1. Overview of Defense Informationization
1. International situation turbulence continues to drive growth in key areas of expenditure and development of national key sectors
In recent years, global changes have intensified, geopolitical tensions have escalated, and deterrence, friction, and conflict between major powers in key areas have become increasingly normalized. Continuously increasing the defense expenditure budget is a necessary condition for enhancing national defense strength and ensuring national defense security.
From 2020 to 2023, China’s defense budget growth rates were 6.6%, 6.8%, 7.1%, and 7.2%, respectively, with continued increases in defense budget investment. On March 5, 2023, the Chinese Ministry of Finance stated in its government budget draft report that China’s defense budget for 2023 is approximately 1.5537 trillion yuan, an increase of 7.2% year-on-year, with the growth rate adjusted up by 0.1 percentage points compared to 2022, reaching a nearly four-year high.
China’s defense budget expenditure as a proportion of GDP is lower than the global average
Source: Wind, Fuguo Fund, public data compilation
From the ratio of key area expenditures to GDP, from 2019 to 2022, China’s defense budget expenditure as a proportion of GDP was 1.21%, 1.25%, 1.19%, and 1.3%, far lower than the average proportions of 4.48% for Russia and 3.08% for certain major powers during the same period.
In 2022, the U.S. defense budget was $752.9 billion, remaining at a high level. Currently, China’s defense budget scale is only about 30% of that of the U.S., and the mismatch between defense strength and economic and technological strength, as well as the international status and security strategic needs, is evident. As the competition in key areas among major powers becomes increasingly intense, coupled with the pressures from geopolitical tensions and global changes, it is expected that there will still be significant growth space for defense budget expenditure during the 14th Five-Year Plan period, driving the continuous rapid development of national key sectors.
2. The continuous advancement of defense informationization and C4ISR construction promotes the rapid development of information technology equipment in national key areas
National key areas will apply modern information technology to drive the transformation of warfare from mechanization to informationization, which is an important component of the new defense system. The report of the 19th National Congress of the Communist Party of China clearly pointed out that by 2020, China’s defense construction should ensure basic mechanization and significant progress in informationization; by 2035, efforts should be made to achieve basic modernization of defense and key sector teams. The national 14th Five-Year Plan proposed that defense construction should accelerate the integrated development of mechanization, informationization, and intelligence. The acceleration of defense informationization construction resonates with domestic substitution, creating a huge market space for electronic informationization in national key areas.
According to the analysis of the China Research Institute of Science and Technology: By 2025, China’s defense informationization expenditure is expected to grow to 251.3 billion yuan, accounting for 40% of the defense equipment expenditure in 2025, with a compound annual growth rate of 11.6% during the 14th Five-Year Plan period.
The C4ISR system (Command, Control, Communication, Computer, Intelligence, Surveillance, Reconnaissance) is the core of electronic informationization in national key areas, relying on outstanding capabilities in intelligence acquisition, information transmission, analysis and judgment, decision-making, and organizational coordination. The C4ISR system’s role and position in the modernization of key sector teams and high-tech warfare are increasingly prominent. Information technology equipment in the C4ISR system can timely and accurately acquire battlefield information, and after analysis and processing, commands can be transmitted to specific combat units through reliable and secure national key sector communication networks, thus forming a complete information closed loop, constituting the main body and key of the national defense informationization system. Currently, China’s C4ISR construction is still in its initial stage, and the continuous construction of C4ISR will accelerate the development of information technology equipment in national key areas.
3. The continuous improvement of informationization levels in defense and key sector teams directly drives the release of demand for embedded computers in national key sectors
With the rapid development of information technology, the informationization and intelligence levels of key sector equipment have become one of the main indicators of battlefield power comparison. National key sectors use embedded computers in a way that combines software and hardware, typically embedded in key sector equipment systems in the form of modules, plugins, or devices, enabling these systems to intelligently complete various tasks. By replacing manual operations with intelligence, tasks such as searching, identifying, targeting, and attacking can be accomplished, improving the combat effectiveness of key sector equipment. On the information battlefield, all systems of high-tech key sector equipment require the support of embedded technology, and embedded computers, as the intelligent core of key sector equipment, hold an irreplaceable position in the intelligence of key sector equipment. In the future, as the mechanization, informationization, and intelligence levels of key sector equipment continue to rise, the demand for embedded computers in national key sectors will also continue to grow.
According to a research report released by Global Industry Analysts in 2020 on the global market for embedded systems in national key sectors, the market for embedded systems in national key sectors is expected to grow from $101.9 billion in 2020 to $238 billion in 2027, with a compound annual growth rate of 12.9%.
