(Report Producer: Sinolink Securities)
1. Longitudinally cultivated high-power laser chips, and product technology has been surpassed
1.1 The domestic substitution of downstream lasers has accelerated, and the company's products have achieved technological surpass
The semiconductor laser industry is usually composed of laser chips, laser devices, laser modules and direct semiconductor lasers. Direct semiconductor laser is the terminal product of the semiconductor laser industry, which is composed of semiconductor laser module, output optical system, power supply system, control system and mechanical structure, etc., and realizes laser output under the drive and monitoring of power supply system and control system, which can be used in laser processing, communication, sensing and other application scenarios. The laser chip is packaged into a pump source and becomes the core device of the downstream laser. Lasers are usually composed of optical materials such as a pump source (excitation source), a gain medium (working substance), and a resonant cavity. The pump source provides energy excitation for the gain medium (mainly electrical excitation), and the gain medium is the source of photon generation (mainly compound semiconductor materials), which makes the gain medium transition from the ground state to the excited state by absorbing the energy generated by the pump source. Since the excited state is unstable, the gain medium will release energy to return to the steady state of the ground state. In this process of energy release, the gain medium produces photons, and these photons have a high degree of consistency in energy, wavelength and direction, they are constantly reflected in the optical resonator, reciprocating motion, so as to continuously amplify, and finally emit a laser through the mirror to form a laser beam.
According to the different gain medium, lasers can be divided into solid-state lasers, fiber lasers, gas lasers and semiconductor exciters. Semiconductor lasers have the highest conversion efficiency among all types of lasers, and have the advantages of small size, high reliability, long life, wide wavelength range, and high modulation rate, so they are widely used in material processing, medical treatment, optical communication, sensing, national defense and other fields. In addition, semiconductor lasers are also used as the most ideal pump source for other exciters such as fiber lasers and solid-state lasers, which are their core devices and key components.
The upstream of the semiconductor laser industry chain is the use of semiconductor raw materials, high-end equipment and related production accessories to manufacture laser chips, optoelectronic devices, etc., which is the cornerstone of the laser industry and has a high entry threshold. The midstream of the industrial chain is the manufacture and sales of various types of lasers by using upstream laser chips, optoelectronic devices, modules, optical components, etc. as pump sources, including direct semiconductor lasers, carbon dioxide lasers, solid-state lasers, fiber lasers, etc.; The company's business layout is concentrated in the upstream and midstream of the laser industry chain, the company's semiconductor laser chip is the core pump light source of various lasers in the middle of the industrial chain, and at the same time, it carries out direct research and development, production and sales of semiconductor lasers in the middle of the industrial chain, and quickly realizes the domestic substitution of products of overseas enterprises such as the United States and Germany.
The global market size of the laser-based laser industry is continuing to increase, and China has grown into a major country in the laser industry after experiencing the struggle from scratch. According to the 2023 China Laser Industry Development Report, the global laser market size is expected to reach $23.5 billion in 2023, an increase of 9% year-on-year. Among them, the size of China's laser market is expected to reach 931 yuan, a year-on-year increase of 8%.
The downstream applications of mainland lasers are concentrated in the fields of industry and information. According to the data of the Prospective Industry Research Institute, in 2021, industrial laser equipment accounted for the largest proportion in the downstream of China's laser industry, reaching 62%, followed by the information laser equipment market, accounting for 22%, and the commercial, medical and scientific research fields accounted for 7%, 4%, and 5% respectively. The proportion of fiber exciters in industrial lasers is increasing year by year, with fiber lasers accounting for 53% of industrial lasers in 2021, according to Laser Focus World. In addition, gas lasers accounted for 16%, semiconductor/excimer lasers accounted for 16%, and solid lasers accounted for 15%.
The semiconductor laser chips produced by the company can be used to produce direct semiconductor lasers, which are used in medical, industrial, national defense, scientific research and lidar and other fields. It can also be used as the core pump light source of various types of optically pumped lasers in the middle of the industrial chain, including optical fiber lasers, solid-state lasers, liquid lasers, etc. Taking the fiber laser with the highest proportion of industrial lasers as an example, the optical fiber laser uses a doped glass fiber as the gain medium, and uses a fiber-coupled semiconductor laser as the pump source to excite the laser through the resonator, and the gain medium crystal or fiber produces light to obtain better beam quality. According to Strategies Unlimited, the global high-power semiconductor laser market size is expected to reach $2.19 billion in 2022 and grow to $2.82 billion by 2025. Among them, the market size of semiconductor exciters, which are the pump source for solid-state/fiber lasers, is expected to reach $1.15 billion in 2022 and grow to $1.56 billion in 2025.
