(Report producer/author: CITIC Securities, Huang Yayuan)
Cloud computing market size: trillion market, rapid growth
The global public cloud market continues to expand, with IDC expected to exceed a trillion dollars by 2026. Globally, the public cloud market reached US$330.7 billion in 2021, +32.4% year-on-year. Among them, the IaaS and PaaS market size increased by about 40% year-on-year in 2021, and the SaaS market size increased by more than 20% year-on-year. According to Forrester's forecast, the global public cloud market is expected to reach $1 trillion in 2026, corresponding to a CAGR of about 25% from 2021 to 2026. The growth rate of China's public cloud market is expected to be higher than that of the global market. According to IDC, China's public cloud market reached US$27.52 billion in 2021, with IaaS, PaaS, and SaaS accounting for 62%, 15%, and 23% respectively. According to IDC's forecast, from 2022 to 2026, China's public cloud market will continue to grow at a compound growth rate of 30.9%, which is higher than the global public cloud growth rate of 25%. IDC predicts that by 2026, China's public cloud market will reach $105.76 billion, and the global share of China's public cloud service market will increase from 6.7% in 2021 to 9.9%.
Technology trend: open source as the basis, self-research acceleration
Virtualization technology: At present, most of the world's major public cloud vendors use open source technologies XEN and KVM (KVM is now the mainstream). Cloud infrastructure: Overseas public cloud leaders AWS, Google, and Azure all use self-developed product technology systems. In addition to Alibaba Cloud, which adopts the self-developed Feitian system, most other manufacturers adopt the open source Openstack architecture or secondary development based on OpenStack.
Domestic cloud computing requirements: cloud acceleration and efficiency and security
The needs of customers in different industries vary greatly, and the growth momentum of the industry has switched from the Internet to traditional enterprise customers. Government and enterprise customers: independent controllable & system security is the key, and the performance meets the basic use. Cloud migration path: Government and enterprise customers prefer a relatively compromise hybrid cloud route. Due to the protection of existing IT systems and data security considerations, government and enterprise customers are more inclined to compromise technical routes, and hybrid cloud is the most likely choice. According to a 2020 IDC survey, 73% of surveyed enterprises believe that the deployment and operation environment of cloud-native technologies has evolved from a single cloud environment to a hybrid cloud or multi-cloud environment (multiple public cloud environments, multiple private cloud environments, or a mixture of different public and private cloud environments). Compared with a single public or private cloud environment, the deployment architecture of hybrid cloud can better meet the requirements of smooth transition of enterprise core business systems, elastic scaling of loads, and disaster recovery. For example, customers can deploy customer-oriented interaction services and Internet services on the public cloud, and deploy core business systems through a private cloud environment.
Changes in the domestic cloud computing landscape: the status of operators has improved rapidly
Operators' cloud computing revenue has grown rapidly, and the competitiveness and status of the industry have been significantly improved. Revenue: We are optimistic that the growth rate of cloud computing revenue of operators will be higher than that of Internet cloud vendors in the future. In the past three years, the competition pattern of the domestic cloud computing market and the main driving force for industry growth have undergone obvious changes. The revenue growth rate of cloud vendors with Internet background has slowed down significantly, while the growth rate of operator cloud revenue represented by Tianyi Cloud and Mobile Cloud has significantly exceeded the industry average. In 2021, the revenue of Mobile Cloud, Tianyi Cloud and China Unicom Cloud was 24.2 billion, 27.9 billion and 16.3 billion yuan, respectively, all achieving rapid growth. We expect all three operators to double their cloud revenue growth in 2022. Considering the comprehensive advantages of operators' cloud computing in cloud-network integration, channel sinking, self-research capabilities, security and trustworthiness, we expect that operators' cloud computing business will still maintain rapid growth from 2022 to 2024, and the revenue growth rate will significantly lead that of Internet cloud vendors.
Share: Tianyi Cloud IaaS ranks third in China and sixth in mobile cloud, and the market share of operator cloud has increased rapidly. On October 26, 2022, IDC released the "China Public Cloud Service Market (First Half of 2022) Tracker" report, showing that the overall size of China's public cloud service market (IaaS/PaaS/SaaS) reached US$16.58 billion in the first half of 2022. Among them, the IaaS market increased by 27.3% year-on-year, and the PaaS market grew by 45.4% year-on-year. From the perspective of the IaaS + PaaS market, the first half of 2022 increased by 30.7% year-on-year. According to IDC data, in the first half of 2022, the share of IaaS of Tianyi Cloud increased by 1.4pcts year-on-year to 11%; The share of IaaS+PaaS increased by 1.1pcts year-on-year to 9.4%, with Tianyi Cloud IaaS ranking third in China and mobile cloud laaS+PaaS ranking rising to sixth in China.