According to a report by Western Securities in 2022 titled “Core Targets for Electronic Informationization in National Key Areas: Mechanical and Electronic Lead High Growth”: The total market size of China’s electronic embedded systems in national key sectors from 2022 to 2026 is expected to reach 256.035 billion to 271.455 billion yuan, with an average market size of 51.207 billion to 54.291 billion yuan.
2. Current status and development trends of the embedded computer market
1. Global Market
Modern industry has increasingly high requirements for the scalability, manageability, and usability of control systems, leading to the gradual replacement of conventional control systems by computing control systems centered on embedded computers. Embedded computers are increasingly penetrating various industries, and the number of various new types of embedded computers in application has far exceeded that of general-purpose computers.
Unlike traditional general-purpose computers, embedded computers are typically tailored for specific application areas and developed according to application needs, penetrating various industries along with the growing demand for intelligent products. In recent years, the enormous demand for intelligent equipment in communications, information electronics, medical, and key sectors has driven the development of embedded computers. According to the Transparency Market Research report on the global industry analysis, capacity, share, growth, trends, and forecasts of the embedded market from 2015 to 2021, the global embedded systems market is expected to reach $233.1 billion by 2021, and it is anticipated to grow to $338.34 billion by 2027, continuing to maintain a stable growth trend. The increasing demand for advanced devices that meet requirements and operate accurately, as well as for multi-core technology processors and embedded graphics, has driven overall market growth in the embedded computer industry. The following is the analysis and forecast of the global embedded systems market capacity from 2015 to 2025:
Global Embedded Systems Market Capacity from 2015 to 2025
Source: Transparency Market Research
At the same time, globally, the enormous demand for intelligent equipment in key sectors has driven the growth of the embedded computer market. According to the global market report released by Global Industry Analysts, the market size for embedded systems in key sectors is expected to grow from $101.9 billion in 2020 to $238 billion in 2027, with a compound annual growth rate of 12.9%.
In the past decade, technologies related to embedded computers have developed rapidly: microprocessors have evolved from 8-bit to 16-bit, 32-bit, and even 64-bit, supporting multiple varieties of CPU chips instead of a single variety, and from single-core to providing other functional modules (such as file systems, TCP/IP network systems, graphical window systems, etc.) in addition to the core, forming an embedded software system that includes embedded operating systems and middleware. Advances in hardware technology have also driven embedded system software to develop towards faster operating speeds, stronger supporting functions, and more convenient application development. The emergence of SOC technology has further promoted the integration of embedded software and hardware systems. SOC, known as a system-on-chip or single-chip system, refers to integrating a complete system into a circuit chip, including all the content of embedded software. SOC technology has changed the traditional design concept of embedded systems and represents a new milestone in the development of microelectronics technology, becoming a development trend for today’s large-scale ICs, providing unprecedented market and development opportunities for the IC industry.
As the application of embedded computers continues to deepen and the level of industrialization continues to rise, new application environments and industrial demands have imposed stricter requirements on embedded computers. Driven by new demands, embedded computer operating system kernels need not only to possess basic characteristics such as miniaturization and high real-time performance but also to develop towards high reliability, adaptability, and componentization, with the supporting development environment becoming more integrated, automated, and user-friendly.
2. Chinese Market
The embedded computer industry in China is facing a favorable development environment and opportunities due to the government’s emphasis and support, the integration of information industry and traditional industries, and the good foundation of China’s manufacturing industry. During the development of the embedded industry in China, the government has fully recognized its important role in the development of various application fields in society and has provided strong support in terms of policy and funding. In recent years, various departments such as the State Council, the National Development and Reform Commission, the Ministry of Science and Technology, and the Ministry of Commerce have successively issued and implemented industry policies and plans, designating the embedded computer industry as one of the key industries for national development. Currently, the research and application of embedded computers have become a new growth point for China’s economy, driven by informatization promoting industrialization and industrialization promoting informatization.
