As of June 3, 2022, the Shanghai and Shenzhen 300 fell by 16.84% year-on-year, and the communications industry fell by 16.32% year-on-year, and the overall trend is relatively weak.

(Producer/Author: Wanlian Securities, Xia Qingying, Wu Yuanheng)

The left-side investment opportunities in the second half of the year of the communications industry highlighted

Due to the fluctuations in the external market, the trend of the communications industry was under pressure in the first half of the year, and the left-side investment opportunities in the second half of the year were highlighted. As of June 3, 2022, the Shanghai and Shenzhen 300 fell by 16.84% year-on-year, and the communications industry fell by 16.32% year-on-year, and the overall trend is relatively weak. The average PE value of the Shenwan Communications sector in the past five years has been 81.89, far higher than the PE of about 18 times on June 2, 2022. The current valuation is at a relatively low historical level. Overall, the communications sector and A-shares performed poorly in the first half of 2022. We believe that there are three main reasons. First, due to the situation in Russia and Ukraine, geopolitical relations have caused the price of some raw materials to rise, thereby increasing the cost pressure of midstream manufacturing; second, the Federal Reserve's interest rate hike caused capital outflows and market liquidity declined; third, the outbreak of the epidemic in Shanghai dragged down the domestic macroeconomic growth rate, and the market's expectations for personal consumption and corporate capital expenditure have declined. However, from this point of view, although the outcome of the Russian-Ukraine war is still unclear, with the gradual unblocking of Shanghai and the resumption of work and production, the gradual implementation of the Fed's interest rate hike expectations, the overall investment environment of A-shares has improved. We believe that in the medium and long term, the overall market opportunities of the communications industry have outweighed the risks, and the investment value of many high-quality tracks is highlighted. At the same time, considering the high performance certainty obtained by the communications industry as a computing power provider in digital transformation , at this point, we recommend that we plan to layout the relevant tracks with high prosperity in the communications sector on the left.

digital economy accelerates its development and becomes the dominant force leading the new round of productivity revolution. The essence of digital transformation is to use digital technology to give new impetus to high-quality social development. Since the 1970s, digital transformation has always been one of the important means for society to liberate productivity. The main anchor of growth of the traditional economy is "things", and most of human resources can be attributed to simple and repeated materialized labor; while the anchor of growth of the digital economy is "people", which liberates part of the repeated labor through the intelligent transformation of the production line, and amplifies the potential value of people's creativity, influence and other factors through digital technology. In other words, compared with the traditional economy with property rights, debt rights, and land use rights as the core stock distribution system, the digital economy pays more attention to a new form of economy with people's creativity, influence, technical knowledge, etc. as the core assets of digital rights. We believe that the understanding of the digital economy cannot simply focus on technological progress, but more importantly, what we need to pay attention to is what additional supply and demand provided by the digital economy to the market, how it redefines the process of value creation, and the new market space developed in this process.

The "14th Five-Year Plan" Digital Economy Development Plan is issued, pointing out the main line of digital economy development. In December 2021, the "14th Five-Year Plan for Digital Economy Development" issued by the State Council proposed quantifiable indicators for digital economic development and development tasks with guiding and framework significance. The "Plan" proposes that by 2025, the added value of the core industries of the digital economy will increase from 7.8% in 2020 to 10%, and the application penetration rate of industrial Internet platform will increase from 14.7% in 2020 to 45%. Judging from the achievements made in recent years, domestic digital innovation has led to the development capabilities of related enterprises, significantly improved, the level of intelligence has been significantly enhanced, the integration of digital technology and the real economy has achieved remarkable results, the digital economic governance system has been more perfect, and my country's digital economy competitiveness and influence are steadily improving.

Under the general trend of digital transformation, the communications industry's performance in the whole year of 2021 and Q1 2022 has steadily improved, and the overall margin of the industry is improving. The overall revenue of the communications sector in 2021 was 2203.538 billion yuan, an increase of by 13.96% year-on-year compared with in 2020, an increase of 19.18% from 2019, and a CAGR of 9.17% in the two-year period. Considering that the performance scale of the three major operators in the sector and ZTE, after excluding the four companies, the operating income of the communications sector shrank to 478.745 billion yuan in 2021, an increase of 29.26% from 2020 and 36.99% from 2019, and a CAGR of 17.04% in two years.The overall revenue of the communications industry in Q1 2022 was 570.735 billion yuan, a year-on-year increase of 14.17%; excluding the three major operators and ZTE , the operating revenue of the communications industry in Q1 2022 was reduced to 107.887 billion yuan, a year-on-year increase of 24.50%. Judging from the revenue data of the annual and first quarter reports, the overall revenue of the communications industry in 2021 and 2022Q1 was stimulated by the construction of 5G and digital transformation, and the revenue growth has accelerated significantly compared with the previous few years, and the industry's marginal improvement continues to improve.

Looking ahead, although the recurrence of the epidemic in Shanghai and Beijing may have a negative impact on the Q2 performance of the communications industry, we still have relatively optimistic market expectations for the performance of the communications industry throughout the year, especially in the second half of the year. The main reasons are the following three points:

(1) The pressure on upstream raw materials is eased and the gross profit margin continues to increase. From a financial analysis point of view, the main reasons for the increase in revenue but not profit in the communications industry in 2021 are the growth of bulk raw materials and the shortage of raw materials for chips. The communications industry is in the middle of the industrial chain, and most of the customers are large customers such as three major operators or large Internet companies. The order period is mostly about half a year to a year. Depreciation leads to poor transfer ability of the industry to increase upstream costs. After excluding the operator's gross profit margin, the gross profit margins of the communications industry in the four quarters in 2021 were 23.52%, 22.40%, 23.55% and 22.33%, respectively, down 1.92pct, 0.71pct, 0.21pct and 0.78pct compared with in 2020.

(2) Projects such as "East Digital and West Calculation" continue to be built, driving a new round of computing power network construction cycle. On February 17, 2022, the National Development and Reform Commission, the Central Cyberspace Affairs Office, and the Energy Bureau of the Ministry of Industry and Information Technology agreed to start the construction of a national hub node for the national integrated computing power network in the Guangdong-Hong Kong-Macao Greater Bay Area, the Chengdu-Chongqing region, the Yangtze River Delta region, and the Beijing-Tianjin-Hebei region. Previously, four other countries including Guizhou, Inner Mongolia, Gansu, and Ningxia have been approved for construction. So far, all eight national hub nodes of national integrated computing power networks have been approved. In the context of "east numbers and west calculations", a large amount of social capital will be invested in the construction of computing power and infrastructure such as data centers in the future. From the perspective of the industrial chain, computing power providers, network operators, service providers and service users will all participate in related investment and construction, driving the expansion of investment in some digital infrastructure fields. Operators and related communication companies are also expected to continue to dominate the network operation field of connected computing power by combining the construction and technical advantages of 5G wireless access network , IP bearer network and fiber backbone network. Under the operating model of "connection + computing" in the high data traffic of "connection + computing" in the 5G era, related pipelines, optical fibers, IDC computer rooms, access stations and other resources are also expected to usher in a new round of upgrade cycle, and computing power network-related equipment manufacturers are also expected to obtain more orders in the construction of "East and West Computing".

