We believe that the development of 5G should be treated separately at home and abroad. Huawei and ZTE lead the world in 5G technology and commercial capabilities, and external problems such as trade are difficult to shake Huawei's leading edge in communication equipment.
Domestically, the Ministry of Industry and Information Technology announced that it will issue a 5G commercial license in the near future, which shows that the progress of China's 5G construction has not been significantly affected. After the license is issued, operators can conduct 5G commercialization, even ahead of the previous goal of commercialization in 2020. It is beneficial for Huawei to build the network in advance. At present, it has made full business preparations, and the shipment of base stations in a single month has reached about 20,000. ZTE is also expected to benefit from domestic 5G construction. Due to the relatively slow preparation, Nokia and Ericsson may have a low share in domestic 5G construction.
Dry goods research report Note: This research report was published on June 5th, but on June 6th, China directly issued four 5G commercial licenses instead of the original 4G trial operation licenses, which will indicate that we directly skipped the 5G trial operation and directly entered large-scale commercial operation. This unexpected action also shows our determination to break through in 5 G.
In foreign countries, some operators, such as Europe, choose whether to use Huawei's 5G equipment, which will slow down the construction of 5G, while Japan and other countries give up using Huawei's equipment, which may lead to the decline of Huawei's 5G share. In addition, due to the large overseas stock of 4G networks, high cost performance and high replacement cost, Huawei's overseas 4G share will not decline significantly in the short term.
However, the first batch of 5G networks were mainly built in China, the United States, Japan and South Korea, while 5G in Europe and other countries was not urgent. Therefore, we believe that the current 5G license in China is beneficial to Huawei and ZTE. But we need to follow up the possible further reaction of the United States to China's 5G license.
Chart 1: communication base station structure
However, 5G also brings opportunities and challenges. The core is that technological change drives the market scale to increase, and semiconductor automatic control is the key point of breakthrough.
The main risks of communication base station construction come from both customers and supply chain. We believe that the progress of 5G in China is faster than overseas, which is beneficial to the domestic industrial chain. However, there are still shortcomings in the semiconductor field (chips, etc.). ) In China, it needs independent control.
Opportunities and Challenges 1: Self-control in semiconductor field is the main direction of breakthrough. From the perspective of supply chain, there are shortcomings in the semiconductor field, which can be controlled independently as a solution.
Chinese mainland suppliers are strong in 1) antenna links, and 2) they have a certain market position in PA/LNA, filters and other RF front-ends, but there is still a lot of room for import substitution.
3) The links with large substitution space in China are mainly in the semiconductor field, including PA, baseband chips, digital chips, analog chips and power chips. Compared with 4G, the performance improvement of 5G depends largely on the design and selection of the chip. We believe that the self-control of the chip field is the key point of the breakthrough in the construction of 5G base stations in China.
Opportunity and Challenge 2: 5G features promote the demand for base station equipment such as PCB, antenna vibrator, PA and dielectric filter.
The high-frequency and high-speed characteristics of 5G drive the materials and processes of PCB/CCL, antenna, PA and filter to change, while the consumption of multi-channel/large bandwidth mainly drives PCB, antenna, PA, switch and filter to increase significantly.
With the upgrading of technology, the scale of the global communication equipment market shows a fluctuating trend. At present, the global wireless telecommunication network is experiencing a turning point from 4G to 5G. With the arrival of the 5G construction period, the market scale has an upward trend.
Taking the base station and wireless communication equipment market as an example, Gartner predicts that the global wireless equipment market will show an upward trend in 20 18 years. According to Gartner's data, in the communication equipment market in 20 18 years, China manufacturers Huawei and ZTE ranked first in market share, among which Huawei ranked first with 27% share.
From a technical point of view, Huawei and ZTE achieved the technological catch-up of 5G through professional accumulation in the 4G era. At the patent level, Huawei and ZTE ranked first and fifth in the world in terms of 5G patents respectively. In terms of commercialization, China enterprises are also leading the world. 19 In May, Huawei announced that the shipment of 5G base stations exceeded 65,438+10,000 units, and ZTE also said in April that the cumulative shipment of 5G base stations exceeded 1 10,000 units.