The market share of domestic fiber laser manufacturers continues to increase, and the localization process of high-power lasers is accelerating. In addition to the production of direct semiconductor lasers, the semiconductor laser chips produced by the company can also be used as the core components of the pump source of fiber and solid-state lasers of downstream manufacturers. In recent years, domestic laser manufacturers represented by Ruike Laser have achieved a breakthrough in domestic fiber lasers from scratch, and the technical indicators of their products are comparable to similar international advanced products. While realizing the industrialization of fiber lasers, we will continue to promote the mainland fiber laser technology to enter the international advanced level. In the context of continuous improvement of technology and products, the market share of international giants such as IPG, Coherence and Ennai, which previously occupied most of the market share, has gradually shrunk in China, and the share share of domestic manufacturers represented by Ruike Laser, Chuangxin Laser and Jiepute has increased significantly. On the product side, with the increasing requirements for laser performance in downstream application scenarios, manufacturers are developing high-power lasers with higher added value. In the field of fiber lasers, most of the low- and medium-power lasers have been replaced domestically, and the domestic substitution of high-power lasers is also accelerating. At present, in the middle and upstream parts of lasers, pump source packaging, beam combiners, isolators, medium-power fiber gratings, laser transmission components and other components have basically been localized. As the core component of the semi-conductor pump source, the power and performance stability of the laser chip directly affect the output laser performance, and there is still room for improvement in the localization rate.
According to the company's prospectus, the company's high-power semiconductor laser chips, devices and modules have been widely used in the production of industrial lasers as a pump source, and downstream customers include mainstream laser manufacturers such as Ruike Laser, Chuangxin Laser, Han's Laser, and Feibo Laser. In the first half of 2021, the company's top five customers were Chuangxin Laser, Customer A2, Feibo Laser, Ruike Laser, and Huari Precision. We believe that the company's downstream operation has gradually shown an inflection point, and the gross profit margin of downstream manufacturers represented by Ruike Laser, Chuangxin Laser and Han's Laser has improved quarter by quarter. We are optimistic that the company, as a scarce supplier of core components for industrial laser pump sources, is expected to benefit from the improvement of the operating conditions of the downstream laser industry and the increase in the share of domestic terminal manufacturers.
The company's high-power semiconductor laser chips have realized the transformation from domestic substitution to industry-leading. According to the company's prospectus, at the time of the company's listing, the company has successfully achieved the mass production of 30W high-power semiconductor laser chips, with an electro-optical conversion efficiency of 60%-65%, and the technical level is synchronized with the international advanced level. Subsequently, the company continued to promote product iteration, and mass production and reserve products have reached the world's leading level. In February 2023, based on the chip technology company reported at Photonics West, the company developed a higher power chip wide strip width semiconductor laser chip, and launched the industry's first single-tube die with a maximum power of more than 66W (heat sink temperature is room temperature), with a chip strip width of 290μm, a maximum efficiency of more than 70%, and an efficiency of more than 63%, which is the highest level of high-power laser chips with a strip width of less than 400μm known to date. In the first half of 2023, the company launched the 9XXnm 50W high-power semiconductor laser chip, which produces 50W of excitation output in a 330μm wide light-emitting region and has a high photoelectric conversion efficiency (greater than or equal to 62%).
1.2 Special lasers and biomedicine have become incremental markets for laser chips
Lasers continue to explore new application scenarios such as scientific research, special markets and biomedicine, especially in high-end manufacturing, precision materials, guidance, radar and optoelectronic countermeasures, laser weapons and other fields of scientific research projects, the performance requirements of lasers will be higher. Taking the UAV industry as an example, with the rapid development and wide application of UAVs, the negative impact has also quietly come, and there have been incidents such as "black flying" affecting the normal take-off and landing of aircraft, UAV candid photography and falling in the air and injuring people. Specialty lasers are expected to be a potential solution for anti-drone systems in a variety of locations where airspace security is required, such as airports, core infrastructure, large buildings, etc. Taking overseas as an example, the special laser systems under development include fiber lasers, solid-state lasers, gas lasers, liquid lasers and other technical routes. According to Verified Market Research, the global military laser systems market size was valued at USD 4.8 billion in 2021 and is expected to reach USD 8.1 billion by 2030, registering a CAGR of 8.7% from 2022 to 2030.
