Investment Theme
Report Highlights
1. We use traffic as the underlying logic to analyze the growth trend of communication PCBs, and the industry’s business cycle is expected to surpass the 3G/4G construction cycle. Traffic is the core driver of the growth of communication infrastructure. The focus of the market is on the operators’ capital expenditure plan and the layout scheme of 5G base stations. After the Internet traffic breaks through the growth singularity, the operators’ capital expenditure plan passively follows the traffic trend, and the shared base station scheme does not change the demand space of the overall market. And due to the expansion of new infrastructure such as server data centers, the business cycle is no longer limited to the capital expenditure cycle of traditional operators.
2. We believe that the structural growth of high-end communication boards is stronger than the overall industry, and the competitive barriers for high-end products are higher than market recognition. At present, the high-end communication board suppliers are mainly Shennan Shanghai Electric Shengyi. The market believes that the PCB industry is relatively low-end and high profit margins are unsustainable. In the future, a large number of second tier manufacturers will intervene to occupy the leading share of profit margins. We believe that the overall PCB industry will not grow too fast due to economic growth constraints. High end communication boards are showing structural growth due to technological upgrades. Due to the upgrading of high-end material applications, processing difficulty, layer upgrades, and significantly increased process difficulty, leading manufacturers have deep technological accumulation. Second tier manufacturers need a long time to catch up in yield and mass production capacity. Currently, we have not seen a significant influx of competitive second tier manufacturers. Therefore, leading manufacturers can enjoy long-term industry dividends.
3. We deduce the growth opportunities of communication PCBs based on the technology cycle framework from infrastructure construction to intelligent terminals. The technological innovation cycle evolves along the development trajectory from infrastructure to intelligent terminals, and then to software services. 5G serves as the starting point of this round of technological innovation, with infrastructure as the main line. Therefore, the first focus is on the growth opportunities of base station and server demand. In the next stage, the layout of intelligent terminal penetration rate will bring about component upgrades, such as mobile phone software boards and motherboards. The elasticity of corresponding sectors varies in different development stages.
Investment Logic
This article elaborates on investment opportunities for communication PCBs within the framework of the technology innovation cycle, integrating the underlying logic of traffic throughout the entire 5G cycle. Based on industry development trends and policy support directions, this study focuses on the impact of 5G new infrastructure on the PCB industry, with a particular emphasis on analyzing the demand space, business climate changes, and industry competition landscape of high-end communication boards. Key leading manufacturers are selected to analyze their growth opportunities in this business cycle. Developing along the main line of 5G, focusing on the upgrade of intelligent terminals in the post infrastructure cycle, focusing on investment opportunities for upgrading 5G mobile phone motherboards, and analyzing the supply and demand situation of HDI with a particular emphasis on major manufacturers.
1、 Traffic driven high-end communication board boom, application scenarios landing and expanding industry space
According to the 2018 Global Internet Phenomenon Report, video accounts for almost 58% of downstream traffic. Streaming video is growing rapidly, including not only top of the line (OTT) video streaming services such as global giants Netflix, YouTube, and Amazon Prime, but also operator based streaming and direct consumer streaming.