On March 30, Zhongying Electronics, a leading local home appliance MCU manufacturer, announced its 2023 annual report, with the company's annual operating income of 1.3 billion yuan in 2023, a year-on-year decrease of 18.8%. However, in terms of quarters, the operating income in the fourth quarter of 2023 will be 378 million yuan, an increase of 9.19% year-on-year and 28.6% quarter-on-quarter.
The annual report shows that the total sales volume of chips in Zhongying Electronics in 2023 will still increase by 13.8% year-on-year, and the main reason for the decline in sales revenue during the period is the sharp decline in the company's product selling price, and at the same time, the product selling price has fallen sharply and the procurement cost remains high, so the gross profit margin has dropped to 35.62%, a significant decrease of 10.15% year-on-year. Throughout the year, the company's customer demand showed a trend of first declining and then rising, downstream customers due to the high inventory level, less orders in the first half of the year, and gradually recovered in the second half of the year, and overseas demand orders have also recovered since the fourth quarter. In 2023, Zhongying Electronics' industrial control and consumer electronics businesses will achieve revenue of 1.014 billion yuan and 287 million yuan respectively (yoy: -13.92%/-32.46%), and the price competition of AMOLED display driver chips is fierce, resulting in a year-on-year decline of more than 30% in sales, and the decline in revenue of MCU and lithium battery product lines is relatively small. Specifically, let's take a look at the progress of Zhongying Electronics' industrial-grade MCU, lithium battery management chip and AMOLED display driver chip in the past year:
- Industrial MCU
The household appliances market has been affected by the global economic downturn, and the shipments of the entire industry have declined compared to last year. At the same time that the semiconductor industry is in a downward cycle, more domestic chip companies have begun to enter the market, and the competition for price reduction of household appliances MCU is more common, and Zhongying Electronics has a high market share in the consumer appliances MCU market, so sales have also been affected accordingly. However, in the smart home appliance chip market, customers' overseas orders have returned since the fourth quarter, basically bidding farewell to the dilemma of almost no export orders in the first three quarters of last year. In the field of small household appliances, due to its high share in local brand customers, Zhongying Electronics will mainly explore the overseas brand customer market to increase its market share. In the field of white smart home MCU, in terms of market share, Renesas is the dominant player in the white goods MCU market, Zhongying Electronics and Infineon are in a strong position, and the rest of the domestic and foreign competitors have a low market share. In the long run, compared with European and Japanese manufacturers, Zhongying electronic products have relative advantages in cost performance and localization services, the company's market share is still lower than that of overseas manufacturers, and there is more sufficient market space for the company to further grow, but the challenge is that customers based on the existing system specifications put forward replacement requirements, the compatibility of chips is extremely high. With the cultivation in the field of inverter home appliances, the annual sales of inverter home appliance ICs in 2023 will be nearly 10 million. It is worth noting that the entire home appliance industry is accelerating its development towards intelligence, energy saving, and high-end, and it is expected to generate more iterative consumer demand in the smart home appliance market in the future. Zhongying Electronics is actively deploying 32-bit MCUs and launching new WiFi/BLE Combo MCUs, which will be promoted in 2024 to cope with industry development trends. In addition, during the reporting period, the company actively promoted the development of overseas customers, began to receive orders for industrial-grade MCUs from European and Japanese customers, extended to industrial and robotics and other fields, and also launched the first automotive-grade MCU, and achieved a small number of sales.
- Lithium battery management chip
Zhongying Electronics' lithium battery management chips are mainly used in many applications such as mobile phones, laptops, wearables, electric bicycles, sweepers and power tools, and at present, American and Japanese manufacturers in this field are still in a relatively monopoly position, such as Texas Instruments, Renesas, Nordic, etc. According to Canalys data, in the first three quarters of 2023, both the mobile phone and computer markets will show a trend of insufficient demand, with negative year-on-year growth, but the mobile phone and personal computer markets will pick up in the fourth quarter, and the growth trend will turn from negative to positive. The company's lithium battery management chips used in mobile phones also slowly showed a peak season effect in the fourth quarter. Because of the safety of terminal applications, the quality and reliability requirements of lithium battery management chip products are extremely high, and Zhongying Electronics' products have been widely adopted by domestic first-line Android mobile phone brand manufacturers, and in the field of electric bicycles, the company's lithium battery management chips are also in the leading position in the domestic chip market. In the future, the company will extend the technical foundation accumulated in the field of lithium battery management to charging management and power management, and enter the power battery management of smart cars.