In the field of biomedicine, lasers are mainly used in spectroscopy, interferometry, clinical treatment and surgery. The stimulating effect of weak laser has the effect of strengthening local blood circulation, improving immune function, adjusting function, promoting cell growth, tissue repair, etc., and has been widely used in the treatment of oral cavity and skin. According to BCC Research, the global medical laser market size is expected to reach $1.6 billion in 2023 and grow to $3.3 billion in 2028, with a CAGR of 15.2% in 23-28.
2. Horizontally expand lidar, 3D sensing, and high-speed optical communications
2.1 VCSEL chips: $1.4 billion market in 28 years, automotive electronics and communications are the fastest-growing
Laser chips can be divided into edge-emitting laser chips (EEL) and area-emitting laser chips (VCSELs) according to the different resonator manufacturing processes. The edge-emitting laser chip (EEL) is coated with an optical film on both sides of the chip to form a resonant cavity, and the laser is emitted along a parallel to the surface of the substrate, while the surface-emitting laser chip (VCSEL) is coated with an optical film on the upper and lower sides of the chip to form a resonator, and because the optical resonator is perpendicular to the substrate, the laser can be emitted perpendicular to the surface of the chip. Compared with the traditional single-junction low-power VCSELs, EEL has more advantages in terms of output power, power conversion efficiency, eye safety, and long-range ranging, and is currently the mainstream light source of LiDAR. However, the preparation and packaging process of EEL is complex and cannot be tested on the chip, so the preparation cost is high. VCSELs, on the other hand, can be tested on a chip and are easy to integrate into 2D arrays, and can be scaled by controlling the number of array elements, providing great flexibility for optimizing output power. In addition, VCSELs have the advantages of high reliability, low manufacturing costs, circular light spots, and high temperature stability. As a result, VCSELs are gaining traction and are becoming the light source of choice for 3D sensing applications such as lidar.
The application scenarios of VCSEL chips have gradually expanded from the early optical communication field to automotive electronics and consumer electronics. VCSELs operate at wavelengths from 850nm to 1310nm, and VCSELs in the 850nm band were the first to be commercialized and widely used for short-distance transmission using multimode fibers. Subsequently, VCSEL chips have been further applied and developed in new application scenarios such as lidar and 3D sensing. In 2017, Apple's mobile phone equipped with VCSEL chip came out, introducing the new concept of 3D sensing into the consumer electronics market, bringing new functions including face recognition, gesture recognition, 3D recognition, iris recognition and other new functions through the VCSEL chip. Subsequently, the application scenarios of VCSEL chips were further extended to industrial, smart home, and lidar.
Communications and lidar will be the core drivers of the future growth of the VCSEL chip market. According to Yole, the global VCSEL chip market size was $980 million in 2022 and is expected to reach $1.40 billion in 2028, with a CAGR of 6% in 22-28. From the downstream point of view, consumer electronics is currently the largest segment of the market scale, with a market size of 798 million yuan. Automotive electronics and communications are the two fastest-growing segments in the future, and the market size of automotive electronics is expected to grow from $4 million in 2022 to $108 million in 2028, with a CAGR of 71% in 22-28. The market size of communications is expected to grow from $126 million in 2022 to $232 million by 2028, at a CAGR of 11% in 22-28.
The VCSEL chip competition pattern has evolved into a duopoly, and there is ample room for domestic manufacturers to replace them. Over the past decade, VCSEL's competitive landscape has shifted from a monopoly to a duopoly. According to Yole, the VCSEL market in 2017 was dominated by Lumentum, with a market share of 41%, and Lumentum was the only supplier certified by Apple at that time, with less than 15% of the second-tier vendors, and the market structure is fragmented. In 2018, II-VI acquired Finisar, and both Lumentum and II-VI became suppliers of Apple's 3D sensors. In the following years, Lumentum and II-VI continued to engage in mergers and acquisitions in the upstream and downstream of the value chain, such as Oclaro and Coherent, to achieve vertical integration in the VCSEL industry and continue to increase their market share. In addition, other vendors have their own characteristics, with ams focusing on automotive VCSELs such as lidar and in-cabin sensing, Trumpf focusing on long-wavelength and high-performance VCSELs, and Broadcom focusing on communication VCSELs. We are optimistic about the domestic VCSEL manufacturers represented by the company, with the vigorous development of downstream Chinese lidar and 3D sensing manufacturers, the superimposed product technology continues to make breakthroughs, and continues to increase its share through domestic substitution.