According to GSA statistics, as of 4Q 18, the global number of 4G users reached 3.99 billion. The global penetration rate of 4G varies from continent to continent. The countries that actually deployed 5G in the early stage will mainly be South Korea, the United States, China, Japan, the Middle East and some European countries with high penetration rate of 4G. GSA predicts that by 2023, there will be 65.438+300 million 5G users worldwide.
By the beginning of April of 20 19, there are 720 4G operators and 1 16 operators in the world ready to provide 4G services. In terms of 5G, 224 operators in 88 countries have started to test, test and try out commercial or commercial 5G networks. Among them, there are 39 trial commercial or commercial operators and 5 commercial operators/kloc-0.
Huawei predicts that there will be 6.5 million 5G base stations and 2.8 billion users worldwide in 2025, covering 58% of the global population. Based on the investigation and judgment of the industrial chain, we think that 20 19 is the first year of shipment of 5G base stations, and China will become the main force of 5G construction in the next three years.
? China: The three major operators are keen to build 5G networks all over the country. Beijing has built 4,700 5G base stations by the end of May, and will achieve 5G coverage within the Fifth Ring Road by the end of the year; Shanghai Telecom will build more than 3,000 5G base stations in 20 19, and 10000 5G base stations by the end of 200210000; As of May, Guangdong has built more than14,200 5G base stations, including 7 100 in Guangzhou. Guangdong Mobile has opened a 5G network in 2 1 city in the province; In 20 19, Hubei Mobile will invest 10 billion yuan to build 2000 5G base stations in the whole province. Shandong Unicom announced the official opening of the province's 16 city 5G trial network this year.
? South Korea: The three major operators KT, SK and LGU+2065438+launched the national 5G operation on April 3, 2009, with more than 260,000 users per month. At that time, LG U+*** set up about 1. 1.8 million 5G base stations, and its main suppliers included Huawei. Suppliers of KT and SK include Ericsson and Samsung.
? United States: 5G is deployed at 28GHz, 24GHz, 37GHz, 39GHz and 47GHz. At the end of May, the United States completed the second spectrum auction. At present, 5G in the United States is mainly used for home wireless broadband access. Recently, the US FCC said it would approve the merger of Sprint and T-Mobile, the third and fourth largest wireless operators in China. The merged operators will use 130MHz bandwidth in the intermediate frequency band, which can be considered for 5G deployment. The current suppliers of 5G equipment in the United States include Ericsson, Nokia and Samsung.
? Japan: 5G is also under construction. Asahi Shimbun reported that the service is expected to be provided in the spring of 2020. According to Asahi Shimbun, Japan's three major operators NTTDocomoInc, KDDICorp, SoftBankGroupCorp and emerging operator RakutenMobileInc will mainly choose 5G equipment from Ericsson, Nokia, Samsung and local companies.
? Europe, Middle East: Some operators are conducting 5G trials and commercial trials. For example, European operator Telia will launch 5G services in 1-2 European countries. Etisalat 1H 19, a Middle East operator, will launch 5G services in 300 cities.
From Huawei's point of view, the communication equipment industry chain belongs to the joint development of software and hardware, and the goal is to combine the boards into a system and realize commercialization through testing. In the design and manufacture of circuit boards, raw materials mainly include various chips and PCB boards, which are processed into commercial boards by OEM. In the process of PCB design and chip design, EDA and other software development environments are needed.
At present, there is a lot of room for domestic products to replace industrial links.
? Chip link: The performance and stability requirements of the base station communication system lead to the harsh selection of chips.
? EDA and other development environment links: We believe that Huawei will mainly achieve production through existing outsourcing software.
? Test environment: Similar to EDA and other development environments, test instruments and meters are mainly provided by overseas manufacturers, but some of them, such as Rodschwartz, are non-American enterprises.
How do China manufacturers respond?
