Core product price decline drags down performance Montage Technology expects net profit attributable to the mother in 2021 to fall by 25% year-on-year

Per reporter: Zhao Li Nan Per editor: Wen Duo

On February 9, Montage Technology (688008, SH) released its 2021 annual performance report, which is expected to achieve operating income of about 2.56 billion yuan in 2021, an increase of 40.49% year-on-year; it is expected to achieve a net profit attributable to the owners of the parent company of about 830 million yuan, down 24.88% year-on-year.

The "Daily Economic News" reporter noted that in 2021, Montage Technology's revenue growth was mainly attributed to its Jinju server platform product line, but the gross profit margin of the product line was low, and at the same time, the gross profit of the product line declined compared with 2020. The revenue and gross profit margin of the interconnect chip product line, which account for a large proportion of Montage Technology's revenue, declined in 2021.

"During the reporting period, the company's main profit source DDR4 memory interface chip entered the late stage of the product life cycle, and the product price decreased compared with the previous year." Montage Technology said.

In response to the next generation of products DDR5, Montage Technology said that the rhythm of DDR5-related chips needs further observation. Referring to the penetration rhythm of the DDR4 memory interface chip, it takes 36 months to complete most of the penetration.

Revenue grew and profits declined

According to the announcement, Montage Technology expects its operating income to increase in 2021, but the net profit attributable to the mother has declined significantly year-on-year.

Image source: Screenshot of Montage Technology announcement

Montage Technology's operating income mainly comes from the interconnection chip product line and the Jinji server platform product line.

"After the early stage of market promotion and customer cultivation, Jinji CPU business has made breakthrough progress, and the Jinji server platform product line achieved operating income of 845 million yuan in 2021, an increase of 2750.92% over the previous year, and the gross profit margin was 10.22%." Montage Technology said that "the interconnect chip product line achieved operating income of 1.717 billion yuan in 2021, down 4.31% from the previous year, and the gross profit margin was 66.72%".

The "Daily Economic News" reporter noted that compared with 2020, Montage Technology's interconnect chip product line in 2021 in addition to the decline in revenue, gross profit margin has also declined, in 2020 the gross profit margin of the business is 73.22%.

The main reason for the double decline in revenue and gross profit in the interconnection chip product line is that the sales price of the fist product "DDR4 memory interface chip" in the product line has declined in 2021.

"At the same time, DDR5-related products were only officially mass-produced in the fourth quarter of 2021, resulting in the gross profit margin of the interconnect chip product line falling from 73.22% in the previous year to 66.72% in 2021." Montage Technology said.

In addition, in 2021, Montage Technology's R&D expenses increased, fair value change income and investment income decreased, and share payment expenses also had a certain negative impact on net profit.

The rhythm of the DDR5-related chip needs to be observed

With DDR4 gradually entering the late life cycle, Montage Technology's new generation of product DDR5 achieved mass production in the fourth quarter of last year.

"But since DDR5 is a brand new product, the pace of the related chips needs to be further observed." Montage Technology said in the previous investor survey that if you refer to the penetration rhythm of DDR4 memory interface chips, usually the penetration rate of each subgeneration product at the end of 12 months after the upper quantity can reach about 20% to 30%, and the penetration rate at the end of 24 months can reach about 50% to 70%, and basically this subgenus has completed most of the penetration of the market at the end of 36 months.

It is worth noting that montage technology's performance increased significantly in the fourth quarter of last year.

According to montage technology announcement, its operating income in the fourth quarter of 2021 was 969 million yuan, an increase of 11.64% from the previous quarter and a year-on-year increase of 172.88%. Among them, the interconnect chip product line achieved operating income of 601 million yuan in the fourth quarter of 2021, an increase of 39.97% month-on-month, an increase of 76.55% year-on-year, and a gross profit margin of 69.21%. With the recovery of performance, Montage Technology achieved a net profit of 317 million yuan in the fourth quarter of 2021, an increase of 54.78% from the previous quarter and a year-on-year increase of 40.18%.

"With the company's DDR5 memory interface chip and memory module supporting chips officially mass-produced, and the continuous development of Jinji's CPU business, the company's performance in the fourth quarter of 2021 increased significantly." Montage Technology said.

According to the previous announcement of Montage Technology, the current competitive landscape of DDR5 memory interface chips is similar to that of DDR4 memory interface chips, and only three suppliers in the world can provide the first subgeneration of mass production products, namely Montage Technology, Renesas Electronics and Rambus.

"The company's market share on memory interface chips remains stable. On the supporting chip, the two main suppliers of SPD (referring to serial detection hub) and TS (referring to temperature sensors) are Montage and Renesas Electronics; PMIC (referring to power management chips) has more competitors and will be more complex in the initial stage. Montage Technology said.

For the prospects of Montage Technology DDR5, Haitong Securities said in its research report: "In the context of Intel's launch of DDR5-enabled server CPUs and storage giants such as Micron to launch DDR5 memory samples, we expect that the company's DDR5 memory interface and supporting module chips will rise in volume and price, which is expected to help further increase the company's market share and achieve a leap in revenue." ”

Western Securities also expressed a similar view: "With the advent of the DDR5 era, memory interface chips are expected to rise in volume and price." At the same time, the company's DDR5 generation memory module new supporting chips can also be used on the PC side, opening up a broad market space. According to estimates, the memory interface + supporting chip market space is expected to exceed 2 billion US dollars, the market share of the superimposed company is expected to further increase in the DDR5 generation, and the company's performance is expected to increase rapidly. ”

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