- AMOLED display driver IC
In 2023, the sales of AMOLED display driver chips of Zhongying Electronics will decline by more than 3%, and the gross profit margin of the consumer electronics business (mainly AMLOED display driver chips) will drop to 11.87% due to the fierce price competition of AMOLED display driver chips. Zhongying Electronics' AMOLED display driver chips are currently mainly engaged in the secondary market, and the brand market is currently mainly occupied by Korean and Taiwanese manufacturers, and the main competitors in this field are Novatek, Ruiding Technology, Yunyinggu, etc. During the reporting period, the company launched the first AMOLED display driver chip designed for brand market specifications, and has jointly arranged import verification with brand customers, and plans to enter the brand market supply chain in 2024 to achieve a breakthrough. It is expected that a number of AMOLED display driver chips for brand market specifications will be launched in 2024. With the improvement of display production technology, the production of domestic AMOLED screens has entered a period of development, and it has greatly replaced South Korea's dominant position in mainstream small and medium-sized mobile phones, wearable and other applications. With the mass production of many 6th generation line screen factories in China, the application range of the product has also expanded to Pad, notebook, vehicle and other medium-sized applications. Benefiting from the support of national policies for the AMOLED industry, the expansion of AMOLED panel production capacity and more diversified product application directions have had a positive effect on the R&D, production and operation of the company's AMOLED display driver chips. It is worth looking forward to the fact that during the reporting period, the company's product line expanded from the secondary market of mobile phone screen display driver chips to wearable display driver chips of well-known domestic and foreign brands, further expanding the application space of the company's display driver chips. Although Zhongying Electronics' operating income in the fourth quarter increased significantly, the gross profit margin in the corresponding period was only 34.51%, a new low in the past 10 years.
According to the annual report, the chip price of Zhongying Electronics has been adjusted to the price before the current round of rising cycle, and the downward momentum of the price tends to decrease; the cost of wafer foundry is still relatively high, there is ample room for decline, and with the release of more capacity supply, it is expected that the downward pressure on the price of wafer foundry of mature process will increase. The company will actively strive for a certain degree of reasonable price support with wafer foundry partners, and the current wafer foundry price is still under negotiation, and it is expected that the gross profit margin will rebound in the second half of 2024. In addition, inventory. In 2023, Zhongying Electronics' inventory level is extremely high, which increases operating risks and cash flow pressure. The inventory in the fourth quarter of 2023 was 710 million yuan, a slight decrease from the third quarter, and the chip inventory was 1.36 billion at the end of 2023, a significant increase of 97% compared with the end of 2022. Supply chain management is already underway and inventory levels are expected to decline effectively in 2024.
The company judged that the chip inventory adjustment cycle of end product manufacturers has ended, and the customer's chip inventory is generally at a reasonably low level, which will be conducive to the recovery of demand in the overall chip industry. Due to the end of the customer's inventory adjustment, the export orders of home appliances will gradually return to normal, and the market of smart home appliance MCUs in 2024 will perform better than in 2023. In addition, the company's management expects that AI computers and AI mobile phones will begin to appear in the market, which is expected to drive a group of early adopters to give priority to replacing their phones, bringing increments to the lithium battery management chip market.
Write at the end
At the performance briefing, Zhongying Electronics gave a double-digit growth target for operating income in 2024 in combination with the industrial environment, which is commendable. The author believes that in the current semiconductor market environment, the recovery of terminal demand in the downstream market is important, but the surplus on the supply side and the slow clearing speed will affect the experience of local semiconductor manufacturers, and excessive repeated supply will inevitably lead to a decline in profit margins. According to the report published in November 2023 by Professor Wei Shaojun, chairman of the Integrated Circuit Design Branch of the China Semiconductor Industry Association, the number of integrated circuit design companies involved in China is as high as 3,451 as of the time of the report.