases the difficulty of peak shaving in the power grid and brings an impact on the stability of the power grid. Therefore, energy storage systems are needed to smooth, absorb and smooth the power generation output of new energy sources. According to relevant government documents, more than 20 provinces have already put forward requirements for new energy allocation and storage, and the allocation and storage ratio is basically no less than 10%.

Energy storage method is mainly pumped energy storage, and electrochemical energy storage is a new trend. In 2020, among the cumulative installed capacity of global and domestic energy storage, pumped storage accounted for 90.3% and 89.3% respectively, both of which occupied an absolute dominant position. However, due to the disadvantages of high site selection conditions and long construction cycle, the development potential of pumped storage energy is far less than that of electrochemical energy storage. Electrochemical energy storage is mainly lithium batteries, with a conversion efficiency of more than 90%. The industrial chain is mature, and photovoltaic companies are often equipped with electrochemical energy storage, which drives the accelerated improvement of lithium battery energy storage penetration. Among the new global and domestic energy storage installed capacity in 2020, lithium battery energy storage accounted for as high as 71.5% and 47.6% respectively, and the energy storage method is shifting from pumped energy storage to electrochemical energy storage.

Energy storage application scenarios are mainly divided into three categories: power generation side, power grid side and user side. 1) Power generation side: Energy storage can be applied to scenarios such as power peak shaving, assisting dynamic operation, and smoothing outflow fluctuations to solve the problem of wind and light abandonment; 2) Power grid side: Energy storage can participate in power grid peak shaving, frequency regulation, ease congestion in transmission equipment, optimize grid current distribution, and improve power quality. The core role is to ensure the stable operation of the power grid; 3) User side: Peak-to-valley price difference arbitrage is a common user side application scenario, and it also includes setting up backup power supplies, developing intelligent transportation, etc. Under the guidance of the

policy, energy storage application scenarios have shifted to the power generation side and the power grid side. Before the large-scale application of energy storage, the application scenarios were mainly arbitrage of peak-to-valley price difference on the user side. In 2019, the user side accounted for 50.7% of domestic electrochemical energy storage, and the renewable energy on the power generation side was connected to the grid only 3.4%. Starting from 2020, the policy focus will support the development of energy storage on the power generation side and grid side. In 2020, the proportion of new chemical energy storage on the power generation side and grid side will be 58.7% and 37.7% respectively, which is far higher than the new proportion of new users.

Energy storage installed capacity is in high prosperity, and energy storage batteries and energy storage converters open up space for growth. In 2020, the new installed capacity of domestic and global electrochemical energy storage was 2.3GWh and 9.3GWh, respectively, an increase of 153% and 75% year-on-year. The rapid development of electrochemical energy storage is expected to effectively promote the expansion of demand for energy storage batteries and energy storage converters (PCS). The electrochemical energy storage system is mainly composed of battery packs, PCS, EMS, BMS and other electrical equipment. Among them, battery packs and PCS are the main cost items, accounting for 60% and 20% respectively. The cost of PCS in energy storage systems is significantly higher than that of photovoltaic inverters in photovoltaic systems. The main reason is that PCS has energy control in both charging and discharging directions, so the overall demand for electronic components and structural components is greater.

1) Lithium battery: Under the trend of electrochemical energy storage installation, the catalytic lithium battery market has further expanded.According to our estimates, the global energy storage lithium battery market space in 2025 will be 151.88 billion yuan, with a CAGR of 68% in 5 years. Among electrochemical energy storage, lithium battery energy storage is the most widely used. In 2020, lithium battery energy storage accounts for about 90% of the global cumulative electrochemical energy storage. The rapid development of electrochemical energy storage is expected to drive the further expansion of the lithium battery market. At present, lithium iron phosphate batteries are the most widely used lithium-ion battery technology in domestic power energy storage systems due to their high stability and long cycle life. From the perspective of pattern, there are many power lithium battery companies among domestic energy storage battery suppliers, and CATL has the largest market share. At the same time, Xinwangda is also actively developing its energy storage business and providing customers with "one-stop" energy storage system solutions. As of now, the company has participated in nearly 100 energy storage projects worldwide, and has gradually transitioned from Pack to self-supply of battery cells. With the rapid expansion of the industry and the strong supporting needs of large customers, Xinwangda's energy storage business is expected to usher in rapid development.