2.2 LiDAR: The shipment volume of terminal products is growing rapidly, and the proportion of VCSEL light sources is gradually increasing
Laser chip is one of the core components of LiDAR, and the company has a 905nm laser chip product layout. LiDA is usually composed of a transmitter unit, a receiving unit, a control unit and a signal processing unit. In LiDAR, the laser chip acts as a light source to emit laser pulses, the laser modulator controls the direction and number of lines of the emitted laser through the beam controller, and finally emits the laser to the target object through the emitting optical system. Subsequently, the receiving chip receives the returned signal and generates the required information through various parameters such as phase, frequency, polarization, and amplitude processed by the computer in the lidar.
The development of autonomous driving technology has promoted the rapid growth of the lidar market. The eye is one of the organs of human perception of the world, and the sensor, as the "eye" of the machine, is an important part of realizing the intelligence of all things. Information is collected through lidar and combined with artificial intelligence to achieve efficient and safe automation in a variety of scenarios. As a result, LiDAR solutions are widely used in automotive and non-automotive industries, such as robotics, smart cities, and V2X. According to data from CIC, the global lidar solution market size was 12 billion yuan in 2022, and it is expected that the global lidar solution scale will grow to 1,253.7 billion yuan in 2030, with a CAGR of 78.8% in 22-30 years. Among the many downstream application scenarios of LiDAR solutions, the share of the automotive market will grow year by year, from 28.7% in 2022 to 79.8% in 2030.
Automotive lidar continues to develop towards high performance, low cost, lightweight, and all-solid-state. At present, vehicle-mounted lidar can be divided into mechanical, hybrid solid-state and pure solid-state according to the scanning method. These three solutions have their own advantages and disadvantages, such as the fast scanning speed of mechanical lidar and the ability to scan 360 degrees, but they are limited by factors such as complex structure, large size, and high cost, and cannot be widely used. Hybrid solid-state lidar has a variety of solutions such as rotating mirrors, prisms, and MEMS micro-galvanometers, and the cost is further reduced compared with mechanical lidar, but the scanning range is not as good. In contrast, solid-state LiDAR has a variety of routes such as Flash and OPA, or it will become the mainstream solution in the future due to its advantages in cost and performance. According to Yole, 68% of hybrid solid-state lidar based on rotating mirrors and 30% of hybrid solid-state lidar based on MEMS are expected in 2023. Looking ahead to the next decade, the share of rotating mirror-based hybrid solid-state LiDAR will still be 56%, the proportion of MEMS solutions will drop to 7%, and the proportion of Flash solid-state LiDAR will reach 32%.
From the perspective of the technological evolution of high performance, low cost, lightweight, and all-solid-state lidar itself, the core component laser (optical source) needs to have the characteristics of lower cost, higher efficiency (higher junction number), higher brightness (high power density, low divergence angle), and higher integration (2D addressing, chip-based replacement of discrete devices). At present, EEL and VCSEL have both light source solutions, but because VCSELs have unique advantages in hybrid solid-state and solid-state lidars, the share of VCSELs is expected to continue to increase as the shipments of these two types of lidars gradually increase. VCSELs have the following unique advantages: 1) VCSELs can achieve wafer-level testing and the cost can be continuously reduced along Moore's Law, 2) VCSELs have the advantages of low temperature drift and are easy to integrate, and can achieve 1D and 2D addressing, 3) EELs emit light from the side and are integrated with the circuit board through single one-to-one placement, relying on manual assembly technology. The light-emitting surface of VCSEL is parallel to the semiconductor wafer, and the laser array formed by it is easy to bond with the planar circuit chip, and it is easy to integrate with the silicon material microlens of the surface process, and the accuracy is guaranteed by the processing equipment. 4) The problem of low luminous density and power of traditional VCSELs is overcome by developing multi-junction VCSELs. 5) The LiDAR architecture continues to iterate from discrete devices to chips, and the improvement of integration has led to the optimization of LiDAR in terms of reliability, price, and performance. At the receiving end, SiPM and SPAD are gradually replacing traditional APDs, and SPADs use large receiver area arrays to achieve high frame rates and wide viewing range coverage. At the same time, the SPAD array and the SoC are gradually integrated, integrating the two functions of reception and processing into a single chip, and realizing the on-chip processing of single-photon signals to obtain point cloud data. At the transmitter end, the planar VCSEL can flexibly arrange more channels on the surface, and the installation efficiency and integration are improved accordingly. The laser surface array with the detector surface array and the lens group can form a pure solid-state LiDAR solution without scanning components.
