Incidents:
The company released its 2023 annual report. In 2023, the company achieved operating income of 2,286 million yuan, a year-on-year decrease of 37.76%; realized net profit of 451 million yuan, a year-on-year decrease of 65.30%.
The company released a performance forecast for the first quarter of 2024. The first quarter of 2024 achieved operating income of 737 million yuan, an increase of 75.74% over the same period of the previous year; in the first quarter of 2024, net profit attributable to owners of the parent company was 210 million yuan to 240 million yuan, an increase of 9.65 times to 11.17 times over the same period last year.
Comment:
DDR5 penetration increased, and business performance improved markedly from quarter to quarter. Affected by customer inventory loss due to falling demand in the global server and computer industry, the company's shipments of DDR4 memory interface chips and Jinjue CPUs in 2023 decreased significantly compared to the same period of the previous year. The main reasons for the decline in the company's net profit in 2023 include: (1) operating income decreased by 37.76% compared to the same period of the previous year; (2) total investment income and fair value change revenue decreased by 462 million yuan compared to the same period of the previous year; (3) The company maintained a high level of R&D investment. The R&D expenses in 2023 were 682 million yuan, an increase of 21.00% over the same period last year; ( 4) Asset impairment losses calculated by the company were 193 million yuan, an increase of 166 million yuan over the same period last year.
24Q1 New Product Contribution Increase. In the first quarter of 2024, judging from the company's two major product lines, the sales revenue of the interconnect chip product line was about 695 million yuan, a record high in the first quarter sales revenue of this product line (the previous record was 575 million yuan in the first quarter of 2022); the sales revenue of the Jinjue server platform product line was about 39 million yuan.
Since the beginning of 2024, demand for memory interface chips has recovered, and large-scale shipments of some of the company's new products (such as PCIereTimer and MRCD/MDB chips) have begun, driving the company's revenue and net profit in the first quarter of 2024 to increase significantly compared to the same period last year.
1. Interconnect product line: DDR5 generation The interconnect chip product line of Lanqi Technology's leading company in the industry includes memory interface chips, memory module supporting chips, PCIe Retimer chips, MXC chips, CKD chips, etc.
1.1 Memory interface chips benefit from DDR5 child generation iteration and continue to strengthen the leading position in the industry in 2023. With the launch of mainstream server CPUs supporting DDR5 second-generation memory products (supporting speed 5600 MT/S), the child generation iteration of DDR5 memory interface chips has officially started. The company's DDR5 second-generation RCD chips began large-scale shipments in the third quarter, and shipments continued to grow in the fourth quarter. At the same time, the company pioneered the trial production of DDR5 third-generation RCD chips in the industry in October 2023, and launched DDR5 fourth-generation RCD chips in January 2024.
In May 2022, the company pioneered trial production of DDR5 second-generation RCD chips in the industry. The DDR5 second-generation RCD chip supports a dual-channel memory architecture, 1:2 buffering of command, address, clock, and control signals, and provides parity checking. The chip complies with JEDEC standards, supports DDR5-5600 rates, uses a 1.1 V operating voltage, and is more energy efficient.
In October 2023, the company pioneered trial production of DDR5 third-generation RCD chips in the industry. The DDR5 third-generation RCD chip supports a data rate of up to 6400MT/s, which is 14.3% higher than the second-generation RCD rate and 33.3% higher than the first-generation RCD rate.
Compared with the DDR4 generation, the DDR5 sub-generation iteration speed is significantly faster. Judging from the rules of the memory interface chip industry, the faster the child iteration will help maintain the average sales price and gross profit margin of the product. The company is a leader in the memory interface chip industry and the leading setter of international standards for DDR5 RCD chips. With its technical strength, the company continues to lead the development of DDR5 children; with the stability and reliability of product performance, the company's DDR5 second-generation RCD chips are the first in the industry to be shipped on a large scale and occupy an important share in the world, which helps the company to seize the opportunities brought by the acceleration of product iterative upgrading and further enjoy the dividends of market space expansion.