(3) Production and supply globally in China, and Chinese communications export enterprises may enjoy the exchange rate dividend . Due to the industrial chain transfer in recent years, China has become the global communication equipment manufacturing base, so the appreciation of the US dollar exchange rate may benefit the overall performance of the export-oriented communications industry in the short term. Since late April, the expectation of tightening of the Federal Reserve has been significantly strengthened. In addition, IMF has lowered the forecast of China's economic growth, and the RMB exchange rate has undergone rapid adjustments. From the perspective of external factors, the Federal Reserve accelerates the rate hike of to push the yield of US long-term Treasury bonds to rise, which is the main reason for the depreciation of the RMB against the US dollar. From the perspective of internal factors, the new round of new crown epidemics in 2022 in China has caused the economic operation of key cities in China to be blocked, significantly impacting the growth rate of the real economy and the growth rate of import and export, and also causing a serious setback in the confidence of market entities. This is also the main reason for the depreciation of the RMB against the US dollar. Judging from historical data, 6.6~6.8 happens to be the average exchange rate of the RMB against the US dollar since the national exchange rate reform in August 2015, and is within the normal range.In combination with the Chinese government's efforts to increase counter-cyclical macroeconomic policy, under the pressure of negative economic growth, the United States' US dollar index has relatively limited room for growth due to the increase in the interest rate of , and it is likely that this year will reappear in a wide range of 6.7 to 7.0. Compared with 2020 and 2021, this higher exchange rate will bring better performance expectations to some export-type communication companies.

Therefore, under the stimulation of multiple factors, we believe that the communications industry will have some structural investment opportunities in the second half of 2022. Under the premise that the digital economy is the main line of the technology industry, we focus on the two main lines of construction and application. On the construction side, in the context of building cloud network facilities and data centers with operators and Internet manufacturers, ICT equipment manufacturers as equipment providers, high-quality companies in the fiber optic cable and optical module track deserve special attention. On the application side, with the rapid growth of the number of Internet of Things connections, related companies in the Beidou track, which is the communication module implemented by the connection function and the position positioning function, are worth paying attention to.

ICT Related track: Cloud network digital innovation, computing power first

In the new round of digital economy development cycle, the importance of communication networks as the underlying channel for data dissemination is self-evident. Based on the value creation path of social digital transformation, we believe that the key to the transformation of the digital economy lies in two points. The first point is the user base, that is, the completeness and advanced infrastructure. For example, convenient communication networks and popular smartphones are the foundations of the explosive growth of the consumer Internet. The second is the breadth of the new market, which is related to the potential and space for subsequent growth. For example, national application scenarios such as Taobao and Didi can bring more market space. The last round of 4G technology dividends laid a solid foundation for the penetration of consumer Internet, and when facing higher magnitude tracks such as industrial Internet, AI, and Internet of Vehicles, stronger data transmission capabilities are their indispensable support. The enhanced mobile broadband, high reliability, low latency and wide coverage of Dalian network infrastructure created by the construction of high computing power network infrastructure can bring high-base end customers. At the same time, the development of communication technologies such as 5G will also be with other information and communication technologies such as cloud computing , big data, artificial intelligence , blockchain, edge computing , etc., jointly promote the upgrading of traditional industries, incubate new applications, give birth to new business formats, and create incremental markets.

Operators attach great importance to digital transformation of emerging markets, vigorously invest in the construction of digital economy related to ensure the future development potential of the industry. At present, my country's digital transformation is undergoing a process of rapid growth to high-quality development, and operators are also seeking opportunities to transform from CT companies to tracks such as IDCh, ICT and cloud computing. In the past year, operators have been accelerating their development in emerging businesses such as AI, cloud computing, and big data. In 2021, the digital revenue of the three major operators hit new highs, accounting for 20% of the main business revenue. In 2022, China Mobile's DICT (big data, information technology) business revenue in the first quarter was RMB 23.7 billion, a year-on-year increase of 50.9%. In the first quarter, the digital business of China Telecom industry also accelerated its growth, with revenue reaching RMB 29.414 billion, a year-on-year increase of 23.2%. China Unicom 's big computing and big data business both achieved double-digit growth. In the long run, today when users in the mobile communications market have reached saturation, the main fulcrum of operators' future performance growth comes from the digital transformation needs of government and enterprise markets and related companies. While the innovative businesses of the three major operators open up new revenue space for them, they also bring more orders and market space to midstream and downstream companies.

Judging from the changes in capital, all three major operators have a tendency to focus on the digital economy. 2022 is the last year of large-scale 5G construction. Under the premise of saturation of 5G capital expenditure, operators began to further focus on computing power network investment. Among them, China Telecom expects capital expenditure of 93 billion yuan in 2022, of which the proportion of 5G network investment has been reduced to 36.6%, and the proportion of industrial digital investment has been significantly increased to 30.0%.China Mobile's computing power network capital expenditure is about 48 billion yuan, and the focus will be on investing in and deploying the national " East Number and West Calculation " project. It plans to put into production of about 450,000 IDC racks available throughout the year; at the same time, it will accelerate the layout of hot center clouds, build edge clouds as needed, and plan to put into production of more than 660,000 cloud servers. Guided by the Group's "1+8+2" strategic plan, China Unicom plans to complete the construction of 5+4 core cloud pools, 31 provincial cloud pools, 100% full optical coverage of more than 400 MECs and more than 20,000 computing power anchors by 2022.

The prosperity of cloud construction has improved, and the capital expenditure of domestic and foreign Internet companies and Xinhua Technology's monthly revenue have both increased year-on-year. From the perspective of capital expenditure, overseas Internet companies have been growing in recent years since 2020. Although domestic Internet companies have been affected by domestic political and economic situation in the short term, the growth rate of capital expenditure has slowed down, but they are still in the growth range year-on-year. As a forward-looking indicator of the server industry's prosperity, Xinhua Technology's performance usually has a 2-3-month forward-looking guidance. Its revenue has increased since August 2021, with revenue reaching NT$466 million in May 2022. Except for February, the year-on-year growth of more than 50% in the rest of the year. Therefore, in the short term, the prosperity of cloud construction is still increasing.

Global cloud infrastructure expenditures account for enterprise IT infrastructure expenditures to continue to increase. According to the IDC Global Quarterly Enterprise Infrastructure Tracking Report: Buyers and Cloud Deployment Report, spending on compute and storage-related infrastructure products, including proprietary and shared clouds, increased by 13.5% year-on-year to US$21.1 billion in Q4 2021. This marks a second consecutive quarter-on-year increase in the past few quarters amid exhaustion of supplier inventory due to supply chain restrictions. For 2022, IDC predicts cloud infrastructure spending will increase by 21.7% to $90 billion from 2021, while non-cloud infrastructure is expected to decline slightly by 0.3% to $59.4 billion. Shared cloud infrastructure spending is expected to grow 25.5% year-on-year to reach US$64.5 billion for the full year. Spending on proprietary cloud infrastructure is expected to grow by 13.1% to $25.4 billion. In the long run, IDC expects computing and storage cloud infrastructure spending to grow at a CAGR of 12.6% over the forecast period of 2021-2026, reaching US$133.7 billion by 2026, accounting for 68.6% of total computing and storage infrastructure spending. Shared cloud infrastructure will account for 72.0% of the total cloud volume, with a CAGR of 13.4%, spending on proprietary cloud infrastructure will grow at a CAGR of 10.7%, and spending on non-cloud infrastructure will remain flat at a CAGR of 0.5%, reaching US$61.2 billion by 2026. Service providers spending on compute and storage infrastructure is expected to grow at a CAGR of 11.7% to reach $130.6 billion by 2026.

