The communications sector followed the market with two sharp downward adjustments. The rise in February was due to the catalysis of IDC, optical modules and other fields brought about by the digital economy and the calculation of the east and west. The recent rise was due to the

(report producer/author: Guotai Junan Securities, Wang Yanlong, Tan Peiwen, Li Mingcong)

.1 Market: Two ups and downs, the historical lower valuation level reflects the expected bottom

two ups and downs, and the overall performance is slightly better than Shanghai and Shenzhen 300 Index . The communications sector followed the market and showed two sharp downward adjustments. The rise in February was due to the catalysis of IDCh, optical module and other fields brought about by digital economy and East Data and West Calculation. The recent rise was due to the end of the probation period in ZTE , which brought about the expectation of the sector's overall improvement. From the beginning of 2022 to the present, the overall valuation level of the communications industry is at a lower level in the historical average.

.2 positions : positions have been recovering continuously but are still at a historical low. There is basically no deterioration in microstructure

communications industry positions have been recovering continuously, and the overall situation is in a low-distribution pattern, and the room for improvement is still obvious. 2021Q4 Communications Industry Fund has a heavy holding of holdings with a total market value of 38.958 billion yuan, accounting for 1.05% of the total market value of A shares funds, which is 0.22 percentage points month-on-month. Affected by the ZTE incident in Q2 2018, the positions in the communications industry fell sharply and began to rebound since Q3 2018, but overall, the position is still at a historical low. During the same period of 2021Q4, the communications industry accounted for 1.66% of the market value of all A-shares, which is higher than the proportion of funds' heavy holdings in the communications industry. The communications industry is still in a low-distribution pattern. We believe that although there are many uncertainties in the internal and external environment at present, the communications sector has the possibility of expected to reverse and the configuration pattern to improve upward.

.3 Position: Benefiting from the reversal of the industry's prosperity, fiber optical cable and optical modules were increased by

021Q4 The top three funds have heavy holdings in total market value are ZTE, Zhongtian Technology , and China Mobile. The top five stocks in are ZTE, Zhongtian Technology, 12, and Heertai. The total market value of holdings is 7.868 billion yuan, 6.322 billion yuan, 4.023 billion yuan, 4.016 billion yuan and 3.353 billion yuan respectively, and the rise and fall of individual stocks is 1.12%, 86.37%, 0.25%, 17.79%, and 31.88%, respectively. Benefiting from the reversal of the industry's prosperity, fiber optic cables and optical modules have been increased. The top 5 companies that fund increased their positions are Zhongtian Technology, China Telecom H shares, Zhongji Xuchuang, Hengtong Optoelectronics , and China Mobile A shares. The top 5 companies that reduced their positions are respectively. China Telecom A shares, China Unicom A shares, China Unicom H shares, Xinyisheng , Star Network Ruijie .

.1 Overseas cloud manufacturers are optimistic in capital expenditure, focusing on the high prosperity of optical module

cloud industry chain: North America has a positive outlook in 22 years, and the upstream and downstream continue to verify

capital expenditure outlook positive: Meta capital expenditure increased by 50% year-on-year, and the meta universe drives its continuous investment, Amazon , Google , Microsoft are all expected to grow year-on-year.

upstream verification continues: BMC chip manufacturer Xinhua's data in January and February increased by 60% and 33% year-on-year in the first quarter, and the growth rate continued in 21Q4.

022 200G/400G becomes the main force, and the 800G industry chain is ready

200G/400G main focus: According to LC statistics, among the top five customers in 2022, the speed demand of these two models is expected to reach US$700 million and US$1.1 billion respectively, bringing major increments.

800G is ready: Judging from the device and chip supply chains exhibited in OFC2021 and 2022, the 800G module, including traditional and silicon optical solutions, is ready, waiting for demand to explode.

Domestic Digital Communication has entered 200G, and the demand for 400G has begun to show that

Domestic downstream customers' capital expenditures have recovered, hitting a record high in 2021Q4, and the high water level may continue in 2022. 2022 is a key node for major Internet manufacturers to upgrade from 100G to 200G, and some to 400G.

DCI market has grown rapidly, and will become a place for military strategists to compete for

coherent modules are used for data center interconnection and core backbone transmission, generally at 80km or above, with a current rate of 100G-200G/400G progress; global Finisar, Lumentum, Xinfeitong, Acacia, etc. are the main suppliers; domestic major module manufacturers such as Xuchuang, Guangxun, and Xinyisheng are trying to catch up.The high-end market is expected to reach US$1.8 billion worldwide in 2024, with an annual compound growth rate of 70%.