? Short-term dependence on inventory. Huawei's chip design company Hisilicon is very mature, and the scale and test environment of EDA can support the existing research and development. Short-board chips are difficult to solve in the short term and need to be handled through inventory in the short term. However, after the ZTE incident in 20 18, Huawei was more calm in the preparation of inventory, and the scale of raw materials increased from1900 million yuan at the end of 20 18 to 35.4 billion yuan at the end of 2018. Taking FPGA as an example, Huawei has continuously accumulated FPGA inventory through channels, resulting in 4FQ 19, and the revenue of communication sector of FPGA provider Xilinx has reached the highest level in history.
? Long-term dependence on localization. Chip design needs constant investment and trial and error. There are also a number of companies in the domestic industrial chain that can provide alternative solutions for related industrial chains. Through continuous polishing, there is a greater possibility of localization.
4G share is hard to shake
The base station itself is considered as an area with insufficient competition in the procurement system of operators such as China Mobile. One of the important reasons is that the existing network base stations need constant maintenance and upgrading, and it is difficult to replace the existing network base station suppliers. Huawei ranks in the top two in the field of 4G base stations, and its service operator customers cover the whole world. At present, it is difficult to judge sustainability, and existing 4G customers need to invest a lot of capital expenditure if they change suppliers. For Huawei's existing customers, it is objectively difficult to replace Huawei's base station.
On the other hand, Huawei's products are famous for their high cost performance in the industry. In the context of the weak growth of existing global operators, operators' customers are subjectively unwilling to give up Huawei equipment. A typical example is Vodafone. Vodafone chose Huawei base stations and core network equipment in its global network. However, in the context of trade uncertainty, Vodafone had to abandon Huawei's core network equipment, but retained its qualification as a base station equipment supplier.
Comparing the business structures of the four major wireless manufacturers in different regions, Huawei, ZTE and Nokia operators' business here is not limited to base stations, but also optical network equipment, IP network equipment and other products. If we only compare the base station business, because Ericsson's main products are base station products, the proportion of overseas manufacturers should be slightly higher.
China District: The global market scale is 365,438+0%. Huawei 20 18 accounts for 65%, and the market is stable.
? Progress of 5G: China will start the construction of 5G in 2020. According to the latest feedback from operators, the goal of officially starting the commercialization of 5G in 2020 has not changed. The Ministry of Industry and Information Technology said that it is expected that China's 5G commercial license will land in the near future. With the issuance of 5G licenses this year, China's network construction will enter a new stage. China Mobile will build 5G networks in 40 cities in 20 19. Therefore, the issuance of 5G licenses in China has not been affected by the Huawei incident.
? Share: As local suppliers, Huawei and ZTE gained more than 80% market share of operators in 20 18. 20 18 in the second quarter, ZTE was refused a visa by the United States. However, the share of Ericsson and Nokia has not increased significantly. China operators have maintained close cooperation with Huawei and ZTE in research and development, and their share in the 5G field is expected to further increase. The recent issuance of 5G licenses in China has further benefited leading technology manufacturers such as Huawei and ZTE. Therefore, if the construction speed is accelerated after the license is issued, the share of domestic manufacturers may be further increased.
Asia-Pacific region (excluding China): the market size is 17% of the global market, and Huawei 20 18 accounts for 45%, so there is competition in the market.
? 5G progress: 5G progress is different in different countries. Leading countries such as Japan and South Korea are building 5G, and most countries are building and promoting 4G networks. 5G construction needs waiting time. After the Huawei incident, some countries may consider 5G construction. This incident has invisibly affected the construction of 5 G.
? Sharing: Due to the impact of trade uncertainty, Softbank of Japan recently did not choose Huawei and ZTE to cooperate on the 5G network. Therefore, Japanese manufacturers did not cooperate with China. In South Korea, only LGU+ selected some Huawei equipment, and other operators SK and KT did not cooperate with domestic manufacturers, but Korean manufacturers did not exclude Huawei equipment. The main suppliers of base stations in these two countries are Ericsson, Nokia and Samsung. Among other countries, Ericsson and Nokia have a higher share in Australia, Singapore and Vietnam. Huawei and ZTE have a high share in Cambodia, Thailand, Myanmar, Bangladesh and other countries. At present, these countries are not obviously affected by the Huawei incident. At present, there is no demand for 5G in these countries. The choice of 4G is partly due to the excellent performance and moderate price of Huawei and ZTE equipment. In the long-term development, the 5G networks in these countries are also expected to adopt Huawei and ZTE equipment.