In the long run, with the continued growth of computing power demand, increasing the construction of digital infrastructure is an inevitable trend. With the development of cloud computing , AI, 5G, Internet of Things, Internet of Vehicles and other technologies, global computing power demand is expected to grow by more than ten times in the next few years. NTCysd expects that the global computing power scale will grow at a rate of more than 40% from 2021 to 2028, and the overall scale will reach 7510EFlops by 2028. From the perspective of my country's scope, diversified computing power demand scenarios such as high-tech, digital transformation and terminal consumption are constantly emerging. In terms of high-tech, highly complex computing scenarios require more high-performance computing power support, and supercomputing can provide new demands for the medical, aerospace and exploration fields through high-performance computing power. In terms of industrial digital transformation, modern service industries such as the Internet, communications and finance need to provide services to a large number of terminal customers, which is a traditional demand market for computing power. With the introduction of policies such as the 14th Five-Year Plan and the continuous evolution of technology research and development and business applications, traditional Chinese industrial enterprises, such as State Grid , Southern Power Grid, PetroChina, Sinopec, etc., have also begun to actively promote the construction of computing power infrastructure, providing new computing power demand for enterprises' digital transformation. In terms of mobile consumption and smart terminals, the number of mobile terminal users and smart terminal devices in my country has grown rapidly in recent years, the application scenarios of terminal devices have been continuously enriched, and the demand for real-time computing power has been continuously improved.Taking unmanned driving as an example, from 2018 to 2030, the demand for computing power of unmanned driving will increase by 390 times. In the digital currency scenario, the computing power will increase by about 2,000 times in 2030 compared with 2018; the computing power demand for VR games will increase by about 300 times. (Report source: Future Think Tank)

2.1 ICT Manufacturer: The supply and demand pattern on the cloud side is improving marginally, and ICT enterprises maintain a high growth trend

China's public cloud market will grow rapidly in the next five years, and the digital transformation of enterprises will accelerate. The latest report on "China Public Cloud Service Market (Second Half of 2021) Tracking" released by IDC shows that in the second half of 2021, the overall market size of China's public cloud services (IaaS/PaaS/SaaS) reached US$15.13 billion, of which the IaaS market grew by 40.1% year-on-year, and the PaaS market grew by 55.7%. From the perspective of the IaaS+PaaS market, the year-on-year growth in the second half of 2021 was 43.0%, down nearly 6% compared with the growth rate in the first half of 2021 (48.8%). In the next five years, China's public cloud market will continue to grow rapidly with a compound growth rate of 30.9%. It is expected that by 2026, the market size will reach US$105.76 billion, and the global share of China's public cloud service market will increase from 6.7% in 2021 to 9.9%. The proportion of

operators has increased, and the growth of some Internet industries has slowed down. In the second half of 2021, China Telecom's -day Yiyun ranked fourth in both the IaaS market and the IaaS+PaaS market, with IaaS market share accounting for 10.3%, an increase of 1.5% over the second half of 2020, becoming the fastest growing company in the first echelon of the public cloud IaaS market. Tianyi Cloud public cloud IaaS market share has achieved steadily increase for four consecutive years from 2018 to 2021, with growth rates of 8.6%, 8.7%, 8.8% and 10% respectively. The market share of public clouds of mobile cloud , a subsidiary of China Mobile, ranked seventh. The market share of IaaS+PaaS increased by 137.8% year-on-year, and the growth rate of reached 24.9% month-on-month, ranking first among the top 10 players and is striving to the top 5; China Unicom's China Unicom's public clouds, IaaS, PaaS, and IaaS+PaaS, ranked first among all manufacturers in the fourth quarter of 2021, with revenue of 16.3 billion yuan, a year-on-year increase of 46.3%. In the second half of 2021, affected by the adjustment of the national industrial structure, the demand for cloud computing by online games and online education has declined significantly; in addition, in the post-epidemic era, the difficulty of the growth of the demand for cloud computing by audio and video scenarios on cloud computing has also brought certain negative impacts on the growth of the Internet industry.

operators continue to increase their bidding efforts, which is beneficial to A-share ICT equipment vendors. In the digital economy era, computing power will become the most important infrastructure, and the core of computing power network lies in cloud computing infrastructure. Operators will continue to increase related investment in 2021 and 2022, which will not only help operators’ cloud-side layout, but also help the performance growth of downstream equipment manufacturers. Among them, in 2022, the scale of centralized procurement of China Mobile servers exceeded expectations, and the final procurement scale exceeded 10 billion yuan. The procurement volume of China Telecom servers and switches increased, and the procurement scale increased significantly throughout the year. China Unicom is also actively deploying related businesses. From 2021 to 2022, the total collection scale of data center switch centralized procurement work is 14,000 units, and the budget is 1.563 billion.

Against the backdrop of the marginal improvement in supply and demand pattern, the performance of A-share ICT companies continues to rebound. We selected ZTE, Ziguang Co., Ltd. , and StarNet Ruijie as representatives of ICT equipment manufacturers for analysis. In 2021, the total revenue of the three communication equipment manufacturers was 195.7 billion yuan, an increase of 14.14% year-on-year; the revenue in Q1 2022 was 46.222 billion yuan, an increase of 10.93% year-on-year. In 2021, the net profit of the three communication equipment manufacturers was 9.511 billion yuan, an increase of 44.42% year-on-year; the net profit in Q1 2022 was 2.709 billion yuan, an increase of 8.51% year-on-year, and increased by 72.15% month-on-month. Overall, with the virtualization of 5G core network and the accelerated construction of data centers, the market boundaries of ICT equipment vendors have expanded, and revenue continues to improve marginally. In addition, the gross profit margins of ZTE and Unigroup shares both increased month-on-month compared with 2021Q1, and in the future, as the shortage of upstream raw materials gradually eases.

In the context of domestic operators increasing their investment in the digital economy and rising global capital expenditures, we believe that leading companies in the communications equipment business industry have high performance certainty.Unlike traditional manufacturing, the main customers of communication equipment manufacturers are operators, which have strong public utility attributes, and their capital expenditures are not affected by the macro economy. Against the backdrop of "industry digitalization" and "east-to-east computing", operators' willingness to vigorously build computing power networks will bring long-term certain performance growth to relevant downstream companies. At the same time, with the increase in the domestic chip rate and the decline in the prices of upstream raw materials, the profit margins of enterprises may also gradually rise.