2) Energy Storage Converter (PCS): PCS can realize the two-way transmission of energy between solar energy, grid power and energy storage battery power, and is the core of the energy storage system. PCS has a similar cost structure to photovoltaic inverters, and the proportion of IGBT/inductor/capacitors to PCS costs is about 12%/13%/10% respectively. Because it is the same as photovoltaic inverter technology, most energy storage converters are supplied by photovoltaic inverter manufacturers. In 2020, most of the top domestic PCS market are photovoltaic inverter companies.

IGBT: Similar to photovoltaic inverters, IGBT is the core device of PCS. We expect the global IGBT market size brought by energy storage converters to reach 6.75 billion yuan in 2025, with a CAGR of 68%. Compared with photovoltaic inverters, PCS requires higher current carrying capacity of free-current diodes. At present, domestic energy storage converter IGBT and other devices are mainly supplied by leading overseas manufacturers such as Infineon.

Film capacitor/inductor: Capacitors and inductors account for 10% and 16% of PCS, among which PCS capacitors are mainly film capacitors. Therefore, we expect the global thin-film capacitor and inductor market sizes brought by PCS to 5.63 billion yuan and 9.00 billion yuan respectively in 2025, and the CAGR will reach 68%/68% respectively.

At present, we are occupying the starting point of a new wave of technology. The three new technologies such as automobiles, VR/AR, and scenery will lead the wave of technology in the next ten years, and their size is far greater than consumer electronics. We believe that the mainland is ready in the industrial chain and will fully welcome the new wave of technology in the future. 1) In the past decade, Apple's supply chain has shifted to the mainland + the rise of mainland terminal mobile phone brands has provided a fertile ground for growth for a number of mainland precision manufacturing, PCB, electronic components and other companies. Such companies will quickly switch from consumer electronics to a new generation of technology; 2) Mainland semiconductors have initial technical accumulation in all links and have been verified in the 2021 out of stock. In the future, under the underlying logic of "domestic substitution + policy support", the mainland semiconductor industry will step by step from the middle and low end to the high end in the next ten years in conjunction with the new generation of technological revolution.

1. Mainland precision manufacturing and other industries have been prepared for industrial chain migration

1.1 In the past decade, China's precision manufacturing and other industries have taken advantage of the development of the electronic information industry and the demographic dividend of education, mainland China has seized the development wave of smartphones and undertaken the Apple supply chain. At the same time, local mobile phone brands have risen, China's precision manufacturing industry has achieved rapid development, and the consumer electronics industry chain has gradually been complete.

Education demographic dividend is released, and the electronic information industry in mainland China has developed rapidly in the past decade. (1) Benefiting from the increase in the popularity of higher education, a total of 35 million undergraduate/junior/graduate graduates were cultivated in the ten years from 2001 to 2010. According to data from the National Bureau of Statistics, the annual growth rate of undergraduate/graduate graduates from 2001 to 2008 reached 10%+. In the past 10 years, my country has cultivated a total of 33.47 million undergraduate/graduate graduates and 2.27 million graduates, which has reserved sufficient talents for the next decade. After 2008, the annual growth rate of undergraduate/graduate graduates was stable. In 2020, there were 797/729,000 undergraduate/graduate graduates, continuing to provide outstanding talents to the industry. (2) In the past 12 years, the CAGR of the main business of electronic information manufacturing industry has been 7%.

Apple's industrial chain is moving to the mainland, and domestic mobile phone brands are rising, providing fertile ground for China's precision manufacturing industry to grow. (1) Currently, there are 52 Apple suppliers in mainland China + Hong Kong, accounting for 26%. With the stable political environment and labor cost advantages, the Apple industry chain has gradually shifted to mainland China, and the number of Apple's Chinese suppliers has gradually increased. In 2013, there were only 12 Apple suppliers in mainland China + Hong Kong, accounting for 6%, while in 2020, there were 52 Apple suppliers in mainland China + Hong Kong, accounting for 26%. (2) China's local smartphones occupy half of the global market, driving upstream growth. From 2001 to 2020, the total market share of Huawei, Xiaomi, OPPO and VIVO steadily increased, with a total market share of 42.9% in 2020. Local demand drives upstream parts, assembly and other manufacturing links.

The consumer electronics industry chain has moved from Taiwan to the mainland, and the precision manufacturing industry in mainland China has benefited. Four major PC manufacturing companies including Quanta and Pegatron in Taiwan have gradually declined in the past decade, and their revenue has even shown negative growth (Honghai Precision has timely deployed mainland factories to achieve high revenue growth). In contrast, the revenue of mainland Chinese precision manufacturing companies such as Luxshare Precision, Goertek and Lingyi Intelligent Manufacturing has increased significantly. In 2016, Lingyi Intelligent Manufacturing's three-year CAGR exceeded 100%, and the manufacturing power in mainland China was highlighted.