Thanks to the company's increased share of DDR5 memory interface chips and memory module supporting chips and iterative sub-generation upgrades, the gross margin of the company's interconnect chip product line in 2023 was 61.36%, up 2.64 pcts from 2022.
According to industry-related public information, the penetration rate of DDR5 memory modules is expected to exceed 50% in 2024 and continue to increase in 2025. Continued penetration and iterative upgrades of DDR5 will help the company maintain growth in sales revenue for DDR5 related products.
1.2 PCIe Retimer chip
The PCIe Retimer chip is an ultra-high speed timing integration chip suitable for PCIe high-speed data transmission protocols. This is an important product of Lanqi Technology's layout in the field of fully interconnected chips. In recent years, high-speed data transmission protocols have evolved from PCIe 3.0 (8GT/S) to PCIe 4.0 (16GT/S), and then upgraded to PCIe 5.0 (32GT/S). The data transmission rate has continuously doubled, while also causing significant signal attenuation and reference clock timing rearrangement problems. These problems greatly limit the scope of application of ultra-high speed data transmission protocols in next-generation computing platforms.
The high-speed transmission challenge of PCIe 4.0/5.0 has promoted the need to optimize the interconnection design of high-speed circuits and systems, increasing the popularity of research and development to maintain signal integrity in ultra-high speed transmission environments.
In the age of artificial intelligence, demand for AI servers is growing rapidly. PCIe 5.0 Retimer chips can provide stable and reliable high-bandwidth, low-latency interconnection solutions for typical application scenarios such as AI servers to solve signal integrity problems. A typical mainstream AI server with 8 GPUs requires 8 or 16 PCIe 5.0 Retimer chips, so the increase in AI server/GPU shipments will directly drive the increase in demand for PCIe Retimer chips. In 2023, the company successfully mass-produced PCIe 5.0/CXL 2.0 Retimer chips, and actively carried out customer introduction, verification testing and related market expansion work, and achieved good results. Due to the core underlying technology (Serdes) of the PCIe 5.0 Retimer chip developed by Lanqi Technology, the company's products have competitive advantages in terms of time delay and channel adaptability.
According to the company's announcement, benefiting from the rapid growth in demand for AI servers, with excellent product performance and effective market expansion, Lanqi Technology's PCIe Retimer chips have been successfully introduced into AI server procurement projects of mainstream cloud computing/Internet vendors at home and abroad, and large-scale shipments have begun. In the first quarter of 2024, the company shipped about 150,000 PCIe Retimer chips in a single quarter, exceeding 1.5 times the total shipment volume of this product in 2023.
1.3 CKD chip
As the DDR5 transmission rate continues to increase, the clock signal frequency is getting higher and higher, and clock signal integrity issues are becoming more and more prominent. When the DDR5 data rate reaches 6400 MT/s and above, the PC side memory module (such as UDIMM for desktop computers and SODIMM for laptop computers) needs to use a dedicated clock driver (CKD) chip to buffer and re-drive the clock signal on the memory module to meet the integrity and reliability requirements of high-speed clock signals.
Lanqi Technology released the industry's first DDR5 first-generation CKD engineering sample in September 2022, and has sent samples to mainstream memory manufacturers in the industry for next-generation desktop and laptop memory. The chip's main function is to buffer high-speed memory clock signals from desktop and laptop central processors and re-drive multiple DRAM memory particles output to UDIMM and SODIMM modules. This clock driver chip complies with JEDEC standards, supports data transfer rates of up to 6,400 MT/s, and has a low power management mode to help memory solutions operate at high speed, efficiency, and energy efficiency.
Since AI PCs require higher memory bandwidth to improve overall computing performance, the increase in AI PC penetration rate may accelerate DDR5 sub-iterations and increase the demand for higher speed DDR5 memory. In the future, CKD chips will be used in desktop UDIMMs and laptop SODIMM memory modules (data rate of 6400MT/s and above), and demand will increase as AI PC applications become more popular.