Other regions: the global market size is 52%, and 20 18 Huawei accounts for 39%. The market competition is fierce.
? 5G progress: the United States is the forerunner of 5G construction; The 5G construction in Europe is similar to that in some Asian countries. Due to trade uncertainty, there is a short wait-and-see situation, which will affect the 5G progress in some countries. Some countries, such as Britain, Germany, the Netherlands and other European countries, have not yet made a final decision. Recently, the British operator EE used Huawei's 5G equipment for wireless live broadcast, and achieved good results.
? Share: Huawei's revenue in Europe, the Middle East and Africa in 20 18 was 204.5 billion yuan; The US market revenue is 47.9 billion RMB. The above income includes consumer business and government and enterprise business. The Huawei incident may cause some of these operators to choose non-Huawei equipment in the construction of 5G. However, due to the application of Huawei in the existing network, it is difficult for some countries to switch immediately.
Note: The standard company is covered by Admiralty, and the forecast data of Admiralty is adopted; The rest were updated on June 4th, 20 19, Beijing time, using the market consensus expected closing price information.
Semiconductor: 5G promotes the development of RF front-end and baseband chips.
Semiconductor is the core component of the base station and the most valuable component of the base station. The 5G Hong Jizhan is mainly presented in the mode of AAU+ DU+CU, in which AAU consists of the original RF part RRU superimposed with active antenna, and the baseband part BBU is separated into CU central unit and Adu distribution processing unit.
Among them, AAU's main semiconductor chips are analog, such as RF chips (filters, power amplifiers, RF switches, etc. ), while DU/CU mainly takes digital chips as the core (such as baseband processing chips, etc.). A specific form of ASIC or FPGA). DU/CU/AAU are equipped with power management chips to ensure continuous and stable power supply. In the base station optical fiber transmission, the photoelectric interface chip is also essential.
With the improvement of the construction intensity of 5G base stations, the semiconductor market for base stations will also usher in a period of rapid growth. According to stmicroelectronics's prediction, in a single base station of 202 1, the proportion of RF-related/digital-related semiconductors in the total semiconductor components is 32%, while the proportion of high-performance analog, photoelectric/power and sensor values is 26%/ 10% respectively.
Localization of base station-related semiconductors: At present, domestic manufacturers have achieved some "autonomous controllability" in base station-related semiconductors.
Numerically, 1) Huawei and ZTE, the major domestic communication equipment vendors, have many years of experience in the field of base stations, and both have the ability to design their own ASIC, which can be contracted by partners such as TSMC.
2) At present, FPGA chips for baseband processing/interface are mainly supplied by overseas manufacturers, but Huawei, the equipment manufacturer, has also accumulated a lot of inventory before. China's Ziguang Tongchuang, Anlu Information and Gaoyun Semiconductor have all launched commercial products, but there is still a huge gap between their product performance and shipment scale and head manufacturers such as Xilinx, Altera and Lattice. Although there are also domestic manufacturers who have deployed power amplifier services, such as Suzhou Nengxun (unlisted) and Sanan Optoelectronics (600703. SH), there is still a big gap between China and overseas in the field of core components procurement by base station suppliers.
As for filters, Fenghua Hi-Tech (000636) produced ceramic dielectric filters. SZ) and Wuhan Fangu (002 194. SZ) can be used for 5G base stations.
As for digital-to-analog conversion/power management chips, with the continuous improvement of technical strength, Sheng Bang (30066 1. SZ) is expected to further cut into the base station market in the future.
As for optical devices, at present, low-speed (below 100G) chips have been replaced by domestic ones. The main manufacturers are optical communication technology (00228 1. SZ) and Onna optical communication (0877. HK), but the high-speed chip is still vacant.
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