Capital expenditure: Operators continue to increase investment in computing power networks and cloud computing. China Mobile: The company expects capital expenditure of approximately CNY 185.2 billion and computing power network capital expenditure of approximately CNY 48 billion in 2022. China Mobile expects that by the end of 2022, the number of IDC racks available to the company will reach 450,000 (an increase of 43,000 units for the whole year), and it is expected that the cumulative production of cloud servers will exceed 660,000. China Telecom: The company expects capital expenditure of 93 billion yuan in 2022, the proportion of industrial digitalization investment will increase from 19.9% to 30.0%, and the absolute amount will increase by 10.6 billion yuan. China Telecom expects to add 45,000 new IDC racks and 160,000 new cloud servers throughout the year. China Unicom: The company expects a) the annual investment in computing network to reach 14.5 billion yuan in 2022, a year-on-year increase of 65%; b) The annual computing power scale increased by 43%, c) Cloud investment increased by 88%, d) There were more than 400 MEC nodes, e) more than 200 cities covered, and f) IDC racks are expected to reach 345,000 throughout the year, an increase of 35,000 over the end of last year.
Operator cloud advantages: Cloud-network convergence optimizes cost and experience
The strategic value of cloud-network convergence is prominent, and it is expected to become the core feature of digital information infrastructure. According to the definition of China Telecom's prospectus, cloud-network convergence is based on the profound changes in network architecture brought about by the parallel drive of business needs and technological innovation, making the cloud and the network highly synergistic, mutually supporting, and learning from each other, and at the same time requiring the bearer network to open network capabilities on demand according to the needs of various cloud services, so as to realize agile connection and on-demand interconnection between the network and the cloud, and reflect the characteristics of intelligence, self-service, high speed and flexibility. We believe that cloud-network convergence is not simply splicing together computing resources represented by cloud computing, edge computing, etc. and network resources represented by 4G/5G, optical networks, and the Internet, but through new technological changes, the two types of information technologies with different characteristics and different paths penetrate and influence each other, and finally achieve deep integration and innovation, thereby laying a solid and secure foundation for digital transformation.
Cloud-network convergence brings differentiated competitive advantages to operators' cloud computing. In 2016, China Telecom took the lead in the world to put forward the idea of cloud-network integration development, adhering to the evolution direction of "network is the foundation, cloud is the core, network moves with the cloud, and cloud-network integration". At present, the three major operators are accelerating the development of cloud-network integration, and cloud-network convergence has gradually become an important differentiating advantage of cloud computing for operators.
Operator cloud advantages: Security and trustworthiness, improve the competitiveness of government and enterprise customers
The three major operators led the way in the 14 cloud service evaluations of Trusted Cloud. At present, Trusted Cloud has opened 14 evaluation services, such as cloud host and object storage. China Mobile, China Telecom, and China Unicom passed 14, 12, and 11 items respectively, ranking first in the industry, and China Mobile passed all 14 assessments. Alibaba Cloud, Tencent Cloud, HUAWEI CLOUD, Baidu Cloud, Youkede, and Kingsoft Cloud passed 10, 12, 12, 3, 8, and 8 projects respectively.
Operator cloud advantages: channel sinking, expanding industry and long-tail customers
The three major operators have hundreds of thousands of account managers across the country, according to our industry research, the current indicators of operators' assessment of customer managers, cloud computing related products are weighted higher than traditional voice, traffic, broadband products. The large-scale operator account manager can help operators sink cloud computing channels, so as to have broader customer resources, and help operators expand their cloud computing business and long-tail customers. According to the official website of Mobile Cloud, Mobile Cloud has a team of 50,000 account managers and more than 116,000 technicians, providing customers with 7*24-hour localized support services. According to the official website of Tianyi Cloud, China Telecom has fully mobilized 37,000 customer managers and a nationwide government and enterprise service system to sink cloud computing services from provinces and cities to districts and counties, providing customers with high-quality and wide-coverage support and empowerment, after-sales operation and maintenance services.
