The hidden dragon is in the abyss, the gentleman will move when the time comes, and the king will eventually return.
In August 2023, the Huawei Mate60 series was born, and the high-end mobile phone business made a strong return.
Now the Huawei P70 series is selling well again, as an important high-end flagship model of Huawei in the first half of the year, it will promote the market share of mobile phones to a new level.
At the beginning of the year, Huawei expected to ship 7 million to 10 million folding phones in 2024, which is more than three times more than the 2.6 million units in 2023.
This series of actions shows that Huawei is gradually recovering lost ground and plans to regain the No. 1 position in the market that it once had.
The large increase in mobile phone sales also requires strong support from the parts supply chain, especially the P series, which takes photography as the core selling point, and needs the strong support of the CIS chip industry chain, the core device of the mobile phone camera.
So, what are the important roles of CMOS image sensors (CIS)?
CIS chip, full name CMOS image sensor (CMOS image sensor), the main function is to realize the imaging of digital cameras, can directly convert photo information into digital signals, and is the absolute core device in the camera module.
When the light hits the image sensor, the photosensitive unit on it will generate a photoelectric effect according to the light intensity, and the corresponding digital signals will be generated, and these digital signals will finally be restored to the real photo.
Nowadays, digital cameras have completely become the absolute mainstream in the field of photography, widely used in mobile phones, cameras, automotive electronics, security and other fields, film cameras are only played in the hands of some collectors.
For the same photo, the larger the camera pixels, the higher the resolution, and the clearer the photo, which was previously one of the core selling points of the phone.
At present, after taking into account various factors, most of the pixels of the main camera of mobile phones are 48 million-64 million pixels, and 50 million pixels, as the mainstream type of the market, have been able to meet the needs of ordinary users.
So, how valuable is the CMOS image sensor (CIS) in the industry chain?
At present, the hardware in the camera assembly mainly includes CIS, optical lens, voice coil motor, infrared filter and other components, and CIS is the core component.
According to industry data, CIS accounts for 52% of the total cost of camera modules, and other components such as optical lenses, module assembly, voice coil motors, and infrared filters account for another 48% of the cost.
It can be said that in today's digital society, CIS chips are in an absolutely dominant position in camera modules, and the strength of chip performance is directly related to the imaging effect of the camera, and the technical barriers are deep.
So, what is the size of the CMOS image sensor (CIS) market?
First, mobile phone cameras continue to move towards a multi-camera trend.
At present, mobile phone cameras are still the largest application market, accounting for 71.40% of the total demand in the CIS market share in 2022, far exceeding other directions.
Although there is a clear and continuous downward trend in global smartphone shipments, multi-camera is still the development trend of the mobile phone market, with triple-camera mobile phones accounting for 34% in 2022, which has become the mainstream configuration of smartphones.
Relying on the trend of multiple cameras in smartphones, the size of the mobile phone camera market is expected to grow from $27.1 billion in 2018 to $45.7 billion in 2024, expanding by 68.6%, and the market size will continue to grow.
In the first quarter of this year, Samsung Electronics' CIS product quotation increased by 25%-30%, and Huawei previously swept CIS chips in order to meet the production and stock of folding screen mobile phones, which marked the strong demand in the CIS market.
Second, the market demand for automotive cameras is growing rapidly and has become a new incremental market.
With the continuous improvement of the intelligence of automobiles, the forward-facing camera has become the standard configuration in advanced autonomous driving systems, and it needs to be equipped with high-end cameras with better performance.
Especially in Tesla's FSD intelligent driving solution, the camera is the absolute main force. Even for the domestic lidar-based intelligent driving route, the camera is also one of the three major sensors, and its market position is firm.
In terms of the demand for cameras for intelligent driving systems, 3 cameras are required at the L1/L2 level, 6 cameras at the L3 level, and 11-15 cameras will be used in L4/L5 smart cars, and the market size of the on-board camera will expand exponentially.
Third, domestic substitution continues to deepen.
We know that 50 million pixel CIS is now the mainstream trend in the mobile phone market, which used to be mainly occupied by Sony and Samsung, two international manufacturers.
However, with the growth of domestic manufacturers, domestic CIS manufacturers have made substantial breakthroughs in 50 million main cameras and achieved breakthroughs in independent technology.
For example, Huawei P70 series, Xiaomi 14 series, and Honor Magic6 series have all used domestic CIS products, and domestic substitutions are gradually occupying more market share.
On the whole, in the mainstream trend of mobile phone multi-camera, as well as the increase in the demand for on-board cameras for intelligent driving, as well as the popularization of security demand, the scale of the downstream market still has a very large incremental space.
So, stimulated by Huawei's sweeping and price increase expectations, which domestic companies have benefited?
At present, the two giants of Sony and Samsung still occupy a large market share and dominate the global market by relying on their previous advantages.
However, domestic manufacturers Weir shares (Haowei Technology), Gekewei, and Smartway have also developed 50 million pixel high-end cameras, which are gradually being replaced by domestic ones.
With the recovery of market demand for CIS, the high prosperity of the industry has also been transmitted to the CIS wafer foundry fields of Jingfang Technology, and the performance has rebounded steadily.
Jingfang Technology, the company's main business is chip packaging and testing, especially CIS chip packaging and testing business.
The company's CIS chip packaging and testing business customers include Sony, Weir shares, Geke Micro, Smartway and other world-renowned CIS manufacturers, in this field has a complete supply chain system, is the absolute leader in the industry.
It is precisely because of the company's advantages in the field of CIS packaging and testing that Weir shares will become a shareholder of the company in 2022, deeply binding the company's corresponding packaging and testing capacity, and Weir shares are also the main camera suppliers of Huawei P70 series and Xiaomi 14 series, and the company has also become the king hero behind Huawei mobile phones.
Moreover, the company has bargaining power in the industrial chain, and the gross profit margin of the packaging and testing business remains at a high level, with a gross profit margin of 42.44% in the first quarter, which is significantly higher than the gross profit margin of Weir shares, and has an obvious moat advantage.
Due to the downturn in the smartphone market in the past few years, the performance of CIS industry chain companies has been under great pressure.
With the recovery of demand in the CIS industry, the company's performance has shown significant growth from the third quarter of 2023, especially the net profit in the last three quarters has increased by 279%, 116%, and 180% year-on-year. In the first quarter of 2024, the non-net profit growth was as high as 2476%, and the company's performance continued to recover.
Overall, as the demand for high-end cameras for smartphones, intelligent driving and security continues to increase, upstream and downstream companies in the industrial chain have re-entered a high boom cycle.
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Source: Flying Whale Investment Research