.2 Domestic "East and West Calculation" has been launched, reshaping the pattern

Key 1: 8 major computing power hubs + 10 big data center clusters

Policy is essentially a supply-side reform of the data center industry. The supply capacity in the east has always been insufficient, and the western region has abundant resources but insufficient demand. The essence of "counting the east and counting the west" is to solve this structural imbalance problem. The idea of optimizing spatial layout has been in 2010, and it began to appear in the policy documents of the five ministries and commissions in 2013. The policy in 2022 is the previous continuation and connection.

central idea is to emphasize national integration. The responsibility of the hub node is to strengthen regional coordination and linkage to serve the whole country, and at the same time guide other non-hub areas to integrate and utilize existing resources, guide local and market demand as the guide, and mainly serve locally.

The layout ideas and relationships of hubs and clusters: (1) Beijing-Tianjin-Hebei, Yangtze River Delta , Guangdong, Hong Kong and Macao, Chengdu and Chongqing: hot data; (2) Inner Mongolia, Ningxia, Gansu, Guizhou: cold data; (3) The internal hub should focus on shifting from first-tier cities to surrounding areas. For example, the Shaoguan cluster will be responsible for the real-time computing power needs in Guangzhou, Shenzhen and other places in the future.

Key 2: Establish a direct connection network for high-speed data centers, and place network upgrade construction in a high position

In order to solve the low latency preference of the IDC industry, it is proposed to accelerate the opening of the direct connection channel between the east and west. At this stage, the market demand structure and network resource distribution determine that a large number of IDC demands are concentrated in first-tier cities. This time, it is directly proposed to establish a direct network of high-speed data centers between clusters.

places network upgrade construction in a high position. The backbone direct connection points of countries have been expanding, from Beijing, Shanghai and Guangzhou to add Chengdu, Wuhan, Xi'an, Shenyang, Nanjing, Chongqing, Zhengzhou, etc., and recently expanded Hangzhou, Guiyang, , Suzhou, , etc. It is necessary to promote direct connection between clusters in these regional areas. The physical delay between the two nodes is not large, dozens of ms, but in actual calculation, it is much larger than this. The main reason is that there are too many cross-network hops, similar to too many toll stations on highways, which requires constant acceleration and deceleration. The network will bring some space and opportunities.

Key 3: Clarify the development goals of green energy conservation and shelf-listing rate, etc.

requires an average shelf-listing rate of more than 65%, and the utilization rate of renewable energy must be significantly improved. will conduct dynamic monitoring of the development of the cluster, and propose to give priority to energy consumption indicators for data center projects with outstanding results in the implementation of "East Digital and West Calculation". Strict requirements are put forward for PUE. It is required that the PUE of the Zhangjiakou , Shaoguan , Yangtze River Delta, Wuhu , Tianfu, and Chongqing clusters be less than 1.25, and the PUE of the and Linger , Gui'an , Zhongwei , Qingyang clusters be less than 1.2. At present, the shelves and PUE of many data centers do not meet the requirements, bringing new opportunities to related technologies.

Impact 1: New projects are expected to significantly boost investment, but will not change the total demand

will not build more data centers because of the "East Data and West Calculation" project, but will undertake the diversion of demand from the eastern region and build on demand. expects that the supply of IDC in non-core areas will be further compressed in the future. The current IDC layout is basically centered around Beijing, Shanghai, Guangzhou and Shenzhen. The future new data centers are mainly concentrated in 8 major hubs and 10 major cluster areas, and certain preferential policies are given, such as land, electricity consumption, energy consumption, etc. The new projects in Beijing, Shanghai, Guangzhou and Shenzhen will become increasingly strict and the scarcity will be further strengthened. The IDC industry chain is relatively long, driving investment of hundreds of billions of dollars each year. (1) National Development and Reform Commission’s caliber: According to estimates, during the 14th Five-Year Plan period, more than 400 billion yuan of related investment will be added every year; (2) Shaoguan cluster mapping caliber: By 2025, the Shaoguan data center cluster will build 500,000 standard racks and 5 million servers, with an investment of more than 50 billion yuan (excluding servers and software), and the 10 clusters will be 500 billion yuan, with an annual rate of 125 billion yuan.