2.3 3D sensing: Consumer electronics drive innovation, and application scenarios are gradually expanding
3D sensing is usually composed of a plurality of cameras and depth sensors, and by projecting an active light source in a special band, calculating the time difference between optical emission and reflection, etc., 3D sensing can obtain the depth information of the object, realize the acquisition of real-time three-dimensional information of the object, and provide key features for later image analysis. The terminal device restores the real three-dimensional world through 3D sensing and realizes subsequent intelligent interaction, which is expected to be applied to human-computer interaction, machine vision, face recognition, 3D modeling, AR/VR, security and assisted driving and other fields. The main implementation methods of 3D vision include binocular vision, 3D structured light, and TOF (time-of-flight method). The principle of binocular vision method is close to the human eye, based on the principle of parallax and utilizes imaging equipment to obtain two images of the measured object from different positions, and obtains the three-dimensional geometric information of the object by calculating the position deviation between the corresponding points of the image. However, due to the fact that the binocular vision method requires high computing resources, poor real-time performance, and is greatly affected by the texture of illuminated objects, it is not suitable for miniaturized application scenarios and has not been commercialized on a large scale.
The TOF time flight method is to use the time difference of light flight to obtain the depth of the object: the detection system and the light source are started at the same time, the emitted light pulse is reflected back into the detection through the target object and the round-trip time is directly stored by the detection system, and finally the distance between the target object and the target object is obtained according to the relationship between time and the speed of light. With the development of technology, TOF technology has gradually solved the problems of low image resolution, high cost and high power consumption, and has attracted extensive attention in the fields of mobile phones, assisted driving and security. 3D structured light technology has many advantages such as high measurement accuracy, can reach 1mm (millimeter), has many advantages such as relatively low power consumption, and is more suitable for short-range face recognition, and has great potential in scenarios such as smartphones and face payment, so it has attracted the attention of the industry. The technical principle is to project the laser speckle image onto the surface of the object, and then the infrared camera receives the speckle information reflected on the surface of the object, and hands it over to the ASIC processing chip, and calculates the position and depth information of the object according to the change of the optical signal caused by the object.
In 2017, Apple released the iPhone X, which is equipped with a front-facing 3D structured light vision sensor for face unlock, face payment and other functions, bringing users a more convenient and secure experience. The demonstration effect of Apple's mobile phone has enabled the large-scale application of 3D vision sensors in the field of mobile phones, and then Huawei, Samsung, OPPO and other mobile phone manufacturers have also successively adopted 3D solutions in the camera module of flagship phones, and 3D visual perception technology has begun to be popularized on a large scale in the consumer field. At present, the mainstream 3D solutions in consumer electronics mainly use structured light and TOF. 3D imaging must actively emit infrared light in a special band, and the emitting end is composed of infrared light emitter, collimating lens and diffraction grating, and the infrared emitters used for imaging mainly include LED and VCSEL. VCSELs have obvious advantages in technology and cost, in terms of technology, VCSEL has a narrow linewidth and a small wavelength drift to temperature, high measurement accuracy, anti-ambient light interference, high output efficiency, especially suitable for mobile devices such as mobile phones;
3D visual perception started from industrial scenarios, and then continued to land in consumer scenarios such as mobile phones, AR/VR, Internet of Things, and autonomous driving, and the application field is still expanding. According to Yole, the global 3D sensing market size was approximately USD 8.2 billion in 2022 and will grow to USD 17.2 billion by 2028, CAGR of 13.2% in 22-28. As the core component of 3D sensing technology, VCSEL is expected to benefit from the wide application of 3D visual perception technology, especially the expansion of the two downstream markets of consumer electronics and AI, and its application market is increasing.
2.4 Optical chips: AI-driven optical chips continue to grow
While global data traffic is growing exponentially, the number of data centers around the world is increasing, and the importance of optical modules/optical chips continues to be highlighted. The development of artificial intelligence will reshape the infrastructure of electronic semiconductors, and the collection, cleaning, calculation, training, and transmission of massive data will bring about iterative upgrades in computing power and networks. According to Synergy Research Group, the number of hyperscale data centers in the world will exceed 1,000 by 2024. Second, with the evolution of terminal business forms, the data traffic that needs to be processed internally in the data center is much larger than the data traffic that needs to be transmitted outward, which makes the data processing complexity continue to increase. The application of optical communication in the data center has greatly improved the computing power and data exchange capacity of the data center. According to LightCounting, the global optical module market is expected to reach $13 billion in 2024, an increase of about 30% compared to 2022, and the market size is expected to reach a CAGR of 16% in 23-28.
