According to a research report released by Huajin Securities and reported by Zhiyun Finance APP, based on Counterpoint data, global cellular internet of things module shipments are expected to grow by 11% year-on-year and 6% quarter-on-quarter in the second quarter of 2024, driven mainly by demand from China and India. The commercial rollout of 5G RedCap will further stimulate overall demand in the internet of things market from both the cost side and the demand side. From the cost perspective, 5G RedCap is a trimmed version of 5G, thus offering better cost-effectiveness compared to traditional 5G modules. On the demand side, typical application scenarios for 5G RedCap include 5G CPE, video surveillance, in-vehicle applications, internet of things for electricity, and wearable devices. As module prices decrease, this will further drive the growth of demand, creating a positive cycle for the development of the internet of things market.

The main points from Futu Securities are as follows:

Revenue shows improvement year-on-year and quarter-on-quarter, with industry demand gradually recovering.

In the first three quarters, Quectel Wireless Solutions recorded revenue of 13.246 billion yuan, a year-on-year increase of 32.9%, and net income of 0.347 billion yuan; Fibocom Wireless Inc. reported revenue of 6.217 billion yuan in the first three quarters, a year-on-year increase of 5.12%, and net income of 0.657 billion yuan; Meig Smart Technology recorded revenue of 2.182 billion yuan in the first three quarters, a year-on-year increase of 39.9%, and net income of 90.5 million. For instance, Meig Smart Technology reported revenue of 0.574 billion yuan in the first quarter, 0.732 billion yuan in the second quarter, and 0.876 billion yuan in the third quarter, indicating an upward trend in quarterly revenue. The company generated revenue of 0.537 billion yuan in the third quarter of last year, showing a 63% increase year-on-year in the same quarter this year.

Huajin Securities believes that the gradual recovery of demand in the market is the main reason for the gradual increase in the revenue of industry companies. The communication module market is primarily focused on in-vehicle communications, laptops, pos machines, and internet of things, among other fields. According to Counterpoint data, global cellular internet of things module shipments are expected to grow by 11% year-on-year and 6% quarter-on-quarter in the second quarter of 2024, mainly driven by demand from China and India. The strong growth in China is primarily due to the expansion of pos and applications for autos and asset tracking.

5G RedCap's commercial rollout is imminent, with chip/module manufacturers launching product iterations.

5G RedCap, short for 5G NR Reduced Capability, reduces device capabilities and complexity in order to lower costs, power consumption, and miniaturization. This enables 5G terminals to meet the application demands and services that fall between eMBB, mMTC, and URLLC scenarios at a lower cost. Huajin Securities believes that the commercialization of 5G RedCap will further stimulate overall demand in the Internet of Things market from both the cost and demand sides. On the cost side, since 5G RedCap is a trimmed version of 5G, it offers a higher cost-performance ratio compared to traditional 5G modules. On the demand side, typical application scenarios include 5G CPE, video surveillance, automotive applications, Internet of Things for electricity, and wearable devices. As module prices decrease, this will further drive growth in demand, creating a positive cycle for the development of the Internet of Things market.

Chip and module manufacturers are currently accelerating iterations. Aojie Technology announced that the ASR1903 has completed field tests in nearly a hundred regions and has successfully passed China Mobile's chip certification at the end of the second quarter this year, entering a commercially viable state. This marks Aojie Technology as one of the few companies capable of launching mass-produced 5G RedCap chips first. Quectel Wireless Solutions indicated that the RG255AA series modules support 5G NR standalone networking (SA) and LTE Cat4 dual-mode communication, offering advantages such as high performance, high integration, low power consumption, small size, and high cost-performance ratio. This makes it particularly suitable for entry-level mobile broadband, smart grids, industrial automation, and AR/VR intelligent wearable devices. The RG255AA series is currently in the engineering sample stage.

Traditional modules are expanding towards intelligence and high computing power, with AI-driven computing modules being released on the edge.

According to Counterpoint data, embedded AI cellular modules accounted for 6% of the total shipment of cellular IoT modules in 2023, and by 2030, the compound annual growth rate is expected to reach 35%. Basic cellular modules only include baseband or chipsets, primarily providing connectivity for IoT devices to send and receive data. Intelligent modules have CPUs and GPUs along with communication basebands, focusing mainly on data transmission and basic data processing. Computing modules integrate advanced processors such as CPUs, GPUs, NPUs, and TPUs, or come equipped with dedicated AI engines, providing high computing power.

Edge-side AI started in scenarios such as cloud servers, drones, and industrial visual inspection, and is now gradually expanding into new fields such as AI retail, VR glasses, AI-boxes, digital humans, industrial gateways, and wireless security. High-performance computing modules can meet the computing requirements for detecting driver behavior, confirming lane and vehicle distance, and recognizing traffic signs, pedestrians, and obstacles, comparable to L2 level autonomous driving chips. Currently, several leading module companies have launched such module products, competing in the computing module market. Meig Smart Technology's high-performance computing module products can offer AI computing power ranging from 1.4 TOPS to nearly 48 TOPS, with some high-performance computing module products already capable of running complex large models such as StableDiffusion and Llama2.

It is recommended to pay attention to the symbols.

Aojie Technology-U (688220.SH), Bestechnic (Shanghai) Co., Ltd. (688608.SH), Espressif Systems (688018.SH), Chipsea Technologies (Shenzhen) Corp., Ltd. (688595.SH), Quectel Wireless Solutions (603236.SH), Fibocom Wireless Inc. (300638.SZ), Meig Smart Technology (002881.SZ), Sunsea AIoT Technology (002313.SZ), Shenzhen Neoway Technology (688159.SH).

Risk warning

The implementation pace of 5G RedCap is slower than expected, the release pace of market demand is slower than expected, and cost competition is intensifying.