Impact 2: The operator's position will be of great importance and is the main participant in the project

"East and West Calculation" emphasizes the coordination of data centers and networks. In this regard, the operator will definitely have the greatest advantages and will become the main force in construction.As a unified planned national node and data center cluster, the main participants should be inseparable from the government and state-owned enterprises. As the largest IDC provider and network provider in China, telecom operators will most likely participate in it in depth and may even lead investment.

network delay mainly consists of two parts: routing delay and transmission delay, and transmission delay accounts for the main part. routing delay can be roughly calculated as 1ms/node, and transmission delay can be calculated as 5us/km. (1) Use low-latency equipment: use low-latency related equipment such as coherent 100G WDM system, high-end router , etc. to reduce the transmission delay; (2) Optimize the information transmission distance: reduce the number of nodes that jump routes and the distance used for transmission by getting closer to the user side to reduce the delay; (3) Optimize the network architecture: At present, some data centers are connected to the backbone aggregation point through the provincial network/metropolitan area network and then enter the backbone core node; such a network has a large number of forwarding hops; it is recommended that when conditions are met, especially large data centers with large data forwarding volumes, they should be directly connected to the backbone aggregation point or backbone core node. It is recommended to use dedicated transmission links to avoid IP-level jumps, which will greatly reduce the delay of mutual access.

Impact 3: Through cooling and temperature control, power supply and distribution technology transformation, or partial use of clean energy, PUE

IDC suppliers will increase their investment in new technologies, and companies that do new technologies such as refrigeration, heat dissipation, power distribution, energy-saving dual carbon, network, operation and maintenance will benefit. Currently, there are two main ways for IDC to achieve carbon neutrality . One is a direct method, mainly through the transformation of refrigeration and cooling technology, or directly partially using clean energy, but under the existing technical and economic conditions, it is impossible to fully use clean energy such as nuclear power, hydropower, photovoltaic and wind power as a complete replacement. Another is the indirect method, which is to purchase renewable energy green electricity certificates (hereinafter referred to as green certificates) or China certified voluntary emission reduction (CCER).

According to the proportion of energy consumption, PUE is mainly reduced from the technical changes in the refrigeration system and power supply and distribution system. In terms of refrigeration temperature control, air-conditioning units will transform from air-cooled and water-cooled to frozen water-cooled and dual-cold source types. In the future, liquid cooling technology is expected to gradually become popular. In addition, the permeability of for indirect evaporative refrigeration is also expected to increase. In terms of power supply and distribution, Internet manufacturers vigorously promote the power supply +HVDC, with significant energy saving effects. In terms of construction rhythm, it will not blindly be large-scale. It is likely to be phased construction, and it will be put on the shelves while building and delivering.

.1 Offshore wind power : The 14th Five-Year Plan is grand, and communications enterprises have opened up the second curve

Marine power

0000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000 Communication companies Zhongtian and Hengtong began to deploy external extensions very early, shining during the 13th Five-Year Plan period, quickly gaining a foothold in the top three in the industry.

offshore engineering has significant advantages, and fan hoisting may become a new growth point

cable laying capabilities are complete: the leading communications manufacturers Zhongtian and Hengtong have cable laying ships, and the advantages are obvious in the bidding for the general contracting of submarine cable . Fan lifting capacity: Fan construction accounts for 20% of the investment in the sea breeze project, Zhongtian, Hengtong lifting ships, and pile driving ships are equipped with complete production, and the output is rapidly increasing

.2 Power informatization: Investment planning has increased significantly, and the distribution side has become the focus of investment structure

New energy under the grid information transformation is imminent

0 Under the new energy system, traditional power grids are facing the problems of high proportion of new energy access, changes in load structure, and large penetration of information equipment. In 2019, State Grid proposed the strategic goal of "three types and two networks" to build a world-class energy Internet enterprise. It plans to initially build the ubiquitous Internet of Things by 2021 and build the ubiquitous Internet of Things by 2024.

distribution side has become the focus of investment structure

During the 14th Five-Year Plan period, the grid investment plan has increased significantly. The two giants invested about 2.9 trillion yuan during the 14th Five-Year Plan period, which is a very good increase compared with 2.57 trillion yuan during the 13th Five-Year Plan period.Investment in power distribution side upgrades has become the focus. South China Power Grid plans to invest 320 billion yuan in distribution network, accounting for about half of the total investment, and the proportion is expected to increase significantly compared with the previous proportion. Under the background of the energy revolution, the distribution network is gradually becoming the core of the power system. The Southern Power Grid promotes the construction of distribution automation in the direction of self-healing of faults, promotes the construction of intelligent distribution stations, intelligent switch stations, and table-to-bedroom areas; promotes the construction of microgrids, promotes the application of intelligent gateways, and carries out the flexible construction of distribution networks.