2.2 Fiber Optical cable: Volume and price increase, sea breeze empowers, marginal improvement is obvious

Volume and price increase, and the fiber optic cable track returns to the revenue growth range. From 2019 to 2020, with the construction of 4G and broadband access to the end, the demand for 5G industry has not been discovered. The fiber and cable industry faced a severe market situation after experiencing a wave of production expansion. The industry's prosperity has reached a freezing point with the decline in bidding prices. However, in 2021, although the industry still faces challenges such as sharp rise in raw material prices and impact of the epidemic, the large-scale deployment of 5G and Gigabit Optical Networks has brought about an increase in demand and a bottoming out rebound. The procurement prices of the three major operators have all increased significantly year-on-year, and the overall marginal improvement of the industry has been significantly improved. In terms of performance, in 2021, Zhongtian Technology , Hengtong Optoelectronics , Fenghuo Communication and Changfei Optical Fiber both increased, with overall operating income of 123.286 billion yuan, a year-on-year increase of 16.59%. Except for Zhongtian's provision for impairment of 3.619 billion yuan due to the risk assets of high-end communications business, the other three companies had an overall net profit attributable to shareholders of 2.433 billion yuan, a year-on-year increase of 42.46%, and the industry's performance returned to growth.

operator procurement prices have increased again, and the price of general cable bidding has increased by more than 50%. The trend of market price of fiber optic cables is China Mobile's annual general optical cable procurement project. The annual demand for more than 100 million chip kilometers has greatly affected the market conditions of the fiber optic industry that year. The centralized procurement in 2019 and 2020 was significantly under the imbalance of market supply and demand. China Mobile's demand increased in 2021, with the total procurement volume equivalent to 143.2 million core kilometers, an increase of 20% year-on-year and 36% higher than in 2019. Although China Telecom's bidding volume declined in 2021, the price this time also increased significantly, about 10% higher than the mobile price, achieving a bottoming out rebound in the overall industry price.

In addition, the pressure of cost also makes companies dare not quote low prices at will. Judging from the price trend chart of various raw materials of optical cables, starting from July 2020, polyethylene sheathing material, PBTh, steel, aluminum, and paste have basically shown a continuous upward trend. The rise in bidding prices last year also considered that manufacturers dare not be optimistic about the future trend of optical cable costs, which objectively led to the quotation level of each company being close to the actual cost and expectations for the future. Since September 2021, the power supply of shutdowns and power restrictions in various places has caused some materials to be tight, including silicon tetrachloride, one of the main raw materials of light rods, doubled in the last week of the end of September. The aggressive price increase situation inadvertently made the angle of consideration of issues when quoting prices by manufacturers, and they did not dare to have the chance to offset the price and grab the ranking. In addition, the painful lessons of the previous loss-making supply, each manufacturer left some room for themselves to prepare for the impact of the continuous price increase of raw materials. However, judging from the price trend in 2022, the prices of related raw materials have reached a relatively high level, and there is little room for growth in the future, and it has even declined in the past few months. Generally speaking, the bidding price of operators is a long-term agreement price. If the upstream raw material prices decline, fiber optic cable companies may have greater value space.

At the same time, as operators increase their efforts to control product quality, the production capacity has a significant effect on leading enterprises. Taking China Mobile as an example, in recent years, Mobile has increased supervision of the quality of supply of various manufacturers through various publicity, arrival inspection, flight inspection, negative behavior punishment, quality escort actions and other measures and means, so that manufacturers can strictly discipline their product quality.This model is relatively more beneficial to large manufacturers. Large-scale manufacturers have strong brand awareness and high management costs. The quotation is based on the cost of meeting quality standards. However, if there are no strict quality control measures for mobile, some manufacturers will not get punishment by using inferior coins as good ones, and will naturally drive out good coins by low prices rather than high quality. The current mobile market has excellent quality fiber cable supply, which is the inevitable result of Mobile's own adherence to its quality management attitude. Under the requirements of high-intensity quality and production capacity, the withdrawal of small fiber optic cable manufacturers has become an inevitable outcome, thus further consolidating the market share of leading manufacturers.

In addition to the multiple general cable bidding mentioned above, on March 18, 2022, China Mobile launched the centralized procurement project for G.654E fiber optic cable products from 2022 to 2023. The estimated procurement scale is about 2134 leather-length kilometers, equivalent to 332,400 core kilometers, and the maximum bid limit is set to 98.3638 million yuan. In April 2022, China Telecom launched multiple procurements of G654E trunk optical cables and G.652D trunk optical cables. On April 15, China Unicom announced the pre-audit announcement of local network optical cable products required for the project of 31 provincial branches, with a procurement scale of about 1.44 million leather-long kilometers. On April 27, China Radio and Television launched the 2022 general optical cable products and butterfly optical cable products centralized procurement bidding project. In terms of general cable projects, the radio and television industry raised 710 million yuan, with a total of about 310,300 leather-long kilometers (equivalent to 8.467 million core kilometers). The bidding content is the fiber and cable processing part of ordinary optical cables. In terms of the butterfly optical cable project, the self-raised funds are about 76 million yuan, and the total optical cable scale is about 304,300 leather-length kilometers (equivalent to 563,500 core kilometers). The bidding content is optical fiber and cable processing in the butterfly optical cable.

high-speed network drives new demand, and G.654.E fiber ushers in rapid growth. The advance deployment of fiber optic cable products that support 200G and 400G systems is the basis for building high-speed information networks, but the G.652 fiber used in the current network can no longer meet the transmission needs of future optical transmission networks with ultra-high speed, ultra-large capacity, and ultra-long distances. 400G will be an important rate choice in the era of optical networks over 100G, and will also become one of the important transportation capacity of "East and West Calculation". G.654.E fiber can significantly increase the powerless relay transmission distance of high-speed systems such as 400G WDM, and should accelerate the application deployment of G.654.E fiber in the bone and trunk long-distance optical network, build an ultra-high-speed ultra-long-distance large-capacity backbone optical network, and serve the implementation of the national " East and West Calculation " strategy. Compared with G.652.D fiber, G.654.E fiber can achieve longer transmission distances, higher system capacity, longer cross-segment distances or more system redundancy, thus bringing great value to long-distance transmission networks; operators conducted continuous incremental bidding for them this year also fully proved the application value of G.654.E fiber, which also provides theoretical and practical basis for the large-scale application of G.654.E fiber and the construction of the next generation backbone network. In addition, the communication transmission backbone network built in my country in the early stage has a design life of 25 years. The fiber optic cables laid in the backbone network around 1997 need to be fully replaced and upgraded, which will also drive the application of G.654.E fiber.

It is expected that the total planned installation capacity of offshore wind power in the national offshore wind power will exceed 100GW during the 14th Five-Year Plan period, and there is a possibility of exceeding expectations. The Global Wind Energy Council GWEC recently released the "2022 Global Wind Power Industry Report": 2021 is the second year of the global COVID-19 pandemic, and the wind power industry still achieved nearly 94 GW of new grid-connected installations, the second best result in history. Compared with 2020, the global installed capacity of wind power has only dropped by 1.8%. Global offshore wind power achieved an additional 21.1 GW of grid connection in 2021 (more than triple the amount in 2020), creating the best results in history. China is the only one with its offshore wind power increase accounting for 80% of the world, which also makes China surpass the UK to become the country with the largest cumulative installed capacity of offshore wind power in the world. Compared with 2020, the global wind power bidding volume increased by 153% to 88 GW, of which 69 GW of onshore wind power was 78% and 19 GW of offshore wind power was 19 GW. According to statistics from the Polaris Wind Power Network, as of March 1, 2022, offshore wind power planning and support policies in coastal areas across the country have been successively issued, among which Guangdong, Shandong, Zhejiang, Hainan, Jiangsu, Guangxi and other regions have initially clarified their offshore wind power development goals.According to incomplete statistics from the Polaris Wind Power Network, during the 14th Five-Year Plan period, the total installed capacity of offshore wind power nationwide exceeded 100GW. With the continuous decline in the price of offshore wind turbines and the gradual decrease in construction costs, offshore wind power will usher in explosive growth in the 14th Five-Year Plan period.