1.4 MRCD/MDB chip
MRCD and MDB chips are the core logic components of MRDIMM, a high-bandwidth memory module for servers. The development of AI and big data applications and the evolution of related technologies are driving a rapid increase in the number of server CPU cores, and there is an urgent need to drastically increase the bandwidth of memory systems to meet the data throughput requirements of each core in multi-core CPUs. MRDIMM was created based on this application requirement. MRDIMM is a higher bandwidth memory module. The first generation product can support 8800 MT/s. Each MRDIMM module requires 1 MRCD chip and 10 MDB chips.
The working principle of MRDIMM is that the MDB chip is used to buffer data signals from the memory controller or DRAM memory particles. At a standard rate, two DRAM memory arrays can be accessed simultaneously through the MDB chip (RDIMM can only access one array), thereby doubling the bandwidth. MRCD is used to buffer address, command, clock, and control signals from the memory controller. The characteristics and advantages of MRDIMM are: 1. It uses conventional DRAM particles; 2. It has good compatibility with the existing DDR5 ecosystem; 3. It can greatly increase the bandwidth of the memory module.
Looking at downstream applications, it is expected that MRDIMM will be in high demand in applications sensitive to memory bandwidth, such as high-performance computing and AI. As the future penetration rate of MRDIMM increases, it will drive a significant increase in demand for MRCD/MDB (especially MDB) chips
As an industry leader in memory interface chips and the leading setter of international standards for MDB chips, the company is leading in R&D progress. The company has completed the research and development of a mass-produced version of the first DDR5 sub-generation MRCD/MDB chip. It is expected that large-scale shipments of this product will begin with the release of the corresponding new CPU platform. According to the company's announcement, benefiting from the demand for higher bandwidth memory modules from AI and high-performance computing, server high-bandwidth memory modules equipped with Lanqi Technology's MRCD/MDB chips have begun large-scale trials with mainstream cloud computing/Internet vendors at home and abroad with world-leading technical strength and R&D progress. In the first quarter of 2024, the company's MRCD/MDB chip sales in a single quarter exceeded RMB 20 million for the first time.
1.5 MXC chip
The MXC chip is a CXL memory expansion controller chip and is a third type of device defined by the CXL protocol. The chip supports JEDEC DDR4 and DDR5 standards, complies with CXL 2.0 specifications, and supports PCIe 5.0 transmission rates. The chip can provide a high-speed interconnect solution with high bandwidth and low latency for CPUs and devices based on the CXL protocol, enabling memory sharing between the CPU and various CXL devices. While greatly improving system performance, the complexity of the software stack and the total cost of ownership (TCO) of the data center can be significantly reduced.
MXC chips are mainly used in the field of memory expansion and memory pooling. They are designed for memory AIC expansion cards, backboards, and EDSFF memory modules. They can greatly expand memory capacity and bandwidth to meet the growing needs of data-intensive applications such as high-performance computing and artificial intelligence.
According to Yolo's forecast, the global CXL market is expected to reach $15 billion by 2028. It is anticipated that by 2027, all CPUs will be designed to support the CXL interface, which will further drive the CXL market.
Lanqi Technology's world-first CXL memory expansion controller chip (MXC) in 2022 is the core control chip for CXL memory expansion and memory pooling applications. The gradual spread of downstream applications in the future will bring broad room for long-term growth for MXC chips. In 2023, Samsung Electronics launched its first 128GB DRAM supporting CXL 2.0, which accelerated the commercialization process of next-generation memory solutions. Lanqi's MXC chip was used as the core controller for this solution; in addition, Lanqi's MXC chip successfully passed dozens of stringent tests by the CXL Alliance, making it the first memory expansion controller product in the world to pass testing. Lanqi Technology has completed the research and development of a mass-produced version of the first generation MXC chip, which will seize the opportunity in global competition.