categories and penetration rate increase bring about continuous control of the prosperity

Home appliance market: open up a market space of 100 billion, with low penetration rate and high growth rate, and promising future development prospects. innovative smart devices, kitchen appliances, purification products, service robots, , etc. have grown rapidly, opening up space for the growth of the home appliance sector. With the continuous advancement of technology and the release of consumers' demand for smart home appliances, the increase in domestic penetration will provide strong momentum for the growth of the smart home market.

tool market: market share is mainly concentrated in the hands of several leading large customers, and it is the key to expanding and deepening large customers. stock market technology upgrades to achieve lithium batteryization and cordlessness. The industry's continued growth trend will not be changed due to short-term factors such as the epidemic.

Automotive Electronics: The space is at least 4 times that of home appliances, and it is expected to copy the home appliance mode to open up a new space. automotive industry chain urgently needs to reduce costs and increase efficiency. The outsourcing of controller may become a trend, and it is expected to replicate the road of home appliances.

is still facing the test of rising upstream raw material prices and shortage of key materials

intelligent controller is located in the middle of the industrial chain, and the chips, MOS tubes, PCBs and so on account of the highest cost of BOM are chips, MOS tubes, PCBs, etc. Except for the chips that still rely on international imports of , most of the other electronic components have been replaced by domestic products. Since this year, chips have begun to be imported into domestic chips. Raw material procurement accounts for between 76-80% of the total cost. Price increase transmission for some customers has been completed in 2021. Partial pressure can be transmitted to downstream customers, and the cost-end pressure is expected to ease in the second half of the year.

It is estimated that the impact of the price increase of raw materials on profit margins is limited

According to our calculations, the degree of price increase is divided into optimistic, meso and pessimistic, and the transmission to the downstream is divided into 0%, 50% and 100%, and the impact on profit levels is limited. assumes that revenue and other expenses remain unchanged, and the prices of raw materials of different categories of the company will rise to varying degrees. In addition, it is necessary to consider that the company's product pricing principle is cost-plus pricing, and the rise in the prices of major raw materials can be transferred downstream by increasing product prices. Assuming that all costs and expenses other than raw materials remain unchanged, the conductivity of the raw material costs to the downstream is 0, 50%, and 100%.

The rise and shortage of raw material prices will not last for a long time, and will only affect the pace of delivery and confirmation of revenue for companies in the industrial chain in a phased manner, and is expected to ease in the second half of the year. company is also making measures to transmit to downstream customers and replace domestic materials to hedge the upward pressure on the cost side of .

performance has stabilized and risen, and is expected to have a long-term sustainability

Since the second half of 2019, various policies have been relaxed and the assessment content has been adjusted, operators' competitive environment has improved, and performance has been in an overall upward trend in fluctuations. The transformation of operators from quantity to quality is still continuing. In addition, the increase in 5G user penetration rate in 2021 will bring new performance support. Among them, the scale of mobile users has basically remained stable, and the increase in ARPU has caused the decline in mobile communication revenue of to narrow rapidly compared with ; emerging businesses such as data centers, big data, cloud computing , and artificial intelligence are still important growth highlights for operators at the current stage.

5G base accumulation is solid, 2C/2B expansion

5G user penetration has begun to accelerate in 2021. As of February 2022, the number of users of Mobile, Telecom and China Unicom 5G packages reached 356, 168, and 143 million respectively. The value of 5G users is relatively high, which is the basis for the continuous growth of operator revenue.In addition to the 2C scenario, 2B/2G will be the next bigger business trend for operators. The basic 5G network has reached a certain extent, and the exploration of vertical industries has also been fierce to a certain extent. More applicable scenarios are being explored. Industries such as inspection, education, automatic logistics, unmanned mining, and intelligent manufacturing will bring operators the second growth curve.

computing power capital expenditures are tilted, promoting "East Data and West Calculation" implementation

In 2022, China Mobile plans to spend 48 billion yuan in computing power network capital, to implement the national "East Data and West Calculation" project deployment, and has put into production of about 450,000 IDC racks available to the outside world; accelerate the layout of hot center clouds, build edge clouds on demand, and put into production of more than 660,000 cloud servers. The proportion of China's telecommunications industry's digital investment increased from 20% to 30%, of which the investment in computing power network was relatively large, with IDC investing 6.5 billion yuan, an increase of 45,000 racks; computing power (cloud resources) was 14 billion yuan, an increase of 160,000 cloud servers.

report excerpt:

9

(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