Q2 After deducting non-net profit and interconnection revenue, the three new AI products were launched rapidly.

1) 24H1: Revenue of 1.665 billion yuan, yoy +79%; net profit attributable to mother of 5.83 to 0.623 billion yuan, less 5.35 to 0.565 billion yuan. 2) 24Q2: Revenue of 0.928 billion yuan, yoy +83%, qoq +26%, net profit of 3.6 to 0.4 billion yuan, an increase of about 5 times over the same period, qoq +61% to 79%, after deducting 3.2 to 0.35 billion yuan, an increase of 89 to 97 times over the same period, qoq +43% to 57%, a new high net profit deducted in a single quarter. 3) Q2 interconnect chip revenue was 0.833 billion yuan, qoq +20%, a record quarterly revenue high. The gross margin is expected to be 63% to 64%, and the Q1 gross profit margin is 61%, up from month to month. Reasons for growth: DDR5 continues to penetrate, and the 24H1 second generation has more shipments than the first generation; three MRCD/MDB, CKD, and PCIe5 models.

0 Retimer's new products were shipped quickly, and the total revenue for Q2 was 0.13 billion yuan, which basically doubled from month to month.

The world's leading memory interface chip leader, expand new products, open up room for growth, and enjoy the dividends of the AI era.

Established in 2004, it has been deeply involved in the field of memory interface chips for 20 years and is a global leader.

1) Open up room for growth: The DDR4 generation focuses on the memory interface chip RCD/DB. In addition to deploying the traditional memory interface chip RCD/DB, the DDR5 generation joined hands with partners to expand to SPD/TS/PMIC, the industry's memory module upgrades and iterations brought new markets for new memory interface chips CKD, MRCD, and MDB. The market space for DDR5 products that the company can enjoy is further opened up, and further expanded to new product lines of PCIe 5.0 Retimer and CXL MXC Open up space for medium- to long-term growth.

2) Continued industry leadership: DDR4 generation companies established an industry leading edge, with a global share of 44% in 2020. DDR5 generation companies remained the world leader in the development progress and new product launch speed of memory interconnect products. Currently, they are the only suppliers in the world that can provide a full range of DDR5 interface chips and supporting chips, and the share is expected to continue to maintain 40% +; in the field of non-memory interconnect products, the company is the world's second mass production supplier for PCIe 5.0 Retimer chips, and became the world's first supplier to enter CXL compliance in 2023 List of MXC chip vendors.

3) Benefiting from the AI wave: Computing power, memory, and capacity are the three cores of AI infrastructure. Lanqi focuses on capacity. It is the core supplier and is expected to continue to benefit from AI. On the one hand, AI servers and AI PCs accelerate DDR5 penetration, and on the other hand, the company's new MRCD/MDB, PCIe 5.0 Retimer, and CXL MXC chips used in AI PCs will all enhance the capacity of AI servers and PCs.

DDR5 related products: DDR5 penetration rate is expected to be 50% + in 24 years, and new MRCD/MDB and CKD products will enter the harvest period.

1) DDR5 penetration rate and child generation upgrade:

The DDR5 penetration rate is expected to exceed 50% in 2024. AI servers and AI PC memory sticks directly use DDR5 products to accelerate DDR5 penetration. Currently, DDR5 is planning 5 sub-generations and following CPU iterations. The memory interface chip needs to be upgraded. The memory interface chip is mainly used in servers. On the server side, Intel supports the third-generation CPU platform Sierra Forest, which was launched in June 2024. Lanqi 24H1 second-generation RCD shipments surpass that of the first generation. The third-generation 24H2 is expected to begin large-scale shipments. The fourth generation product was launched in January '24. It continues to lead the industry in terms of child generation upgrades and iterations, helping to be highly profitable.

DDR4 was upgraded to DDR5. Two major trends in memory interconnect products: ① DDR5 memory sticks are newly designed, and the amount of chips used to support memory modules has increased significantly. ② The transmission speed of DDR5 data continues to improve. MRDIMM has been added to the server, CUDIMM/CSODIMM has been added to the PC, and the new interface chip MRCD/MDB/CKD is used.

2) From DDR4 to DDR5, the volume and price of traditional memory stick interconnect chips have risen sharply:

① Server: traditional memory stick RDIMM/LRDIMM, LRDIMD penetration rate is less than 10%. DDR4 generation RDIMM requires 1 RCD+1 SPD, LRDIMM adds 9 DBs to this, DDR5 generation RDIMM requires 1 RCD+1 SPD+1 PMIC +2 TS, LRDIMM adds 10 DBs to this, and the variety and usage of supporting chips for memory modules has increased significantly.

