Foreword: The operating income of Aojie Technology in 2023 will be 2.599 billion yuan, a year-on-year increase of 21.48%, but the net profit will show a significant loss. By the end of 2023, the company's cumulative loss has reached more than 400 million yuan.
Interpretation of annual report: financial performance, serious losses
The operating income of Arcjet Technology in 2023 will reach 2.599 billion yuan, an increase of 21.48% compared with 2.140 billion yuan in 2022. This growth shows that the company has shown strong vitality and expansion ability in the market competition. During the reporting period, the company launched a number of new products and received a good response in the market. Despite the fierce competition in the market as a whole, Aojie Technology has successfully expanded its sales scale through continuous technological innovation and product iteration. Despite the increase in operating income, the net profit of Arcjet Technology showed serious losses. In 2023, the net profit attributable to shareholders of listed companies will be -50.582 billion yuan, compared with -25.151 billion yuan in 2022, doubling the loss range. Similarly, basic earnings per share decreased from -$0.61 in 2022 to -$1.22 in 2023, reflecting a significant decline in profitability per share. In 2023, the company's net cash flow from operating activities will be -67.758 billion yuan, a further decrease from -35.391 billion yuan in the previous year, indicating that the company's cash flow position is further tight. This is mainly due to factors such as the increase in raw material costs and R&D investment. The total assets at the end of the year were 7.299 billion yuan, down 12.31% from the beginning of the year, and the net assets attributable to shareholders of listed companies decreased by 14.94% year-on-year to 6.356 billion yuan. In 2023, the R&D investment of Aojie Technology is significant, with an investment amount of about 1.116 billion yuan, accounting for 42.92% of operating income. During the reporting period, the company launched a total of 20 R&D projects and completed 30 project tape-outs, indicating the company's continuous pursuit of innovation in chip technology and products. This high proportion of R&D investment reflects the company's strategy of insisting on technological innovation as its core competitiveness. During the reporting period, the market competition faced by Aojie Technology intensified, especially in the field of chip products. The gross profit margin continued to be at a low level due to fierce market competition, and the main competitors bargained, resulting in a significant decline in the company's comprehensive gross profit margin. Judging from the financial data, the performance of Arcjet Technology in 2023 is a typical situation of increasing revenue but not increasing profits. While operating income continued to grow, showing the results of the company's market expansion, the significant loss of net profit and the negative cash flow situation were worrying.
Core competitiveness
In the annual report, Arcjet summarized several of its core competitiveness: scarce full-standard cellular baseband technology and high-tech barriers: Arcjet's cellular baseband technology covers the full range of technologies from 2G to 5G, and the mastery of this technology enables the company to design and manufacture the most advanced communication equipment. Technologies in key areas such as signal processing, high-performance analog/RF circuits, communication protocol stacks, and low-power circuit design constitute a high technical barrier that only a few companies in the world have mastered. This is not only the core technical advantage of Arcjet, but also the foundation of its market competitiveness. Abundant wireless communication technology layout and self-research capabilities: Arcjet has a wide range of technologies, including not only cellular network technology, but also non-cellular wireless technologies such as WiFi, Bluetooth, LoRa, and global navigation and positioning systems. The company's self-developed IP library is huge, and it has mastered a number of core technologies such as ultra-large-scale digital-analog mixed integrated circuits, RF chips, baseband RF integration technology and ultra-low-power SoC chip design, enabling it to maintain its leading position in the wireless communication market. Excellent and stable R&D team: About 90% of the employees of Arcjet are engaged in R&D work, and more than 70% of them have master's degrees or above. The R&D team members have rich experience and technology accumulation in the field of wireless communication, and this efficient team ensures the continuous progress of the company's technology and the rapid iteration of products. Diversified product layout and diversified business matrix: The company's product line covers a wide range to meet the needs of different rates and transmission distances, and can be deeply customized for specific application scenarios. This multi-level product line portfolio and business expansion to chip customization business, IP licensing and other fields have improved the company's ability to resist risks in the changing market environment. Efficient local support capabilities: The company not only has high-end technology, but also pays great attention to the local market, and has a R&D and technical support team rooted in China, which can quickly respond to customer needs and provide efficient technical support.
