“Science and Technology Innovation Board Daily”, August 26 (Editor Song Ziqiao) After the market today, Lanqi Technology released its semi-annual report. In the first half of the year, the company achieved operating income of 1.665 billion yuan, an increase of 79.49% year on year; net profit attributable to owners of the parent company was 0.593 billion yuan, an increase of 624.63% year on year; deducted non-net profit of 0.544 billion yuan, a sharp increase of 141.78 times year on year.

While seeing a sharp increase in Lanqi Technology's net profit over the same period last year, we should not ignore the low base figure for the same period last year. In the first half of 2023, Lanqi Technology's net profit was 81.86 million yuan, a record low for the same period since listing; after deducting non-net profit, it was only 3.81 million yuan.

In comparison, its month-on-month growth was more prominent. In the second quarter of 2024, Lanqi Technology achieved a month-on-month increase in net profit for 5 consecutive quarters, with net profit reaching a record high of the same period: net profit of 0.3697 billion yuan, a sharp increase of 65.5% month-on-month; realized deducted non-net profit of 0.3246 billion yuan, a sharp increase of 47.8% month-on-month, all of which were far higher than in the first quarter — the company's net profit increased 2.85% month-on-month in the first quarter; net profit increased 2.57% month-on-month.

Connected chips were its main performance growth point in the second quarter. Lanqi Technology said that the sales revenue of the company's interconnect chip product line in the second quarter was 0.833 billion yuan, up 19.92% from the previous quarter, setting a record high in sales revenue for this product line in a single quarter. The gross margin was 63.68%, up 2.75 percentage points from month to month.

The reasons for the increase in revenue from these types of chips include:

1. With the DDR5 penetration rate further increasing, the company's memory interface and module supporting chip sales revenue grew steadily from month to month;

2. Benefiting from the wave of the AI industry, the company's three new high-performance “capacity” chip products showed a rapid growth trend. The total sales revenue for the second quarter was about 0.13 billion yuan, which more than doubled from month to month.

▌Increased DDR5 penetration rate+AI wave revenue pillar boosts performance

Lanqi Technology currently has two major product lines — interconnect chips and Jinjiao server platforms. Among them, the interconnect chip business has always been the mainstay of its revenue, accounting for over 90%.

Interconnect chips mainly refer to memory interface and module supporting chips (such as RCD chips based on DDR5), “capacity” chips (PCIe Retimer chips, MRCD/MDB chips, CKD chips).

In the semi-annual report, Lanqi Technology attributed the increase in performance in the first half of the year to these two types of products.

The company said that since 2024, industry demand has gradually recovered, the DDR5 downstream penetration rate has increased, and the company's demand for chips supporting memory interfaces and modules has achieved restorative growth. In addition, some of the company's new AI “capacity” chip products have begun large-scale shipments, contributing new performance growth points to the company.

Xiangcai Securities recently released a research report stating that the DDR5 market penetration rate has entered a period of rapid growth. DDR5 memory interface chips will be iterated this year, and the second generation of DDR5 will replace the first generation as the main market force. It is expected that with the release of new machines from major PC manufacturers, the market share of DDR5 third-generation RCDs will gradually increase in the second half of 2024, and the entry of new products into the market during the product iteration period will drive Lanqi Technology's interface chip ASP upward.

Ping An Securities said that the rapid development of AI has brought huge demand for computing power and memory. High-speed and stable transmission of data between high-computing power processors and high-capacity memory is essential, and capacity chips have emerged. Lanqi Technology has a perfect layout in the field of capacity chips. The product categories include PCIe Retimer, MRCD/MDB, CKD, MXC, etc., and is expected to become a new growth point in the future.

During the reporting period, Lanqi Technology continued to expand its product categories.

Interconnect chip product line: (1) Released DDR5 fourth-generation RCD chips and sent samples to memory module manufacturers; (4) completed mass production of DDR5 CKD chips and second-generation MRCD/MDB chips; (2) pioneered trial production of DDR5 CKD chips and actively promoted preparations before large-scale shipment; (3) significant progress has been made in the development and verification of key IPs for PCIe 6.0 Retimer chips; (4) completed the engineering research and development of PCIe 6.0 Retimer chips in an orderly manner; (4) completed the mass production of the clock generator chip Research and development, promote preparations before mass production, and start research and development of clock buffer chips.

Jinjue server platform product line: Released the sixth-generation Jinjiao CPU, and launched a new product - data protection and trusted computing acceleration chip.

However, Lanqi Technology has also indicated customer concentration risks, that is, the interconnect chip product line is currently its main source of profit. Among them, the downstream of memory interface chip products is the DRAM market, and direct customers are memory module manufacturers. According to relevant industry statistics, Samsung Electronics, Hynix, and Micron rank in the top three in the DRAM market, with a total market share of over 90%. As a result, Lanqi Technology's customer concentration in this product line is also relatively high.