According to a research report released by China International Capital Corporation, benefiting from the rapid expansion of the Internet of Things, the wireless communication module industry is in a fast growth channel, and the innovation vitality of small and medium-sized enterprises promotes the rapid development of the industry, Zhitong Finance has learned. The downstream demand of the wireless communication module industry is fragmented, and customized requirements exist for wireless communication modules in the segmented fields. Small and medium-sized enterprises can focus on the segmented fields to cultivate competitive advantages and promote the high-quality development of the industry. It is hoped that in the future, more enterprises will take the road of specialization, refinement and innovation, break the technology monopoly, open up the industrial chain and supply chain of wireless communication modules, deepen domestic substitution and promote industrial upgrading.

Cicc's views are as follows:

1. Why is the wireless communication module industry so important?

Wireless communication module uses wireless technology to transmit, so that all kinds of terminals can realize communication or positioning functions. As an important carrier of the Internet of Things, it is also an important medium to realize wireless communication. In the context of the rapid expansion of the Internet of Things market, the wireless communication module plays a key role of "water seller" and is expected to usher in a sustained and rapid growth of demand.

The bank believes that the "Internet of everything" trend will help the Internet of Things market scale continue to grow. With the popularity of smart home, Internet of vehicles and other applications in the consumption scenario and the penetration of the industrial Internet in the industrial scenario, the number of Internet of Things connections is still expected to maintain a rapid growth.

According to IoT Analytics, the number of global Internet of Things connections is expected to reach 27 billion in 2025, with a compound growth rate of 22% between 2021 and 2025, of which 5G Internet of Things composite growth rate of 159%.

2. What is the industry chain of wireless communication modules?

Wireless communication module industry chain is composed of "upstream chip -- midstream communication module -- downstream Internet of Things application". Wireless communication module manufacturers purchase chips, PCB, discrete devices and other components from upstream equipment manufacturers, and enter downstream terminal applications through customized hardware and software design, testing, certification and other links, thus promoting the development of the Internet of Things industry.

Upstream: high concentration of chip manufacturers

Upstream of the wireless communication module industry chain are chip, PCB, discrete devices, structural components and other electronic components manufacturers. Among them, the cost of chip accounts for about 80%. Baseband chip, radio frequency chip and memory chip are the three major communication chips. The market concentration is relatively high. PCB, resistance and capacitance sensing components and other raw materials industry belongs to the perfect competition market, strong substitution.

Midstream: Market share is concentrated among domestic manufacturers

By virtue of cost advantage, wireless communication module industry market share gradually concentrated to domestic manufacturers. In the first half of 2017, the top five cellular module shipments were all overseas (with a combined 65% market share); In the first quarter of 2022, domestic module manufacturers accounted for more than 60% of the shipments and four of the top five in the world.

Downstream: Fragmented application scenarios, market size is expected to continue to expand

The downstream of the wireless communication module industry chain is mainly the intelligent terminal equipment manufacturers of the Internet of Things. With the continuous development of 5G technology, the efficiency of intelligent manufacturing, intelligent driving, intelligent medical treatment, intelligent education, smart city and other diversified AI iot scenarios will be improved. The bank believes that wireless communication modules are expected to land in various iot scenarios.

3. Look for the expertise in the wireless communication module industry

In the wireless communication module industry chain, the upstream chip market is dominated by overseas manufacturers. The localization rate of baseband chips, memory chips and RF chips with higher gross profit rate is still at a low level, and the participation of specialized and special enterprises is low. The localization rate of communication module is at a high level, and the participation of specialized and special new enterprises is high.

Take cellular communication module as an example. In the first quarter of 2022, there were six Chinese companies in the top 10 global market share, and four of them were specialized and special start-ups.

The gross profit rate of overseas manufacturers of communication modules is about 30-45%, and the gross profit rate of Chinese manufacturers' overseas business is about 20-35%. However, due to the high labor cost, high expense and small market share of overseas manufacturers, the net profit rate of domestic manufacturers is still higher than that of overseas manufacturers in the case of low gross profit rate.

The bank believes that benefiting from the rapid expansion of the Internet of Things, the wireless communication module industry is in a fast growth channel, and the innovation vitality of small and medium-sized enterprises promotes the rapid development of the industry. The downstream demand of the wireless communication module industry is fragmented, and customized requirements exist for wireless communication modules in the segmented fields. Small and medium-sized enterprises can focus on the segmented fields to cultivate competitive advantages and promote the high-quality development of the industry. It is hoped that in the future, more enterprises will take the road of specialization, refinement and innovation, break the technology monopoly, open up the industrial chain and supply chain of wireless communication modules, deepen domestic substitution and promote industrial upgrading.