2.1 Jinju CPU: There is plenty of room for future growth
The Jinjue CPU is one of the company's important products in the strategic layout of data processing chips. On December 18, 2023, Lanqi Technology released the fifth-generation Jinji CPU, which aims to meet the challenges of demanding workloads such as AI, HPC, data services, network/5G, and storage with various performance optimizations. Compared with fourth-generation products, a single CPU supports up to 48 cores, 96 threads, and a maximum three-level cache capacity of 260 MB; supports DDR5 memory speeds of up to 5,600 MT/s, and the maximum UPI speed for interconnection between CPUs is 20 GT/s; based on LINPACK tests, its comprehensive floating point computing performance is increased by up to 40%. The fifth-generation Jinga CPU has a variety of built-in accelerators, which significantly improves performance for application scenarios such as data stream processing, in-memory analysis, cryptographic computation, and compression and decompression. At the same time, the fifth-generation Jin Ga CPU has a powerful AI acceleration engine, which brings performance improvements of up to 2 to 6 times for different AI application scenarios to help customers better meet the challenges of AI workloads. In addition, the fifth-generation Tianjin CPU also has lower standby power consumption and higher energy efficiency ratio, which can effectively reduce the TCO of data centers to help customers reduce their carbon footprint and achieve carbon neutrality.
The fifth-generation Tsuge CPUs are fully compatible with fourth-generation products, and they all support the same server platforms. Users can directly update the products to achieve seamless connections and upgrades. While maintaining product competitiveness, Lanqi Technology also combines its own advantages and continues to work to build the Jinzhuo ecosystem. In recent years, Lanqi Technology has joined operating system open source communities such as the OpenEuler community and the Dragon Lizard community, and has actively cooperated with members of various organizations to successfully obtain mutual product compatibility certifications from Kirin Software, Tongxin Software, Ningsi Software, Hunan Kirin Xinan, and Dragon Lai communities. Lanqi Technology will continue to work to strengthen the construction of a localized software and hardware ecosystem and enhance the customer experience.
2.2 Hybrid Secure Memory Module (HSDIMM)
The hybrid secure memory module uses Mont-iCMT (Montage, Inspection & Control on Memory Traffic) memory monitoring technology, which has the company's independent intellectual property rights, to provide a safer and more reliable memory solution for server platforms. Currently, the company has launched two major series of hybrid secure memory modules:
Standard hybrid secure memory module (HSDIMM?) and the compact hybrid secure memory module (HSDIMM? -Lite) can provide different levels of data security solutions for different application scenarios, and provides memory-based hardware-level data security solutions for major data centers and cloud computing servers.
3. AI chips: broad market space
According to basic functions, AI chips can be divided into training chips and inference chips; according to the technical path, AI chips can be divided into GPUs, FPGAs, and ASIC chips. According to Gartner's research report released in August 2023, the chip market for executing AI workloads is growing at a rate of more than 20% per year. The AI chip market size will reach $53.4 billion in 2023, up 20.9% from 2022, and will grow 25.6% to reach 67.1 billion US dollars in 2024. By 2027, the AI chip market is expected to more than double the size of the 2023 market to reach $11.4 billion.
The AI chip solution being developed by Lanqi Technology is composed of AI chips and other related hardware and corresponding adaptive software. It uses a near-memory computing architecture. It is mainly used to solve CPU bandwidth, performance bottlenecks and GPU memory capacity bottlenecks in inference application scenarios under big data throughput, and to provide customers with low latency and high efficiency AI computing solutions.
Big AI models are developing rapidly, and the demand for AI chips has changed dramatically. The company closely follows industry trends, next-generation large-scale model characteristics and user needs, and is developing next-generation AI chips to provide stable and easy-to-use high-performance AI computing power solutions for training and inference application scenarios.
In the process of developing first-generation AI chip engineering samples, Lanqi Technology has accumulated a certain technical foundation and engineering experience. The next-generation chips currently being developed by Lanqi Technology will make full use of the company's technical advantages in the field of interconnection to further meet customer needs and provide more optimized and cost-effective solutions.
4. Research and development: Continued investment, and new product research and development have been very fruitful
DDR5 memory interface chip: In 2023, the company began large-scale shipment of DDR5 second-generation RCD chips. DDR5 third-generation RCD chips took the lead in trial production in the industry, and also carried out engineering research and development of DDR5 fourth-generation RCD chips.