1.2 Precision manufacturing and other precision manufacturing can be quickly moved from consumer electronics to automobiles and VR/AR fields.

Precision manufacturing After ten years of development, China's consumer electronics industry has sufficient R&D and manufacturing capabilities in the fields of structural parts, battery modules, audio sensors, cameras, etc. These capabilities may be migrated to some industrial chains of automobiles and ARVR. For example, leading companies such as Lens Technology and Luxshare Precision in the field of precision manufacturing have moved their capabilities such as precision structural parts to OEMs such as Tesla and Tier 1 manufacturers such as Bosch; while manufacturers such as Lianchuang Electronics and Sunny Optics, which are in the second-tier consumer electronics field, have achieved overtaking in the automotive electronics era.

2. In the next ten years, mainland semiconductors will cooperate with the new wave of technology and enter the mid-to-high-end step by step toward the middle and high-end

We believe that mainland semiconductors are still at the starting point of the golden decade. Mainland manufacturers have already accumulated preliminary technical accumulation in the mid- and low-end markets, and have proved their technical capabilities on the client through this round of "window period". The new generation of technological revolution is a "east wind". Under the underlying logic of "domestic substitution + policy support", the mainland semiconductor industry will cooperate with the new generation of technological revolution to enter the mid-to-high-end market in the next ten years, and expand its territory in the trillion-dollar market.

2.1 There has been preliminary technical accumulation in all links of semiconductors

As of 2020, the market share of mainland semiconductors was about 5%. In 2006, the "02 Special Project" was launched, with the goal of establishing a complete supply chain with nodes such as 90/65/45/28/14nm, and my country's semiconductors entered a stage of rapid development. Since then, a large number of players have emerged in all links of the industrial chain. In 2014, the National Integrated Circuit Industry Investment Fund was established to further accelerate the independent development process. As of 2020, the overall market share of mainland semiconductors was about 5%. In 2021, under the dual "window period" of "domestic substitution + shortage wave", the verification cycle was greatly shortened, and a large number of players accelerated their entry into the supply chain of customers at home and abroad. Although

's overall competitiveness is still weak, all links of the industrial chain have already been laid out. From the perspective of overall market share, mainland China is weaker than the United States, Japan, South Korea, and Taiwan, but players have participated in all links of the industrial chain. Currently, the market share of the packaging and testing process has exceeded 20%, while the other links are less than 10%, while the equipment, core IP and EDA in the manufacturing process are the weakest (market share is 5%).

Design/IDMs: Players participate in each subcategory, a few products have established advantages, and some products are comparable to overseas manufacturers at the mid- and low-end level.Overall, the mainland's market share in the design process is about 6%; among which fingerprint sensors have established advantages, with a market share of more than 1/3; CIS, discrete devices, and MCUs have initially been competitive and can be comparable to overseas manufacturers in mid- and low-end products; simulation manufacturers have already had many players in mainland China, but due to the "evergreen + broad material number" attribute of simulation products, the increase is slower than MCU, CIS, etc., we estimate that the market share of mainland manufacturers has not exceeded 5%; storage is led by Changxin and Changcun, and the market share is expected to increase significantly after capacity expansion. On high-end chips such as high-performance CPUs and FPGAs, the overall strength of mainland China is still relatively weak.

Manufacturing: Mature processes have basic manufacturing capabilities, and advanced processes are catching up. Foundries represented by SMIC and Huahong Semiconductor can provide some mature process manufacturing processes for design manufacturers, and advanced processes are currently mainly subject to equipment import restrictions, which remains to be seen. Overall, the market share of mainland manufacturers in the manufacturing process is about 6%.

device: There has been initial coverage and the self-sufficiency rate has gradually increased. At this stage, domestic equipment is generally still developing in the early stages, but the layout is relatively comprehensive. 1) Etching equipment (value accounts for 23%, and domestic production rate is 20%): Beifang Huachuang (silicon etching and metal etching), Sinomicro semiconductor (plasma etching), Yitang semiconductor (ionic etching). 2) Lithography equipment (value accounts for 20%, and domestic production rate is 10%): Shanghai Microelectronics and Xinyu Micro-installation. 3) PVD/CVD equipment (value accounts for 20%, and the domestic production rate is 10%): Northern Huachuang (PVD, CVD), Shenyang Tuojing (CVD). 4) Measuring equipment (value accounts for 12%, and the domestic production rate is 10%): Jingtest Electronics, Huafeng Measurement and Control, Changchuan Technology, Shanghai Ruili. 5) Cleaning equipment (value accounts for 6%, domestic production rate is 10%): Shengmei Semiconductor (cleaning equipment), pure technology (cleaning equipment). 6) Heat treatment equipment (value accounts for 4%, and the domestic production rate is 20%): Northern Huachuang (equipment is available in the three links of oxidation, diffusion and annealing). 7) Ion implantation equipment (value accounts for 3%, domestic production rate is 10%): Wanye Enterprise, China Electronics Technology Electronic Equipment. 8) CMP equipment (value accounts for 3%, and the domestic production rate is 10%): Huahai Qingke.