2.3 Optical module: Downstream demand boosts, 400G shipments increase

Digital transformation accelerates traffic growth, and the prosperity of the optical module market continues to rise. Optical modules are optoelectronic devices for photoelectric and electro-optical conversion, and are also one of the more important links in the communication network. Their performance has a certain check and balance effect on network efficiency. With the acceleration of digital transformation, the continuous advancement of cloud computing and communication network construction has driven the overall prosperity of the optical module market to rise. LightCounting expects the optical module market to increase from US$8 billion in 2020 to US$14.5 billion in 2026. Market research firm Yole pointed out that the revenue generated by the global optical module market reached about US$9.6 billion in 2020, and is expected to reach US$20.9 billion in 2026, with a compound annual growth rate of 14% from 2020 to 2026. This growth is driven by the large number of high-speed optical modules of over 100G. In addition, 400G deployment is accelerating in the data center network. Meanwhile, many cloud service providers and telecom operators are looking for 800G to increase bandwidth capacity and keep up with growing data demand.

global optical communication industry chain continues to be integrated, and domestic optical module manufacturers have occupied half of the market. Against the backdrop of the continuous development of the optical communication industry, optical module enterprises have accelerated mergers and acquisitions and reorganizations, carried out vertical integration of the industrial chain, and the industry concentration has further increased. According to Yole, China's optical module industry has grown by 24% over the past three years, while the United States has grown by only 1%. According to the latest issue of the optical communications industry report released by LightCounting, starting from 2018, most Japanese and American suppliers have withdrawn from this market, while the ranking of Chinese suppliers led by Innolight Technology has gradually improved. In 2021, Xuchuang Technology tied for No. 1 with II-VI (acquired Finisar, the leader in optical modules) (ranked 2nd in 2020), Huawei (Hisense) ranked 3rd (ranked 3rd in 2020), Hisense's broadband ranked 5th (ranked 4th in 2020), Eoptolink Xinyisheng ranked 7th (ranked 9th in 2020), and Accelink Optoxon Technology ranked 8th (ranked 8th in 2020).

The development of the digital economy has driven the new generation of digital optical modules. With the rapid development of cloud computing, big data, ultra-high-definition video, artificial intelligence, 5G industry applications, network access frequency and access means continue to increase, and network data traffic is growing rapidly, posing higher challenges to data center interconnection. Taking the Spine-Leaf CLOS architecture data center as an example, the first three categories are internal interconnections of data centers, and the fourth category is the increase in east-west traffic within the data center (DCI). In order to ensure that the forwarding capability (and port density) of the switching network equipment in the new architecture can meet the high-speed needs of users, the overall optoelectronic interconnection solution of the data center has gradually converted from 100G to 200G/400G. With the increase in capital expenditure of relevant cloud computing manufacturers, the prosperity of the Shutong optical module market will remain relatively high in the future, and 800G products are also expected to gradually increase in volume by the end of 2021 or early 2022. LightCounting pointed out that by 2025, 800G Ethernet optical modules will dominate this market segment. In addition, Google plans to start deploying the 1.6T module in 4-5 years. Co-Packaged optics will replace pluggable optical modules in cloud data centers from 2024 to 2026.

The recovery of global optical network construction has driven the increase in PON penetration rate, and the shipment volume of related telecommunications side modules may increase in 2022. Business fields such as home entertainment, home cloud VR, enterprise dedicated lines and campus networks have all put forward clear needs for operators' broadband networks, and a wide range of service drivers are accelerating the pace of operators' broadband network upgrading to 10G PON. And driven by the repeated epidemic in recent years, networks such as universities, hospitals and enterprises have begun to turn to cloud-based services, driving the acceleration of this trend. In March 2021, the Government Work Report mentioned for the first time that "we must increase the construction of 5G networks and gigabit optical networks and enrich application scenarios", which means that 10G PON provides gigabit optical wide access and increase the density of OTN nodes to build a high-quality optical transmission network.According to Omida's forecast, the PON equipment market declined in 2020 due to supply chain and deployment problems caused by the epidemic. However, the continued growth of bandwidth demand worldwide has accelerated the construction and upgrading of PON networks in 2021 and beyond. The compound annual growth rate of PON-related markets from 2020 to 2026 is 10.0%. In 2022, 10G PON is expected to usher in a window of rapid explosion.

pays attention to the technical update cycle of the next generation of optical modules, from pluggable to silicon light. In recent years, with the rise of applications such as artificial intelligence, the demand for interconnected bandwidth in data centers has greatly increased. In distributed computing, frequent large amounts of data exchanges are required between different servers, and the bandwidth of data interconnection often limits the performance of the overall task, which has become the main reason for data centers to introduce ultra-high bandwidth based on silicon photons. Silicon photonics technology is currently undergoing an important technological innovation, with the core technology being co-packaged optical (CPO) technology, which can use this technology to package silicon photonic modules and ultra-large-scale CMOS chips in closer form, thereby further improving optical interconnection technology in data center applications in cost, power consumption and size.

Before the rise of CPO technology, the current traditional technology was to separate the silicon optical module and the CMOS chip into two separate modules, and then connect them together on the PCB board. The advantage of this is that the design is relatively modular. If there are problems with CMOS chips or silicon optical modules, they can be replaced separately, but they are not favorable in terms of power consumption, size and cost. And CPO is a technology to solve these problems. When advanced packaging technology is used to integrate silicon optical modules and CMOS chips into the same package, first of all, the data connection quality (signal loss) between the silicon optical modules and CMOS chips is much better than that of PCB boards, so it can reduce power consumption; on the other hand, after large-scale mass production, advanced packaging can also bring cost improvements. Finally, after using CPO, since they are all integrated in the same package, the integration of the overall system is greatly improved and the size is reduced, which can also improve the popularity of silicon photonic technology in data center application scenarios. The problem faced by CPOs is that pluggable modules do not need to be close to the switching chip, but are decoupled and can be deployed when needed, supporting large-scale manufacturing. But in the world of CPOs, downstream data center manufacturers have to choose the technology they want to bet on almost two years in advance. In the total power including servers, storage and switches, the savings at the optical device level do not have that much driving force. In terms of power saving, the cost-effectiveness of optical devices or optical modules from pluggable to CPOs at the data center level may be only 1% or less, so there is no need for replacement in the short term. And there are currently 800G and 1.6T solutions for pluggable solutions. Plugable devices will continue to dominate the market for the next 5 years or even longer, but in 2027, CPO ports will account for nearly 30% of the total 800G and 1.6T ports. At present, many Chinese optical module manufacturers have released 800G optical module products, but in the short term, the increase in the volume of related products still requires market assessment, which is worthy of continuous attention.

From the perspective of market demand, the year-on-year growth rate of overseas optical device optical module manufacturers in 2022Q1 has recovered. Although there are still certain supply chain problems due to the impact of the epidemic, the recovery of demand for cloud infrastructure construction in North American cloud manufacturers since 2021Q3 will still drive the entire industrial chain to recover in the next few quarters this year. Currently, the optical module market uses 200G/400G as the main force, and some leading cloud manufacturers have begun to deploy 800G optical modules. Domestic optical module manufacturers have occupied half of the world in recent years, and have sufficient product matrix. After the domestic epidemic eases, they are expected to continue to benefit from the growth of the downstream market of the Digital Track. At the same time, domestic manufacturers have deeply deployed the silicon light track and may have the opportunity to overtake on the curve in the future.