According to statistics from the China Industry Information Network, the market size of China’s embedded systems industry was 644.6 billion yuan in 2020, with an expected compound annual growth rate of 21% from 2021 to 2025. As the core of intelligent terminal products, embedded technology has penetrated various fields of society and people’s lives. With the continuous advancement of China’s modernization construction and the arrival of the Internet of Things, the application of embedded technology will be more widespread in downstream fields, and its future market size will increase accordingly. The market size of China’s embedded systems from 2015 to 2025 is as follows:
Market Size of China’s Embedded Systems from 2015 to 2025
Source: China Industry Information Network, Zhejiang Merchants Securities Research Institute
The rapid development of China’s embedded systems applications can be attributed to the following reasons:
First, with the development of chip technology, individual chips now have stronger processing capabilities than before, making it possible to integrate multiple interfaces into a single chip; second, to meet the needs of downstream applications, the requirements for stability, cost, and updates have further increased, making the application of embedded computers in downstream products more widespread and gradually becoming a focal point. In the future, embedded systems will further enter multiple fields of the industry and become an important driving force for the overall development of the industry. The distribution of embedded product application industries is as follows:
Source: “Survey Report on Embedded Development Practitioners in China” (Huaqing Yuanjian)
China’s embedded computer applications are widely distributed across various downstream industries, including industrial control, consumer electronics, communication equipment, national key sector electronics, and security monitoring. As technology updates and iterations continue to develop across various industries in China, the wave of informatization will drive further development of electronic information industries such as big data and cloud computing, and the demand for various intelligent terminal devices will also continue to be released. Embedded technology, as one of the core technologies of intelligent terminal devices, will be applied to more fields.
3. Development Trends of Military Embedded Computers
1. Use of Embedded Computers in Key Sectors
Key sectors use embedded computers in a way that combines software and hardware, typically embedded in key sector equipment systems in the form of modules, plugins, or devices, enabling these systems to intelligently complete various tasks with high reliability, strong real-time performance, and flexibility. They are widely used in combat and support systems such as key sector equipment control, command control, and communication system simulation, replacing manual operations with intelligence to complete various key sector tasks such as searching, identifying, targeting, and attacking, thereby improving the combat effectiveness of key sector equipment. With the rapid development of information technology, the informationization level of key sector equipment has become one of the main indicators of battlefield power comparison. The ability to effectively utilize increasing amounts of information has become a crucial factor in the success or failure of wars. As the intelligent core of national key sector equipment, embedded computers hold an irreplaceable position in the intelligence of national key sector equipment.
As a pioneer in the use of embedded technology in key sectors, the U.S. began designing various types of embedded computers for key sector equipment systems as early as the 1960s. By the 1980s, its advanced key sector equipment systems had largely completed the installation of embedded computers. On the information battlefield, the close integration of embedded technology with application objects means that all systems of high-tech key sector equipment require the support of embedded technology. Therefore, the development of embedded computers for key sectors has become an inevitable trend in the development of national defense industries worldwide. In the future, as the informationization, digitization, and modernization of defense and key sector teams continue to improve, the demand for embedded computers in key sectors will also continue to grow.
Embedded computers used in key sectors, apart from possessing the general characteristics of embedded computers, also have their unique usage and technical characteristics, mainly including:
1. High reliability: Embedded computers used in key sectors differ from general computers as they are applied in key sector equipment, thus requiring higher reliability. The design and production of products must meet reliability requirements, and redundancy design must be implemented when necessary;
2. Strong environmental adaptability: Key sector equipment often operates in harsh environments, so embedded computers used in key sectors must be capable of working under extreme conditions such as high temperatures, low temperatures, shock, vibration, sand, mold, and salt fog;
3. Electromagnetic compatibility: Embedded computers used in key sectors must meet the requirements of national key sector electromagnetic compatibility standards;
4. High lifespan assurance requirements: Key sector equipment typically has a long development cycle and service life, so embedded computers used in key sectors need to ensure a long lifespan;
5. Higher component grade: Embedded computers used in key sectors need to use industrial-grade and key sector product-grade components to meet the reliability requirements of key sector equipment in various harsh environments;
6. Customization characteristics: Due to the diversity and shape differences of key sector equipment, the appearance and peripheral user interface circuits of embedded computers used in key sectors are diverse, with products primarily customized for users.
In the future, the technological development trend of embedded computers used in key sectors in China will be: (1) adopting low-power, high-performance multi-core and multi-processor systems; (2) adopting high-performance data exchange technologies; (3) adopting real-time embedded operating systems that support multi-core and software partitioned operation; (4) domestic production of key core chips and real-time embedded operating systems, and further overall domestic production of embedded computers used in key sectors.
2. Current status and development trends of the market for embedded computers used in key sectors
Currently, based on the overall growth of national economic strength, the strength of China’s key sector teams has shifted from weak to strong, expenditures have increased, and equipment has transitioned from ensuring quantity to ensuring quality. The current stage is a golden age for the development of China’s key sector industry.