The technology has been mastered and is under development
Several key technologies that Arcjet Technology focuses on, source: Arcjet Technology's 2023 annual report, and non-research institutes
In the annual report, Arcjet Technology is focusing on some technologies with great development prospects in the future. Arcjet is actively participating in the development of 5G RedCap technology, which is regarded as the key to promoting industrial upgrading and commercialization. 5G RedCap is a 5G lightweight technology that can reduce equipment cost and complexity while maintaining low power consumption and sufficient bandwidth. The company expects to carry out 5G RedCap pilots in the fields of cultural tourism, medical care, and education. 5G RedCap technology is not only driving the adoption of smart devices, but also significantly increasing the level of automation and networking in industrial production, and is expected to increase the number of global connections to nearly 10 billion by 2030. In addition to 5G RedCap, WiFi 7 and Bluetooth Low Energy audio technology are also the focus of Arcjet. WiFi 7 provides higher data rates and lower latency by introducing higher wireless bandwidth and modulation. Bluetooth Low Energy audio technology supports longer transmission distances and lower power consumption, making it suitable for smart voice devices and IoT applications. At the same time, WiFi wireless sensing technology provides a low-cost and privacy-preserving solution for smart home and security monitoring by analyzing human behavior in wireless signal propagation. Bluetooth Low Energy audio technology is becoming a key technology in the IoT era due to its low energy consumption and efficient connectivity, especially in the smart voice device market. Finally, the comprehensive upgrade of BDS-3 provides strong technical support for high-precision positioning, which not only improves navigation accuracy, but also opens up new possibilities for applications such as intelligent transportation and precision agriculture.
The technology that Arcjet has mastered, source: Arcjet Technology's 2023 annual report, and non-research institutes
Through self-development and integrated mergers and acquisitions, Arcjet has mastered a variety of technologies from multi-network standard chip design to ultra-low power Bluetooth audio chip design, and the company has demonstrated its wide coverage from basic technology to high-end application technology. It is worth mentioning that 5G chip design, baseband RF integration technology, and high-performance ISP design technology are all independently developed, which shows the strong ability of Arcjet in technological innovation and independent intellectual property rights. In particular, the ultra-large-scale digital-analog hybrid chip design shows the leading position of Arcjet in high-end chip manufacturing technology.
Aojie Technology's research projects, source: Aojie Technology's 2023 annual report, compiled with non-research institutes
From the perspective of Arcjet's research projects, including the 4G smartphone chip platform, the 5G baseband technology Arcjet has actually mastered and is roughly equivalent to HiSilicon's Baron 5000 and MediaTek MT750 performance.
Top 10 app markets to focus on
The market that Arcjet wants to focus on, source: Arcjet Technology's 2023 annual report, sorted out with the non-research institute
From the annual report, it can be seen that Aojie Technology focuses on a number of fast-growing high-tech tracks, especially in the Internet of Vehicles and smart wearable device markets, which have strong growth momentum and continuous expansion of market size. In the field of Internet of Vehicles, with the maturity of 5G and V2X technologies, vehicles will become more and more intelligent, digital and connected in the future. The smart wearables market is likewise witnessing significant growth, especially in smartwatches and other smart wearable devices. In addition, Arcjet also focuses on the development of the high-end smartphone market, network infrastructure, and new energy and smart meter markets, which provide abundant business opportunities and growth potential for technological innovation and application needs in these markets.
The cellular baseband business continues to account for the majority
Despite focusing on so many application markets, for chip companies, the smartphone market has always been the core area for chip manufacturers to compete for because of its huge single shipment volume and fierce competition. In the global smartphone chip market, Qualcomm, HiSilicon, MediaTek, Samsung, and UNISOC are the leading manufacturers of 5G baseband chips. In 2022, Qualcomm and MediaTek took the lead in the industry with a market share of 61% and 27%, respectively, demonstrating their dominance in the market. Relying on the product strategy of high quality, high cost performance, high integration and rapid iteration, Aojie Technology has not only successfully broken through the market monopoly of mature enterprises in the industry, but has also become an important supplier of many mainstream module manufacturers at home and abroad, and has been selected into the supply chain system of many well-known brand enterprises at home and abroad. In the field of non-cellular Internet of Things, the company's WiFi+BLE Combo chips have been commercialized on a large scale in many fields such as white power, energy storage and smart healthcare, breaking the monopoly of international giants on the domestic market. Since its establishment, Arcjet has been focusing on the R&D and technological innovation of wireless communication chips with cellular baseband technology as the core. The company is not only a well-known supplier of cellular baseband chips in China, its products are widely used in the fields of consumer electronics and industrial control, but also provides large-scale chip customization business and semiconductor IP authorization. The coordinated development and resource integration of these three business segments have enhanced the company's market competitiveness and anti-risk ability.