Internet of Things Track: Count and Everything, the future of IoT

In recent years, my country has issued a number of policies to promote the development of IoT technology and continuously promote the improvement of the prosperity of the Internet of Things industry.These policies explain from the perspectives of strategic emerging industries, industrial informatization, fine urban management and smart life. The Internet of Things, as the underlying high-tech, can effectively support the country to reshape an intelligent, efficient and economical society. The Internet of Things can create value creation in chips, sensors, long-distance transmission, massive data processing, technology integration and innovative applications. Especially since the 12th Five-Year Plan, China has faced problems such as upgrading and reconstruction of traditional industries, digital transformation of enterprises, lack of urban management efficiency, public service level and urgent improvement of people's quality of life. The Internet of Things covers the nerve endings of the social system in all parts of the city with perception terminals, conducts real-time monitoring and effective management, and realizes the transformation from production environment monitoring to service-oriented manufacturing industry, from municipal infrastructure management to pragmatic feedback, from fine urban management to precise improvement of residents' lives, and reshapes the value of all aspects of society, including the quality of social management.

In the next few years, the number of connections to the Internet of Things will continue to increase. Counterpoint predicts that global cellular IoT market shipments are expected to exceed 1.2 billion by 2030, with a CAGR of 12%. Among them, the most obvious trend is that 5G will become the absolute main force in 2030, especially since 2023, the shipment of 5G model groups will grow the fastest among all standards, with an annual compound growth rate of 60%. Apart from 5G, NB-IoT and 4G Cat.1bis are the largest. iResearch believes that the compound growth rate of China's Internet of Things connections from 2016 to 2020 is as high as 69.1%, and it is estimated that China's Internet of Things connections will reach 8.8 billion in 2021. With the stable penetration of 5G commercial and industrial Internet of Things, China's total Internet of Things connection will reach 15.6 billion in 2025.

3.1 Internet of Things module: IoT, module first

module as a network transmission link will fully benefit from the industry's growth dividends. As a core component in the Internet of Things, the Internet of Things module has strong certainty in benefit. Each time a wireless Internet of Things connection is added, at least one wireless module will be added, which is a high-deterministic benefit direction for the rapid development of the Internet of Things. Due to the large number of downstream users and strong fragmentation in the Internet of Things industry, there are at least 10 common Internet of Things wireless communication technologies, at least 14 perception standards, and 23 network transmission standards. It is difficult to meet the requirements of different application fields with the same standards. Without considering private protocols, there are hundreds of common standard protocols in the application field. Moreover, user needs are scattered and diverse, and there is a lack of mature standardized products/solutions, and customized demand accounts for more than 80% of the total demand. This makes it difficult for large-scale enterprises to emerge in the downstream IoT terminal market, so it still relies on module manufacturers to provide technical support in the technology application on the connection side, which gives IoT module manufacturers the opportunity to participate in the overall development of the IoT industry and thus fully benefit from the industry's growth dividends. The Cat.1 market for the medium-rate scenario of

will continue to explode. At present, Cat.1 is still the module with the highest shipment volume. The 2G/3G network withdrawal is the main reason for the full outbreak of Cat.1. The 30% medium-speed cellular connection market responsible by GSM needs to be filled. 4G LTE is a technology recognized by the industry that will carry mainly voice and medium-speed scenarios. Cat.1 and Cat.4 can be used in LTE medium-rate connection scenarios, but in smart wearables, sharing economy, industrial control, logistics tracking and other scenarios, Cat.1 can not only meet certain high-speed mobile needs, be sensitive to delay, support voice, but also pay more attention to low cost and low power consumption. It can now reuse the current mature 4G base stations. At the same time, its protocol development has been stable and can seamlessly connect to 3G/4G networks. Secondly, eMTC's domestic industrial ecosystem chain is not complete and does not have competitive advantages. NB-IoT is mainly aimed at the low-speed cellular connection market and is currently in a complementary relationship with Cat.1, and is synergistically advancing in key areas such as smart homes, industrial manufacturing, fire smoke sensing, logistics tracking, and financial payments. In the short term, in the next 2-3 years, the Cat.1 market will still be the main market for the development of the module industry.

cost-effectiveness is the main reason for the rapid growth of 5G module penetration rate.Huawei predicts that by the end of 2022, the price cost of 5G modules can be reduced to around US$80; by the end of 2023, the cost of 5G modules will be reduced to around US$20. At a cost of around US$20, it is believed that there will be more abundant industry terminal forms, and 5G will have higher penetration in industry applications. However, generally speaking, modules generally occupy about 60% of the cost of terminal connection functions. Therefore, the implementation of digital transformation in various industries in the 5G era is inseparable from the reduction of module composition costs. At a cost of about 20 US dollars, it is believed that there will be more abundant industry terminal forms, and 5G will have a higher penetration in industry applications.

With the increase in the penetration rate of intelligent connected vehicles, Internet of Vehicles modules will still be one of the main directions for the future market growth of IoT modules in the next two years. Thanks to the wide application of 5G technology, the rapid development of smart software and hardware, and the development of the new energy vehicle market, China's intelligent connected market has been rapidly expanded. For car companies, 5G has 5G in-vehicle modules with high speed, low latency and large capacity, which can allow vehicles to have V2X communication capabilities, truly realizing communication between cars and people, cars and cars, cars and road testing facilities, and cars and networks. In the "2020 China Intelligent Connected Market Development Trend Report" released by IHS Markit, the penetration rate of new smart connected functions in my country reached 48.8%. In the same year, the global penetration rate of new cars with intelligent connected functions was only 45.0%. A 48.8% new car penetration rate means that nearly half of domestic consumers will buy smart connected cars when purchasing new cars. Compared with other modules, Internet of Vehicles modules have greater entry barriers and higher value. Therefore, Internet of Vehicles modules may be the main track for future competition among module companies.

5G CPE penetration rate is less than 5%, and the marketplace can be replaced broadly. The domestic CPE market is still in the stage of increasing volume. Currently, the market is dominated by 4G CAT4 products, and CAT4 CPE accounts for more than 95% of all 4G products. Because of the full coverage of 4G network, the traffic charge is low, and the average price of equipment terminals can reach less than 300 yuan, it is more popular among users. At present, the mainstream products in the market are mainly in the 200-500 price range, and prices are expected to continue to decline. It is expected that CAT4 products that focus on "domestic chips" will still be the mainstream in the market in 2022. BGD expects CAT6's CPE to account for 10%-15% of the 4G product share in 2023, and is expected to drive the overall average price increase of 4G CPE products. The average market price of 5G CPE is around 2,500 yuan, and the price is high. It is more used in scenarios where corporate users or have high requirements for network latency. The current market penetration rate is low, but there are greater opportunities for future development. With the further implementation of domestic 5G application scenarios, CPE will gradually switch from 4G to 5G, and BGD expects that the share of 5G products in 2023 is expected to exceed 10%.

module companies have declined since Q4 2020 and rebounded since Q1 2022. In order to cope with the shortage of raw materials and price increases, midstream manufacturing companies have increased their stocking efforts, and the inventory of major module manufacturers has increased significantly in the first half of 2021. However, it is worth noting that this value has dropped since 2021Q3, which is a signal that the pressure of raw materials has been alleviated. Although the current epidemic has exacerbated chip shortages and extended delivery periods, the chip pressure is still severe in the short term. However, as domestic passive component companies replacing domestic chips with domestic chips, raw material prices are expected to gradually return to normal, and module companies are gradually shifting raw material costs to the downstream. It can be seen that the risk of raw material price fluctuations has gradually been alleviated in 2022Q1, and the gross profit margins of module companies have increased. (Report source: Future Think Tank)