MRCD/MDB chips: In 2023, based on customer feedback on DDR5 first-generation MRCD/MDB chip engineering samples, the company completed the development of mass-produced versions of related chips; at the same time, engineering research and development of second-generation MRCD/MDB chips was carried out.
CKD chip: In 2023, based on customer feedback on DDR5 first-generation CKD chip engineering samples and standard updates, the company completed the development of a mass-produced version of this chip.
PCIe Retimer chip: In 2023, the company successfully mass-produced PCIe 5.0/CXL 2.0 Retimer chips and continued to advance the development and verification of key IPs for PCIe 6.0 Retimer chips.
MXC chip: In 2023, based on customer feedback on engineering samples of the first generation MXC chip and standard updates, the company completed the development of a mass-produced version of the chip; at the same time, engineering research and development of the second generation MXC chip was carried out.
Clock generator chip: In 2023, the company completed the flow film of the clock generator chip engineering sample and sent samples to major customers, and is currently advancing the development of mass-produced versions based on customer feedback.
In 2023, the company carried out related testing and verification work on first-generation AI chip engineering samples, made business adaptations on relevant application platforms, and successively sent samples to potential customers and collected feedback.
5. Lanqi Technology is expected to benefit deeply from the AI wave
In 2023, the multi-modal AI model continues to evolve rapidly, and continuous iteration of AI technology accelerates the implementation of AI applications. The rapid development of AIGC will drive an increase in demand for AI servers and AI PCs.
According to IDC, by 2025, the world's top 2000 companies will allocate more than 40% of their core IT spending to AI-related initiatives, leading to double-digit growth in the rate of product and process innovation. TrendForce expects the number of global AI servers to exceed 1.6 million in 2024, with an annual growth rate of 40%, and a compound growth rate of 29% between 2022 and 2026. According to OMDIA related research, currently, AI servers mainly purchased by major manufacturers are mainly AI training servers, which are characterized by powerful computing power and on-chip memory. In the future, artificial intelligence inference services will become more and more important, and AI inference servers pay more attention to memory bandwidth, high-density packaging, and north-south interfaces.
Meanwhile, AI PCs are expected to bring new growth to the PC industry. An AI PC is a personal computer with integrated artificial intelligence technology. By integrating hardware such as NPU, CPU, and GPU, it enables high energy and low consumption while fundamentally changing, reshaping, and reconstructing the PC experience, unleashing people's productivity and creativity. AI PCs can be applied to various scenarios, including graphic vision, semantic understanding, intelligent interaction, etc. Lanqi Technology has a presence in both the fields of capacity chips and computing power chips, and is expected to benefit deeply from the AI wave.
6. Investment advice
Profit forecasting, valuation and ratings: Leading global data processing and connected chip companies are growing rapidly. Lanqi Technology is one of the few enterprises in China with global competitiveness. It is an internationally leading data processing and interconnection chip design company, striving to become a platform-based enterprise in computing, storage, and interconnection related fields in the server and data center fields. According to the company's announcement, in 2023, the company was affected by customer inventory removal due to a decline in demand in the global server and computer industry. The company's DDR4 memory interface chip was arrested? CPU shipments declined significantly compared to the same period last year, and the impact is likely to continue. We lowered the company's 2024-2025 net profit forecast to be 1,303/1,823 billion yuan, a decrease of 34%/40% from the previous one. The additional company's net profit forecast for 2026 was 2,513 billion yuan, corresponding to PE 42/30/22x. We believe that the company continues to consolidate its leading position in the DDR5 generation and is expected to benefit deeply from the AI wave. The company's memory interface chip business is expected to benefit deeply from the volume of DDR5 memory interface chips and supporting chips. At the same time, it is optimistic about the company's PCIeretimer/CKD and other chips, maintaining a “buy” rating.
Risk warning: DDR5 progress falls short of expectations, and technology development falls short of expectations.