② PC: Desktops mainly use memory stick UDIMM. About 50% of laptop computers use onboard memory LPDDR, and 50% use memory stick SODIMM. The DDR4 generation UDIMM/SODIMM requires 1 SPD, and the DDR5 generation requires 1 SPD+1 PMIC, increasing the amount of supporting chips used in memory modules. Lanqi's products have full coverage and leading share.

3) DDR5 transmission speed has been increased, and the new module brings new opportunities for memory interface chips:

① An MRDIMM module was added to the server, which is compatible with Lanqi's new MRCD/MDB:

The DDR5 generation introduced 8800MT/s memory modules, which will use 1 MRCD+10 MDB, which is a full addition. Intel's MRDIMMCPU platform Granite Rapdis is expected to be launched 24H2.

Currently, MRDIMM with Lanqi's MRCD/MDB has begun large-scale trials with mainstream cloud computing/Internet vendors at home and abroad. For the first time, 2024Q1's quarterly sales exceeded 20 million yuan, and 24Q2 revenue exceeded 50 million, and revenue doubled month-on-month. Currently, only Lanqi and Renesas can supply these products globally.

② PC adds CUDIMM/CSODIMM/CAMM2 modules:

Traditional PC memory cards UDIMM/SODIMM do not use memory interface chips for data buffering, but when the DDR5 transmission rate is 6400MT/s and above (DDR5 third generation and above), CUDIMM/CSODIMM is used, and a simplified version of the CKD memory interface chip is used. Arrow Lake, the Intel CPU platform using this product, is expected to be released 24H2. Also, at the end of '23, JEDEC clarified the CAMM2 memory module standard. The CAMM2 can combine the high speed and low power consumption of LPDDR and the pluggable and upgradeable SODIMM; JEDEC clarified that DDR6 generation CAMM2 replaced SODIMM; the CAMM2 requires 1 SPD+1 PMIC; and the LPCAMM2 requires 1 SPD+1 PMIC.

Lanqi took the lead in trial production. Large-scale shipments began in 24Q2, with revenue exceeding 10 million yuan in a single quarter. Currently, only Lanqi and Renesas supply CKD products.

Non-DDR5 related products: PCIe 5.0 Retimer began rapid launch in 24, the CXL MXC was the world premiere, and the future can be expected.

1) PCIe 5.0 Retimer: The PCIe Retimer chip solves the signal attenuation problem. It is mainly used to interconnect the CPU with high-speed peripherals such as AI chips such as GPUs, SSD, and network cards. A mainstream AI server with a typical configuration of 8 GPUs requires 8 or 16. Mass production began in January 2023 and became the second mass production supplier in the world. 24Q1 shipped 0.15 million units, more than 1.5 times the annual shipment volume in 2023, and 0.3 million units shipped in 24Q2, doubling the volume month-on-month. The company's product Serdes has an advantage in self-developed.

2) CXL MXC chip: For memory expansion and memory pooling, the company launched the world's first CXL MXC chip in May 2022, leading the world in technology. In 2023, it became the world's first MXC chip manufacturer to enter the CXL compliance supplier list. In May 2023, Samsung launched the first 128GB DRAM supporting CXL2.0, using the company's MXC chip.

Follow-up focus:

Currently in the phase of accelerated penetration of DDR5 and continuous upgrading of children, the company's new MRCD, MDB, CKD, and PCIe 5.0 Retimer has entered the harvest period one after another. In addition to focusing on the upgrade penetration of DDR5 and children, it continues to track the long-term penetration of MRDIMM, CUDIMM/CODIMM, and PCIe5.0 Retimer in the server and computer markets and the progress of the company's corresponding product volume. The memory interface chip air conditioning market brought about by the penetration of MRDIMM is highly elastic, focused and long-term attention Market acceptance of CXL technology, application status of the new CAMM2 module, etc.

Investment advice

The company is a global leader in memory interface chips. DDR5 has accelerated penetration, and new products such as MRCD\ MDB\ CKD\ PCIe 5.0 Retimer\ MXC chips have opened up room for growth. In 24 years, MRCD\ MDB, CKD, and PCIe5.0 Retimer has entered the harvest period, and the company shines brightly in the AI era as a core transportation provider. Lanqi Technology's net profit for 2024-2026 is estimated to be 1.5/2.5/3.1 billion yuan, corresponding to the PE valuation of 51/30/24 times, which is covered by a “buy” rating for the first time.

Risk warning

Server and PC shipments fall short of expectations; the risk that the penetration rate of MRDIMM, CUDIMM, CSODIMM, and PCI 5.0 Retimer falls short of expectations; the risk that the demand for memory cards falls short of expectations due to the penetration of ARM architectures into PCs and servers; the risk of deteriorating competitive landscape in the racetrack market where the company is located; the risk that the underlying information is lagging behind, etc.