3.2 Beidou: The "Beidou+" location service scenario continues to improve, and the future prospects of the industry are promising

Beidou navigation and location information industry is a track that will never disappear, but will continue to integrate and transform. Time and space are the carriers and identifiers of all human activities and the attributes of all information. Human beings always need to understand the survival and development environment based on space-time locations, and always need to obtain space-time locations to conduct hierarchical observations of the earth, space, and even further deep space.The location service industry has mastered the benchmark of space-time location data: the spatial location benchmark in the legal status, and the time synchronization benchmark in the application sense are crucial basic support for economic and people's livelihood, energy conservation and emission reduction, national security, social governance and other fields.

navigation location and service market are divided into three major market segments according to the difference in positioning accuracy, which are divided into industry market, mass market and special market. The industry market is mainly manufacturers in demand for high-precision positioning, etc. The market is in the development period of large-scale application, and transportation, power applications, high-precision and agriculture are several popular segments. The mass market currently mainly focuses on in-vehicle navigation and mobile phone positioning as application needs. The market is currently in the start-up period of standard application. Smartphones, smart connected cars, and wearable devices are the most popular segments. With the development of emerging applications such as the Internet of Things, Internet of Vehicles, and wearable devices, the mass market has a large room for growth. The special markets are mainly military, public security, disaster prevention and mitigation, and marine disaster search and rescue. The market is in a period of maintaining stable growth. With the full completion of the Beidou system, it will promote the popularization and replacement of Beidou equipment.

In terms of the civil market, with the continuous integration of positioning technology and other technologies, location services have moved from digitalization to ubiquitous and intelligent. The surveying and mapping and location services industry has achieved the transformation from analog to digital with computer technology, and has achieved the transformation of informatization with the help of the Internet and mobile Internet technology. Nowadays, with the help of satellite positioning and remote sensing technologies, surveying and mapping and location services have continuously improved their capabilities in accuracy, real-time, reliability, ubiquitousness and sustainability. Combining 5G, AI, cloud computing and big data technology, it is realizing a new round of transformation from traditional surveying and mapping to ubiquitous surveying and mapping. "Beidou+" integration innovation is mainly from the perspective of technological integration and development. In fact, it means that Beidou is the one who should make full use of and leverage the advantages of Beidou as a convenient and cheap means of obtaining accurate time and space information, comprehensively promote Beidou technology products and services, and integrate and develop with other technologies and services.

Beidou may not directly promote the development of artificial intelligence, big data and cloud computing, but because of the improved precise navigation and timing accuracy brought by Beidou, these emerging technology fields will also have new development space. For example, Beidou+Big Data deeply explores space-time information. The precise time and space information provided by Beidou is an important source of big data analysis and an important basis for data mining, correlation analysis and building a knowledge graph. "Beidou + Big Data" is applied in the field of public management and can generate a large amount of high-value information, providing important support for macro-decision decisions on economic and social development. The development of precise time and space information provided by Beidou is an important source of big data analysis and an important basis for data mining, correlation analysis and building a knowledge graph. "Beidou + Big Data" is applied in the field of public management and can generate a large amount of high-value information, providing important support for macro-decision decisions on economic and social development. With the deep integration of satellite navigation systems and traditional industries, the development of "Beidou+" technology will also bring new opportunities for the innovative development of traditional industries, thus giving birth to more business models.

(1) Smart Agriculture: Based on Beidou positioning and directional and high-precision differential technology, it can provide real-time posture information, coordinate information, heading information, etc. of agricultural machinery and other vehicles for mechanized sowing, seedling planting, plant protection, harvesting, tillage, straw return to the field and other links. Combined with agricultural machinery and electro-hydraulic control and electric steering wheel control technology, it realizes automatic driving control of self-propelled agricultural machinery such as tractors, harvesters, seedling planters, plant protection machines, etc. By combining positioning and autonomous driving, the efficiency of agricultural machinery can not only greatly improve the efficiency of agricultural machinery, but also ensure the centimeter-level accuracy of repeated farmland operations such as arable land, sowing, spraying and harvesting, and achieve precise operations. At the same time, it can also reduce the labor intensity of vehicle drivers, reduce time investment and fuel consumption, increase output per unit area, and increase profits.

(2) Smart Water Conservancy: Water Conservancy is the highlight of the local information industry in 2022. Minister of Water Resources Li Guoying emphasized at this year's meeting that in the "14th Five-Year Plan" devices, my country should promote the construction of digital twin river basins from six aspects: data, algorithms, computing power, engineering construction, business applications, and security. More than 1 billion bidding orders in the industry have appeared one after another this year. In addition to producing digital twins of water conservancy through traditional or new surveying and mapping methods, Beidou enterprises can also prevent waterlogging disasters through precise positioning. When a mountain torrent occurs, various reasons such as public network interruption and weak ground network signals often cause monitoring information to be unable to be transmitted in time. Beidou's special function - the short message function can realize two-way communication in areas that cannot be covered by ordinary mobile communication signals (such as unmanned areas, deserts, oceans, polar regions, etc.) or in situations where communication base stations are damaged (such as earthquakes, floods, typhoons, etc.). While improving the ability of mountain torrents torch disasters, monitoring, uploading and issuing warning information, etc., it also ensures the personal safety of group tortures in extreme weather conditions. In the Beidou demonstration application system for mountain torrent disasters, the investigation and monitoring data returned by Beidou satellite system and data accessed by other business systems have been used to build a business system for two scenarios: upgrading and transformation applications for mountain torrent disaster monitoring equipment and group testing and group preventers of mountain torrent disasters, and integrate it into the national mountain torrent disaster monitoring and forecasting and early warning platform to improve the monitoring and early warning capabilities of mountain torrent disasters. In June this year, it will be promoted and applied in Hebei, Henan, Guangdong, Hunan, Sichuan, Ningxia, Guangxi and other places.

(3) Smart grid: The Beidou system-based power intelligent solution has realized more than 20 application scenarios such as intelligent line inspection, intelligent transformer operation, and intelligent infrastructure management, greatly improving work efficiency, reducing operating costs, and improving user experience; the application of "Beidou + Electricity" cutting-edge technology has developed rapidly, and new power facilities such as wind power generation, photovoltaic power generation, small hydropower, wave power generation, tidal power generation, new energy vehicle charging piles have all taken Beidou positioning and short message as one of the basic functions.