Materials: The domestic production rate in the subdivided fields is still low, but the full category layout has been achieved. In the semiconductor manufacturing link, silicon wafers, electronic special gases and photomasks are the three materials with the highest value proportion, with value ratios of 33%, 14% and 13% respectively. Taking the silicon wafer with the largest value composition as an example, the domestic production rate in my country is very low. According to SEMI data, the top three silicon wafer manufacturers in the world in 2020 are Japan's Shintsuki Chemical, SUMCO and Taiwan's Global wafers, with CR3 up to 64%, and the largest Shanghai silicon industry in mainland China has a market share of only 2.2%. However, domestic manufacturers are striving to catch up. In terms of material types, domestic manufacturers have achieved the full range of semiconductor materials and generated large-scale listed companies in their respective fields. (Report source: Future Think Tank)

2.2 Policies such as big funds, tax incentives, and financing of the Science and Technology Innovation Board will help semiconductors to be independent and controllable. To promote the domestic independent and controllable semiconductors, the central government mainly provides direct financial support and financing support for semiconductor companies from three aspects: 1) big fund investment, 2) tax incentives and 3) listing on the Science and Technology Innovation Board. At the same time, local governments support the development of the semiconductor industry by promoting 4) semiconductor industry clusters and setting up investment funds.

Big Fund: The first phase completes its mission gloriously, and the second phase takes over and continues to help. (1) The first phase focuses on the manufacturing process, and is currently entering the exit period. Phase I was established in 2014 with a registered capital of 98.7 billion yuan. According to our statistics, Phase I of the Big Fund invested in a total of 26 listed semiconductor companies through flexible investment methods such as capital increase and subscription, with an actual investment amount of 138.7 billion yuan. The investment distribution (listed + non-listed) is 67% manufacturing, 17% design, 10% packaging and testing, and 6% equipment materials. The exit period of the big fund is from 2019 to 2024, and the big fund is currently reducing its holdings in an orderly manner. (2) The second phase is more financially strong and will focus on short-term areas such as materials and equipment. Phase II was established in 2019 with a registered capital of 204.15 billion yuan, twice that of Phase I.At present, the second phase of investment has been carried out in an orderly manner. As of 2022/1/11, we have directly invested in 8 listed companies and 13 non-listed companies related to semiconductors.

Tax discount: Continuously launching tax discounts for semiconductor companies. Since 2011, the government has updated and introduced tax preferential policies for semiconductor companies, and the preferential efforts have been continuously increased. Semiconductor companies that meet the conditions can enjoy tax preferential benefits of "two exemptions, three halvings", "five exemptions, five halvings", and even "ten exemptions".

Science and Technology Innovation Board has greatly promoted the listing of semiconductor companies and solved financing problems. Before the Science and Technology Innovation Board was launched, there were only 42 semiconductor companies listed on the main board and GEM. After the GEM was launched on June 13, 2019, 51 semiconductor companies were promoted to go public, with 24 design companies, 11 materials, 11 equipment, and 2 packaging and testing/power/manufacturing. As of 1/10/2022, the market value of the semiconductor sector reached 2.9 trillion yuan, an increase of 567% from 2018/12/31.

builds four major semiconductor industry clusters, with different emphasis from local governments. Local governments actively guide the establishment of semiconductor companies. According to our statistics, there are 34 investment funds related to semiconductors, of which the total scale of semiconductor investment funds specifically targeted exceeds 500 billion yuan. According to the integrated circuit industry planning during the 14th Five-Year Plan of each city, by 2025, there will be 17 cities with a semiconductor industry scale of more than 100 billion yuan and 15 cities with a scale of 10 billion yuan. At present, four major semiconductor clusters have been formed: 1) Beijing-Tianjin-Hebei-led, mainly design and equipment; 2) Shenzhen-led, mainly design, manufacturing and packaging; 3) Shanghai-led, Yangtze River Delta, among which Shanghai Zhangjiang focuses on design, Lingang develops manufacturing, equipment and materials, and Hefei develops DRAM; 4) Wuhan in the central and western regions focuses on developing NAND Flash.