The continuous upgrade of the network architecture has increased the demand for optical modules. The traditional large-scale data center network architecture is usually a three-layer architecture, including the core layer, aggregation layer, and access layer. The leaf-spine network architecture is flatter and expands the access and aggregation layers, greatly improving the efficiency of the network, especially the interconnection of high-performance computing clusters or high-frequency traffic communication equipment. With the popularization of leaf-spine network architecture, the number of optical modules that need to be configured in a single cabinet will also increase significantly. According to the prospectus of Zhongji InnoLight convertible bonds, the multiple of the traditional three-tier architecture optical module relative to the cabinet is 8.8 times, and when the data center network architecture transitions to the leaf ridge type, the multiple of the optical module relative to the cabinet will grow to 46 times. NVIDIA's AI data center uses a fat-tree network architecture similar to that of a leaf-ridge. In a traditional tree network topology, the bandwidth converges layer by layer, and the network bandwidth at the root of the tree is much less than the sum of all the bandwidths at the individual leaves. Fat-Tree is bandwidth-free, where each node has equal upstream and downstream bandwidth, and each node provides the ability to forward the access bandwidth at line speed. The large switch-to-server ratio in a Fat-Tree network also increases the demand for optical modules.
The inflection point of capital expenditure of overseas cloud vendors has emerged, and optical modules are expected to benefit as cloud IT infrastructure. We see that the semiconductor market is experiencing external shocks such as high inflation and slowing end demand, and the overall capital expenditure of domestic and foreign Internet manufacturers will decline in 2023. However, in order to meet the growing cloud business and the consequent demand for massive data storage and computing, domestic and foreign manufacturers have increased their investment in data centers, servers, and basic network facilities. At the same time, we see that the capital expenditure of the four major overseas Internet manufacturers has improved quarter-on-quarter for two consecutive quarters, and the latest performance guidance is generally optimistic about future capital expenditure, for example, Meta's capital expenditure guidance for 2025 is 30 billion to 35 billion US dollars, which is equivalent to an increase of about 11% to 21% compared with this year's expenditure; Data centers are the foundation of cloud computing and cloud services, and cloud IT infrastructure is mainly composed of switches, servers, optical modules, optical fiber cables, and other equipment. Optical fiber communication has the characteristics of long transmission distance, anti-interference, and saving wiring space, and is widely used in data center servers, switches, and storage optical fiber networks. As the core component of optical fiber communication, optical modules are expected to continue to benefit from the growth of the server market. In addition, the introduction of next-generation server platforms by Intel and AMD, and the increased investment of large enterprises in edge servers, metaverses, supercomputers, and cloud servers will be key factors driving the rapid growth of the server market. IDC predicts that global server sales are expected to reach $141.3 billion in 2024, up about 10% year-over-year, and will grow to $184.3 billion in 2026, with a CAGR of 9.5% in 23-27.
In terms of optical communication, the company has started the layout of indium phosphide laser chip production line since 2010, after years of research and preparation, has overcome the precise control and stability problems of material epitaxial growth and the oxidation limit control of laser current, and other key links, at present, the company's 10G EML, 100mW CW DFB, 50G PAM4 VCSEL, 56GBd PAM4 EML CoC and other products have been supplied to the market in batches, and the application covers 10G in access network and data center scenarios. Multiple applications at 100G-800G speeds.
3. The leading manufacturer of high-power laser chips, the second growth curve of horizontal + vertical layout
3.1 High-power laser chip IDM manufacturers, excellent R&D capabilities and complete product layout
The company has been deeply involved in the semiconductor laser industry for a long time, and has always focused on the R&D, design and manufacturing of semiconductor laser chips, including high-power single-tube series products, high-power bar series products, high-efficiency VCSEL series products and optical communication chip series products, etc., and is one of the few companies in the world that develops and mass-produces high-power semiconductor laser chips. The company's products are widely used in fiber lasers, solid-state lasers and ultrafast lasers and other optically pumped laser pump sources and terminal direct semiconductor lasers, covering industrial, consumer electronics, special fields and other application scenarios. After long-term accumulation, the company has formed a matrix of four categories and multi-series products composed of semiconductor laser chips, devices, modules and direct semiconductor lasers, and has built an IDM whole-process process platform covering chip design, epitaxial growth, wafer processing process (lithography), cleavage/coating, packaging and testing, optical fiber coupling, etc., and 2-inch, 3-inch and 6-inch mass production lines, becoming a vertical industrial chain company in the semiconductor laser industry.