(4) Smart transportation: There are many types of smart transportation application scenarios, and the needs of different businesses for space-time services are also different. For example, in order to meet the efficient and safe operation of unmanned vehicles, the park also conducts all-weather tracking and management of vehicles, real-time centimeter-level positioning accuracy is required; for the active safety scenarios of assisted driving services, the accuracy of meters or sub-meter-level can meet the business requirements of vehicle collision prevention; and the vehicle's path planning and navigation can meet the business needs as long as the positioning accuracy within 10 meters is achieved. In the diversified business scenarios of smart transportation, a single positioning method cannot meet the positioning needs of the entire business scenario. Therefore, multiple positioning technologies need to be integrated and complementary to provide comprehensive indoor and outdoor space-time service applications.

multi-sensor fusion plays an important role in functional safety, and heterogeneous redundancy effectively improves the reliability of the autonomous driving positioning system. Currently, satellites, combined inertial navigation and cameras have their own advantages and can complement each other in different scenarios. For example, in open scenes, the satellite positioning is accurate but the refresh rate is slightly lower, while the combined inertial navigation positioning accuracy is not as good as that of the satellite but the refresh rate is higher. The optimal positioning accuracy of combined inertial guidance can be comparable to satellite positioning, but when there are no satellites, the errors of the combined inertial guidance calculation results will accumulate. In backlight or rainy and snowy environments, the camera's effect becomes significantly worse. In an occluded environment, such as in a tunnel, the accuracy of satellites will decrease significantly. Only when the three cooperate with each other can good full-condition positioning effect be achieved. Judging from the currently formed autonomous driving configurations, millimeter-wave radar, lidar, camera, satellite positioning and combined inertial navigation are all necessary options, and the overall system cost and performance are rapidly iterating.

Cars with autonomous driving capabilities must be equipped with high-precision positioning modules. With the increase in the penetration rate of autonomous driving of L3 and above, the demand for high-precision positioning modules is huge.In recent years, the penetration rate of automotive intelligence has been accelerating. IDC data shows that the penetration rate of new cars of L2-level autonomous driving in the passenger car market in the first quarter of 2022 reached 23.2%, and the entire market is in the stage of L2-to-L3 development. At present, the L3 autonomous driving technology on the market is relatively mature, and it can be implemented after further improvement of relevant laws and regulations. The accumulation of L4 autonomous driving test data is also accelerating. According to IHS, the global sales of L4 and L5 autonomous vehicles will reach 600,000 in 2025, of which the penetration rate of L1 and L2 autonomous driving will reach 50%, the penetration rate of L3 autonomous driving will increase to 15%, and the penetration rate of L4 and L5 autonomous driving will enter mass production, with a penetration rate of 5%. By 2040, all new cars will be equipped with autonomous driving functions, of which the penetration rate of L4 and L5 autonomous driving will reach 50%.

We believe that the Beidou industry will continue in 2022. The Beidou military market is in the replacement period from Beidou-2 to Beidou-3. Comprehensive terminals, unmanned platforms and various weapon platforms will be the three largest application areas, with the relevant market space reaching 10 billion. In terms of the civil market, with the continuous integration of positioning technology and other technologies, location services have moved from digital to ubiquitous and intelligent. It is recommended to pay attention to the performance increase brought by tracks such as smart agriculture, smart water conservancy, smart grids and intelligent driving to Beidou enterprises. (Report source: Future Think Tank)

Investment Strategy of the Communications Industry in the second half of the year

Due to the impact of external market fluctuations, the communications industry's trend in the first half of the year was under pressure, but the rebound trend was obvious. Overall, the communications sector and A-shares performed poorly in the first half of 2022. We believe that there are three main reasons. First, due to the situation in Russia and Ukraine, geopolitical tensions have led to the rise in prices of some raw materials, and the cost pressure of midstream manufacturing increased; second, the Federal Reserve's interest rate hike has led to capital outflows, and market liquidity has declined; third, the outbreak of the Shanghai epidemic has dragged down the growth rate of the domestic macroeconomic, and the market's expectations for personal consumption and corporate capital expenditure have declined. Judging from the current point of view, although the outcome of the Russian-Ukraine war is still unclear, with the gradual unblocking of Shanghai and the resumption of work and production, and the gradual implementation of the Fed's interest rate hike expectations, the overall investment environment of A-shares has improved.

We believe that in the medium and long term, the overall market opportunities in the communications industry have exceeded risks, and the investment value of many high-quality tracks is highlighted. At the same time, considering the high performance certainty obtained by the communications industry as a computing power provider in digital transformation, it is recommended to layout relevant tracks with high prosperity in the communications sector on the left at this time point. Under the premise that the digital economy is the main line of the technology industry, we focus on the two main lines of construction and application. On the construction side, in the context of building cloud network facilities and data centers led by operators and Internet manufacturers, ICT equipment manufacturers, fiber optic cables and high-quality enterprises in the optical module track as equipment providers deserve special attention. On the application side, with the rapid growth of the number of Internet of Things connections, related companies in the Beidou track that are realized as the communication module and positioning function that are realized as the connection function are worth paying attention to.

ICT equipment: In the context of domestic operators increasing their investment in the digital economy and rising global capital expenditures, some leading companies in the communications equipment business industry have high performance certainty. Unlike traditional manufacturing, the main customers of communication equipment manufacturers are operators, which have strong public utility attributes, and their capital expenditures are not affected by the macro economy. Against the backdrop of "industry digitalization" and "east-digital computing", operators' intention to vigorously build computing power networks will bring long-term certain performance growth to related downstream companies. At the same time, with the increase in the domestic chip rate and the decline in the prices of upstream raw materials, the profit margins of enterprises may also gradually rise.

Fiber Optic Cable: With the rationalization of the bidding model, the price of fiber is expected to rise steadily in the next two years. At the same time, as the prices of related raw materials begin to fall, the profitability of fiber optic cables can continue to improve. Moreover, with the halving of the optical cable bidding price in the past few years, resulting in a significant progress in downstream production expansion and the clearing of backward production capacity of small and medium-sized manufacturers, the supply end of optical fiber cables will shrink slightly, and the overall fundamental margin will improve significantly.At the same time, benefiting from the growth of downstream traffic, east-west calculation, gigabit broadband, wind power and submarine cable and other new demands, the trend of improving industry fundamentals is expected to continue.

optical module: Overseas optical device optical module manufacturers recovered year-on-year in 2022Q1. Although there are still certain supply chain problems due to the impact of the epidemic, the recovery of demand for cloud infrastructure construction by North American cloud manufacturers since 2021Q3 will still drive the entire industrial chain to recover in the next few quarters this year. Currently, the optical module market is dominated by 200G/400G, and some leading cloud manufacturers have begun to deploy 800G optical modules. Domestic optical module manufacturers have occupied half of the world in recent years, and have sufficient product matrix. After the domestic epidemic eases, they are expected to continue to benefit from the growth of the downstream market of the Digital Track. At the same time, domestic manufacturers have deeply deployed the silicon light track and may have the opportunity to overtake on the curve in the future.

IoT module: In the medium and long term, the main driving force for the high growth rate of the IoT module industry is still the explosive growth of the number of Internet of Things connections. The release of relevant performance in 2022 will continue, and the new application scenarios brought by 5G modules will also further release performance. With the engineer dividend, domestic module companies are expected to further increase their market share. In addition, with the gradual easing of the epidemic and the price transmission to downstream customers, the sector's gross profit margin is expected to stabilize and rebound, and we continue to be optimistic about the performance growth of IoT module companies this year.

Beidou: The Beidou industry will continue in 2022. The Beidou military market is in the replacement period from Beidou-2 to Beidou-3. Comprehensive terminals, unmanned platforms and various weapon platforms will be the three largest application areas, with relevant market space reaching 10 billion. In terms of the civil market, with the continuous integration of positioning technology and other technologies, location services have moved from digitalization to ubiquitous and intelligentization. It is recommended to pay attention to the performance increase brought by smart agriculture, smart water conservancy, smart grids and intelligent driving.

(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 report.)

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