2.3 Sino-US trade frictions continue to escalate, catalyzing the willingness to replace all links of the industrial chain

The United States suppresses mainland semiconductors to the bottom: chip purchase → design → foundry → equipment. The Sino-US trade friction started with the ZTE incident in 2016, and the friction continued to intensify after that. From the perspective of suppression path, the United States' suppression of mainland semiconductors gradually spread from the downstream to the upstream:

(1) Restricting chip purchases from OEMs: 2019/5/15 After Huawei was included in the entity list, suppliers such as Microsoft and Qualcomm then stopped supplying (later announced that they could apply for an extension license), and the ban on 2020/9/15 will take effect. The OEMs that have been added to the entity list include Hikvision, Dahua, iFLYTEK, etc.

(2) Restrict semiconductor design companies from using EDA and other design software & foundry services: 2020/5/15 A new ban will be issued, which will restrict TSMC from providing foundry services to chips designed by HiSilicon and prohibit HiSilicon from using EDA and other design software. The semiconductor design companies that have been added to the entity list include Guokewei, Jingjiawei, etc.

(3) Restricted the import of foundry equipment: 2020/12/18, SMIC was included in the entity list, mainly restricting the use of related equipment for processes of 10nm and below. Since then, it has been repeatedly hovering while relaxing or strengthening sanctions (the ban on the ban above 14nm in March 2021; in December 2021, the US Department of Defense once again proposed to restrict SMIC from using equipment for processes of 14nm and below.)

Under the underlying logic of domestic substitution, the new wave of technology has not only put forward requirements for semiconductors but also provided opportunities. We believe that semiconductor independent control has become a consensus in the industrial chain, and the industrial chain has basically been "desensitized" to the US's attitude. Under the abnormal market environment, mainland China has a strong desire to replace domestically from downstream OEM factories, upstream semiconductor design companies and wafer foundries. Therefore, under the underlying logic of domestic substitution, in the next ten years, the new generation of technology wave has put forward requirements and opportunities for the semiconductor industry.

4. Investment analysis

meets two major technological changes in information and energy, leading the new decade of opportunities in the electronics industry. Referring to the development history of smartphones, when the penetration rate of terminal devices is between 10% and 50%, the industry enters a "sweet period" of rapid development. We believe that the current two major technological changes in information and energy have been at a turning point, which will lead the development of the electronics industry in the next ten years.

1) Information technology transformation: terminal demand driven by information technology transformation has entered a turning point in growth from the perspective of penetration, and automobiles and VR/AR have begun to emerge as new human-computer interaction platforms. a) Automobile: Automobile electrification has entered a stage of accelerated development across the 10% penetration turning point, and intelligence has ushered in a hot spot driven by the leap from L2 to L3/L4. b) VR/AR: According to our calculations, the penetration rate of VR in game consoles has reached 16%, and the growth of the industrial chain is highly certain; the penetration rate of AR replaces mobile phones is only 0.07%, which has a greater room for imagination in the long run.

2) Energy technology transformation: Energy technology transformation is accelerated in the era of parity, and photovoltaic power generation cooperates with energy storage to help switch between new and old energy. a) Photovoltaic: In 2020, the benchmark on-grid power price of photovoltaic power generation in Class I regions dropped to 0.35 yuan/kWh, which is lower than thermal power. New energy power generation has a foundation to replace traditional energy power generation, and the industry has entered a stage of accelerated growth. b) Energy storage: The development of energy storage is the key to achieving effective utilization of new energy and power generation. The industry has high growth certainty and energy storage methods are transforming from pumped energy storage to electrochemical energy storage.

The mainland industrial chain is ready to fully welcome the wave of technology. 1) In the past decade, Apple's supply chain has shifted to the mainland + the rise of mainland terminal mobile phone brands has provided a fertile ground for growth for a number of mainland precision manufacturing, PCB, optics, passive components and other companies. Such companies will quickly switch from consumer electronics to a new generation of technology; 2) Mainland semiconductors have initial technical accumulation in all links and have been verified in the 2021 out of stock. In the future, under the underlying logic of "domestic substitution + policy support", the mainland semiconductor industry will step by step from the middle and low end to the high end in the next ten years in conjunction with the new generation of technological revolution.

(This article is for reference only and does not represent any of our investment advice. If you need to use relevant information, please refer to the original text of the report.)

selected report source: [Future Think Tank]. Future Think Tank - Official Website