The company's shareholders have diversified backgrounds, and state-owned capital, industrial capital, company management and employees are win-win. The company's shareholding structure is relatively dispersed, there is no actual controller, Huafeng Investment, Suzhou Yinglei and Changguang Group are the top three shareholders, holding 18.38%/14.82%/6.54% of the company's shares respectively, while SDIC Venture Capital, Hubble Investment and other industrial capital are also among the top ten shareholders of the company, supporting the company's development. At the same time, the company actively carries out employee equity incentives, and among the top ten shareholders, Suzhou Xincheng (1.59%) and Suzhou Xintong (1.47%) are employee stock ownership platforms, and employees share the fruits of development with the company, which is conducive to improving the company's stability and cohesion.
The company has been deeply engaged in the field of semiconductor laser chips for many years, and the company's core management team has many years of experience in technology research and development and operation management in the laser industry. The company has built a number of high-level talent teams, including a number of national talent experts, provincial leading talents, etc. Among them, Chairman Min Dayong has many years of background in the laser industry, served as the chairman of Huagong Laser in the early years, and later participated in the establishment of Ruike Laser and Huari Precision, and joined the company in August 2017 as chairman and general manager. Dr. Wang Jun has many years of working experience in the laser industry at home and abroad, and has worked in SLIndustries, SpectraPhysics, Lasertel, nLIGHT, MightyLift and other companies, and joined the company in August 2017 as chief technology officer, director, executive deputy general manager and vice chairman.
3.2 Sluggish demand has led to pressure on performance, and new products are expected to be increased
The sluggish downstream demand has put pressure on the company's short-term performance, and it is expected that the company's revenue will return to the upward channel due to the increase in lidar, optical chips and special businesses. From 2018 to 2021, the high growth of the company's operating income mainly benefited from the increasing localization of the company's downstream products, fiber exciters, but core components such as high-power semiconductor laser chips still rely on imports. From 2018 to 2021, the revenue was 0.9/1.4/2.5/430 million yuan, with a CAGR of 67%. In 2022, the company achieved revenue of 386 million yuan, a year-on-year decrease of 10.13%, due to the slowdown in global economic growth and the decline in demand for lasers. In the first three quarters of 2023, the company's revenue was 219 million yuan, a year-on-year decrease of 30.91%, mainly due to the fact that downstream laser manufacturers did not go to the warehouse as expected, the company's product prices were lowered, and the company's product utilization rate was not high. We expect that as the inventory of downstream laser manufacturers returns to the normal level, and the volume of new products is imminent, the company's performance is expected to return to the upward channel.
From the perspective of product structure, the proportion of high-power single-tube series continues to increase, and the downstream of high-power single-tube chips is mostly used in industrial processing fields. From 2018 to the first half of 2023, the revenue of the high-power single-tube series was 0.72/1.03/2.18/3.61/3.45/128 million yuan, respectively, accounting for 78% to 90% of the company's revenue. From 2018 to the first half of 2023, the revenue of the high-power bar series was 0.19/0.34/0.26/0.56/0.30/12 million yuan, respectively, and the proportion of the company's revenue decreased from 21% to 8%. VCSEL chips have been shipped since 2020 and currently account for less than 1% of the company's revenue, waiting for the future LiDAR business to pick up. From the perspective of comprehensive gross profit margin, the company's overall gross profit showed a trend of first rising and then declining. In the first three quarters of 2018-2023, the company's comprehensive gross profit margin was 31%/36%/31%/53%/52%/31% respectively, and the gross profit margin in the early stage increased year by year, mainly due to the gradual increase in the proportion of chips in the product structure, the increase in product prices under the shortage of cores, and the cost reduction brought about by the introduction of the company's new production line. After 2022, due to the sluggish downstream demand, the company's product selling prices have been reduced, so the consolidated gross profit margin has returned to the level of 2020. In terms of gross profit margin of different products, the gross profit margin of high-power bar series is higher than that of high-power single-tube series, mainly due to different downstream application scenarios, and high-power bar series are mostly used in special fields, so the gross profit margin is higher.
In 23 years, the overall operation of the industry was under pressure, and the operating income of different companies in the industry declined to varying degrees. The company's operating income in the first three quarters of 2023 was 219 million yuan, a year-on-year decrease of 43.1%, and the operating income of comparable companies decreased by 45.8% year-on-year.
The company's gross profit margin is at the industry average, and it has declined in the short term due to sluggish downstream demand. The company's consolidated gross profit margin for the first three quarters of 2023 was 34.6%, which was close to the average gross profit margin of comparable companies of 35.4% and decreased by 17pct from the end of 2022, mainly due to the sluggish demand for downstream lasers and the company's adjustment of pricing strategy to further enhance the competitiveness of the company's products in the market. Among comparable companies, Yuanjie Technology and the company are facing a similar situation, which is also affected by downstream demand, and the gross profit margin has declined. Cables and passive optical devices account for a relatively large proportion of Shijia Photonics' main business, and the fluctuation is small under the original situation of low gross profit.