Operator cloud advantages: Mechanism reform to improve talent incentives
The status of operators' cloud business subsidiaries has been improved, and the strategic focus and system reform have achieved outstanding results. The subsidiaries of China Mobile, China Telecom and China Unicom responsible for cloud computing are China Mobile (Suzhou) Software Technology Co., Ltd., Tianyi Cloud Technology Co., Ltd. and Unicom Digital Technology Co., Ltd. respectively. Mobile Cloud: In 2014, China Mobile established China Mobile (Suzhou) Software Technology Co., Ltd. China Mobile (Suzhou) Software Technology Co., Ltd. is a wholly-owned subsidiary of China Mobile Communications Co., Ltd. The company is positioned as a builder of cloud facilities, a cloud service provider, and a cloud ecosystem aggregator of China Mobile. The company takes mobile cloud operation as the center, and its products and services are widely used in government affairs, finance, manufacturing, transportation, medical and other industries. As of the end of 2021, the number of employees was 2,232.
At present, the products of China Mobile (Suzhou) Software Technology Co., Ltd. include "Big Cloud" series products and "Mobile" series products. The big cloud cloud computing and big data basic software products in the "big cloud" series of products are committed to building new enterprise cloud platforms and big data centers, and the "Mobile Intelligence" series products mainly provide fast, agile and efficient customized industry application solutions for different industry needs.
Operator cloud advantages: strategic focus, rapid growth of capital investment
The three major operators are highly focused on cloud computing development and improve their strategic position in cloud computing. In 2019, Mobile Cloud announced the implementation of the "Cloud Transformation Strategy", taking "Mobile Cloud" as the most important strategic business of the whole company, fully promoting the four major projects of cloud reform, realizing the "N+31+X" layout, and aiming to enter the first camp of cloud service providers in three years. In 2012, China Telecom Cloud Computing Branch was established; In 2018, China Telecom's IT system was fully migrated to Tianyi Cloud to promote digital transformation and promote high-quality development. In 2021, China Telecom implemented the "cloud transformation and digital transformation" strategy and established Tianyi Cloud Technology Co., Ltd. In December 2021, Unicom Cloud was comprehensively upgraded in four major aspects: technology, products, services and ecology, and upgraded from the original "Woyun" brand to the "Unicom Cloud" brand.
Operator cloud valuation: Profitability is expected, and valuation flexibility is large
North American cloud vendor valuation: PS, EV/EBITDA is a relatively suitable valuation indicator for AWS (Amazon Web Services), and revenue growth and profitability are the main factors affecting the valuation level. Domestic: Since domestic cloud vendors have not yet achieved solid profitability, we mainly refer to the valuation level of AWS, and give PS valuation after considering the difference in revenue growth rate and profitability. In the early stage, when Internet cloud vendors grew rapidly, they mainly referred to AWS to give a certain discount to give PS valuation. AWS's PS valuation level is roughly between 10X-14X, after Aliyun's valuation was discounted by about 80% to AWS, and Tencent Cloud's valuation was discounted to AWS by about 50%. We believe that the operator's PS level is between 30%-50% of AWS, and it is expected to give the operator's cloud computing business a PS of 4X-6X. We believe that with the continuous improvement of the competition and scale of operators' cloud computing business, the independent valuation of operators' cloud computing is expected to gradually gain market recognition, which will bring greater market value flexibility to operators.
The rate of optical chips and the proportion of domestic and foreign market space
According to LightCounting and combined with industry data, we calculate that the global optical communication optical chip market size in 2021 will be 14.670 billion yuan, of which the market size of optical chips of 2.5G, 10G and 25G and above will be 1.167 billion yuan, 2.748 billion yuan and 10.755 billion yuan, accounting for 8.0%, 18.7% and 73.3% respectively. Combined with ICC data, we estimate that the sales scale of mainland optical chip manufacturers in 2021 will be 3.737 billion yuan, accounting for 25.5% of the global optical chip market.
Competitive landscape: the trend of low-rate domestic dominance and high-rate overseas dominance
2.5G/10G chip: The level of localization is high, but some models still have a high technical threshold. In 2021, 2.5G domestic optical chips accounted for more than 90% of the world, of which Yuanjie Technology accounted for 7%; In 2021, 10G domestic optical chips accounted for about 60% of the world, of which in the global 10G DFB laser chip market in 2021, Yuanjie Technology accounted for 20% of the shipments. However, the localization rate of some models is still low (10G VCSEL/EML laser chips, etc., the localization rate is less than 40%) 25G and above optical chips: At present, it mainly relies on overseas, and the domestic penetration rate is expected to grow rapidly in the future. Affected by factors such as process stability, reliability, supply capacity and downstream customer certification, mainland optical module or optical device manufacturers are still the priority to purchase overseas high-rate optical chips. According to ICC statistics, the localization rate of 25G optical chips is about 20%, but the localization rate of optical chips above 25G is still low by about 5%.
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