The main business composition of Arcjet Technology in 2023, source: Arcjet Technology 2023 annual report
The three main business segments of Arcjet Technology are chip products, chip customization business and semiconductor IP licensing. Among them, chip products are the main body of revenue, reaching 2.246 billion yuan, accounting for 86.40% of total revenue. The chip customization business and IP licensing business achieved revenue of 226 million yuan and 123 million yuan respectively. In terms of market expansion, the company continued to deepen its cultivation of the cellular IoT market and launched a variety of LTE and 5G products, covering the IoT market from low-to-medium speed. The smart wearable product line is also constantly enriched, especially for adult watch users. The IoV chip has passed AEC-Q100 certification and has established cooperation with many domestic and foreign automobile manufacturers. In the annual report, it is worth paying attention to the next business direction mentioned by the management of Aojie Technology, which includes highlights: strengthening the market promotion of 4G smartphone chips and promoting the commercialization of 5G cellular IoT chips.
Is it reliable for Arcjet to enter the mobile phone market?
On April 9, ASR held its annual results briefing, during which the smartphone chip business became the focus of the meeting, and the Internet of Things technology was barely mentioned. Why does Aojie Technology want to enter the mobile phone chip market, which has been fiercely competitive to the red ocean? In addition to the fact that the IoT market is too fragmented, another reason is that the smartphone market is recovering. According to TechInsights' forecasts, the recovery of the smartphone market will be a key factor in 2024, especially in the high-end market, where global sales of high-end smartphones (wholesale price ≥ $600) could increase by 6% year-on-year in 2023, setting a new record. At the same time, IDC predicts that China's smartphone market will achieve year-on-year growth in shipments in 2024 for the first time since 2021. The premium smartphone market accounts for nearly a quarter of the global smartphone market in terms of sales and 60% of revenue, indicating a growing consumer preference for high-performance devices. In 2023, Arcjet has successfully launched 4G-based smartphone chips, and plans to start mass production of 5G smartphone chips in 2024. In addition, through the acquisition of Marvell's mobile communications division, Arcjet not only gained access to advanced 4G communications technology, but also expanded its customer base and supply chain resources. Arcjet has established long-term chip design services or IP licensing partnerships with a number of leading companies, such as OPPO and Xiaomi. These partnerships, together with the investment support of Alibaba, Xiaomi Yangtze River, TCL and other capitals, have further strengthened the position of Aojie Technology in the market. However, in the field of mobile phone chips, Arcjet's competitors such as Qualcomm, MediaTek, HiSilicon Semiconductor and UNISOC have experienced years of market competition and formed high customer barriers. In addition, several major customers of UNISOC include Transsion, realme, Lenovo and ZTE, which account for 95% of the revenue of mobile phone chips, and Aojie Technology said that the above four target customers themselves are within the company's target market and look full of gunpowder. Finally, the 5G smartphone chip announced by Aojie Technology is a research project, and the first 5G RedCap chip is expected to start mass production by the end of 2024. However, the industry predicts that the actual mass production time may not be until 2026. Finally, although Arcjet regards 2024 as a key year for its smartphone market, the founding team of Arcjet is inextricably linked to UNISOC. However, its 4G mobile phone chip 8601 has not yet been mass-produced and shipped, and the industry will also compare the 8601 with the 9832E platform, a quad-core product launched by UNISOC a few years ago. In this way, it seems that Aojie Technology still has a tortuous way to go in order to grab a piece of cake in the smartphone market.