The R&D expense ratio is higher than the industry average, and the R&D capability is outstanding. In the first three quarters of 2018-2023, the company's R&D expense ratio was 40%/38%/24%/20%/31%/39%, respectively, and the average R&D expense ratio of comparable companies in the industry during the same period was 12%/16%/12%/11%/11%/18% respectively. The company continues to increase R&D investment, and has become one of the few companies in the world that develops and mass-produces high-power semiconductor laser chips, and has built the world's only and only 6-inch high-power semiconductor laser chip wafer vertical integration production line, with leading product performance in China, and has undertaken many national projects such as the "National Key R&D Program". In 2022, the company's "Key Technology and Industrialization of High Brightness, Long Life and High Power Semiconductor Laser Chips" project was selected as the first prize of Jiangsu Provincial Science and Technology Award.
3.3 Establish the advantages of R&D and manufacturing platforms, and expand emerging fields through the layout of material systems
The company has built mass production lines for 2-inch, 3-inch and 6-inch semiconductor laser chips, and has a set of equipment related to epitaxial growth, wafer manufacturing, packaging and testing, and reliability verification, and has broken through the key core technologies and processes of crystal epitaxial growth, wafer process processing, packaging and testing. At present, the 2-inch mass production line is mainly used for the company's new direction of gallium nitride, the 3-inch mass production line is the mainstream production line specification in the semiconductor laser industry, and the 6-inch mass production line is the largest production line in the industry, which is equivalent to the 12-inch mass production line of silicon-based semiconductors. Most of the process links have reached production automation, realized the development and mass production of high-power semiconductor laser chips, and the important indicators such as chip power, efficiency, and brightness have reached the international advanced level. In the early days, the company was limited by production capacity and could only serve head customers such as Ruike Laser, and the rest of the customers could only maintain a small batch testing state. With the ramp-up of the company's new factory capacity in place and the start of construction of the advanced compound semiconductor optoelectronic platform project at the end of 2023, the company's products are expected to introduce more customers.
Looking back at the growth history of II-VI, an international optical chip giant, we find that II-VI has expanded its material system through continuous mergers and acquisitions, and expanded its application on different material technology platforms, and finally grew into an industry leader. The company has planned a similar growth path, with the core development strategy of "one platform, one point, horizontal expansion, and vertical extension", with Suzhou Semiconductor Laser Innovation Research Institute as the platform, relying on the company's advantages in high-power semiconductor laser chips, vertically integrating the industrial chain, horizontally expanding application scenarios such as lidar, 3D sensing, laser communication, and laser display, and finally forming a platform advantage.
Once the company has a technology platform, it can be quickly expanded at the application level in the future. Among the company's existing material platforms, the indium phosphide platform is mainly oriented to optical communications, including the transmitter and receiver, and the company has provided mass production products at both receiving ends, and the product line is expected to be further enriched in the future. In terms of gallium arsenide platform, in addition to high-power semiconductor laser chips, the company has also launched a variety of signal processing products, which are currently mainly focused on the transmitter end of lidar and 3D sensors, including structured light detector series used by consumer electronics, vehicle-mounted lidar VCSELs, etc. In addition, the company actively lays out new material systems. In 2023, the company's wholly-owned subsidiary will cooperate with foreign countries to establish gallium Ruixinguang, which is the earliest team engaged in the research of gallium nitride-based lasers in China, and has successively developed the first gallium nitride-based blue and green laser chips in China. The related products have entered the reliability verification stage, and the products can be launched to the market this year, and after the development of the new gallium nitride platform is completed, it can open up the visible light laser market and even part of the wireless communication and power chip market. At the same time, the company also has a layout of silicon carbide material system, in order to seize the global market opportunities for the rapid development of new energy industries such as electric vehicles, realize the domestic independent and controllable core product technology of silicon carbide power chips, devices, etc., make full use of the company's Fab capabilities accumulated in chemical semiconductors (gallium arsenide, indium phosphide, gallium nitride), combined with the excellent design and process technology capabilities of the partner Qingchun Semiconductor in silicon carbide power devices, and establish a joint venture Suzhou Weiqing Semiconductor Co., Ltd.
(This article is for informational purposes only and does not represent any investment advice from us.) To use the information, please refer to the original report. ）
Selected report source: [Future Think Tank]. Future Think Tank - Official Website