In the future, China’s key sectors will focus more on practical combat and innovation-driven approaches. By 2020, significant progress will be made in informationization, and comprehensive promotion of key sector equipment development, modern logistics construction, and information infrastructure will lay a foundation for the ultimate modernization of national defense and key sector teams. Modern information technology has not only significantly improved the efficiency of key sector teams in command and combat but has also greatly enhanced the richness of information obtained by key sector teams on the battlefield. Effectively obtaining, processing, and utilizing information has become a strategic high ground that all parties are eager to seize in modern warfare. National defense informationization is not only reflected in the upgrading and replacement of key sector equipment but also represents a profound change in the form of warfare and an iterative update of key sector thinking, marking the third revolution in key sectors after artillery replaced cold weapons and mechanization.
As the foundation for the informationization of key sector equipment, embedded computers are currently in an unprecedented rapid development period. The reform of the equipment procurement system is most evident in the procurement of embedded computers, which now adopts a fully market-oriented procurement model. Private enterprises, as important forces in the market for embedded computers used in key sectors, will benefit the most from this.
1. The national defense science and technology industry is in a rapid development phase, and there is a huge growth space for national key sector industries
First, for a long time, China’s defense investment has maintained a low level, and the quality and performance of defense equipment still lag behind those of Western key sector powers, urgently necessitating the development of modern defense forces. According to Statista, in 2021, defense expenditure accounted for 1.19% of that year’s GDP, while in certain major powers, this ratio was 3.50%. At the same time, according to Deutsche Welle reports, NATO member countries set a target of 2% of GDP for defense spending by 2024, but only 10 out of 29 NATO member countries met this requirement in 2021. Therefore, on the one hand, compared to developed countries such as certain major powers, China’s defense spending as a proportion of GDP is relatively low, indicating significant room for growth; on the other hand, the increased investment in key sectors due to external pressures also requires China to increase its defense spending.
Second, as China’s comprehensive national strength continues to rise, it has established a solid economic foundation for vigorously developing the defense industry. China’s defense industry has entered a rapid development phase since the beginning of this century. In recent years, expenditure on key sectors has maintained a certain growth rate, with China’s defense budget growth rates from 2020 to 2023 being 6.6%, 6.8%, 7.1%, and 7.2%, respectively. On March 5, 2023, the Chinese Ministry of Finance stated in its government budget draft report that China’s defense budget for 2023 is approximately 1.5537 trillion yuan, with a year-on-year increase of 7.2%, and the growth rate adjusted up by 0.1 percentage points compared to 2022, reaching a nearly four-year high.
Finally, to adapt to changes in modern warfare forms and meet the needs of informationization strategies, the requirement for the intelligentization of key sector equipment was first proposed during the 22nd collective study of the Political Bureau of the Central Committee in July 2020, emphasizing the need to “accelerate the integrated development of mechanization, informationization, and intelligentization.” The tasks for the construction of information technology equipment in key sectors, especially in the context of intelligent equipment, are urgent. In this context, the technology and equipment of key sector teams will become one of the decisive forces in future warfare, making the replacement and upgrade of key sector equipment imperative, thus driving further development of the defense equipment industry. The following is the budget and growth rate of China’s defense expenditure from 2012 to 2023:
China’s Defense Expenditure Budget and Growth Rate from 2012 to 2023
Data Source: National Bureau of Statistics, Huatai Securities Research Institute
2. Informationization has become the focus of modernization in China’s current key sectors
National defense informationization is a defense information system built to adapt to the needs of modern warfare, especially information warfare. In the modern wars of the Gulf War, Kosovo War, Afghanistan War, and Iraq War since the 1990s, certain major powers have gained absolute advantages in information warfare, achieving great success and accelerating the pace and speed of global informationization construction in key sectors. The digitization and informationization of key sector equipment have become important signs of the modernization of key sector teams.
The strategic white paper on key sectors released in May 2015 repeatedly mentions “informationization,” which summarizes the overall trends of modern warfare and explicitly requires specific military branches, logistics, and key sector equipment construction, reflecting the crucial role of informationization in the modernization of key sector teams. At the same time, when deploying the deepening of national defense and key sector team reforms, the country also reiterated that building a Chinese-style modern key sector force system capable of winning informationized wars and effectively fulfilling mission tasks is the goal of the reform efforts. Due to historical reasons, China’s key sector teams started their informationization relatively late, and currently, they are still in the process of transitioning from mechanization to informationization. Relevant data indicates that the construction of strategic early warning, aerospace, air defense and anti-missile, information offense and defense, strategic delivery, and offshore defense forces in China are still in their infancy, and there is a significant gap compared to truly informationized key sector powers. The construction of equipment informationization is urgent, and there is enormous room for improvement in the future.
The “Suggestions of the Central Committee of the Communist Party of China on Formulating the 14th Five-Year Plan for National Economic and Social Development and Long-Range Objectives Through the Year 2035” clearly states the need to accelerate the modernization of key sector equipment, focus on independent innovation in national defense science and technology, original innovation, accelerate the development of strategic, frontier, and disruptive technologies, and accelerate the upgrade and intelligent development of key sector equipment. Currently, China’s defense equipment is still in the “single platform mechanization” stage, and during the 14th Five-Year Plan period, it will become an important investment area, including investments in various fields such as radar, satellite navigation, and communication, driving the continuous growth of the demand for embedded computers in the defense sector.
As the national defense informationization construction continues to deepen, the value proportion of electronic products in various key sector equipment is continuously increasing. According to the “China Aviation News”: In recent years, the proportion of avionics systems in the cost of aircraft has risen sharply, with R&D costs for avionics systems accounting for 30-40% of the total cost of advanced combat aircraft, and this trend continues to expand. With the large-scale application of information technology equipment and the increasing value proportion of electronic systems in key sector equipment, the market demand for national defense informationization construction will significantly outpace the growth of China’s defense budget.
3. National key sector procurement has been relaxed, and policy effects are beginning to emerge
Embedded computers used in key sectors are largely supporting products in the national key sector product supply system. In the past, units engaged in the research and production of embedded computers for key sectors were primarily concentrated in a few state-owned national key sector production enterprises and various research institutes under national key sector groups. With the gradual introduction of relevant policies, the structural adjustment of research and production capabilities for key sector products has been promoted, expanding external collaboration of national key sector units, actively introducing social capital to participate in the shareholding reform of national key sector enterprises, improving the access and exit mechanisms for research and production of key sector equipment, promoting the coordinated use of major experimental facilities in key sectors, improving collaborative innovation mechanisms, promoting the sharing of technological basic resources, and developing typical industries.
As the state gradually relaxes restrictions on key sectors and encourages private enterprises to participate in national key sector projects, the traditional supply chain of key sector products is gradually being broken. Not only can major national key sector groups cooperate with each other, but some private companies are also gradually included in the ranks of qualified suppliers for key sector products. The issuer, as an important force in the market for embedded computers used in key sectors, will clearly benefit from the overall development of the industry and the rapid advancement of industry system reforms.
4. Industry Barriers, Overall Competitive Landscape, and Major Competitors
1. Main barriers to entry into this industry or major entry obstacles
(1) Qualification barriers
National key sectors are one of the important application areas for embedded computers. With the issuance of national policies, more and more enterprises have begun to participate in national key sectors, but they usually need to meet relevant qualifications. Qualifications require key sector product supply enterprises to meet a series of comprehensive evaluation requirements in terms of technical level, product quality, research and development capabilities, internal controls, and management systems, making it difficult for new entrants to obtain regulatory approval in a short time. The existence of numerous qualification certifications also makes it challenging for new entrants to achieve large-scale expansion in this industry, ensuring the core competitiveness of mature enterprises within the industry.
(2) Technological barriers
Embedded technology is a comprehensive application technology that combines hardware technologies such as embedded chip processors, real-time operating systems, and application software development technologies. Its interdisciplinary characteristics require enterprises to accumulate a wealth of knowledge and technical systems in hardware, software, FPGA, thermal design, vibration resistance, electromagnetic compatibility, and reliability for system development. Due to the broad range of technical fields involved, new entrants into the industry cannot accumulate sufficient technical and talent experience in a short period. Additionally, since embedded computers are usually used as supporting products across various application fields, the providers of embedded computers involved in supporting projects must have strong foresight and technical research and development capabilities across various industries. New entrants cannot accumulate rich technical knowledge in a short time, nor can they develop high-quality embedded computers that meet the requirements of various application fields.
(3) Talent barriers
Embedded computers are a combination of software and hardware, and their development requires close collaboration among system design engineers, hardware engineers, software (low-level driver, upper-level application) engineers, FPGA engineers, testing engineers, structural engineers, process engineers, and reliability engineers. Each engineer must be familiar with the principles of embedded computers and proficient in the skills required for their specific roles. Furthermore, since embedded computers are closely related to their relevant application industries, developers need to have a deep understanding of specific industries and propose targeted solutions to develop products that meet application scenarios. Therefore, the industry has high requirements for the quality of talent, requiring long-term industry practice to accumulate corresponding experience and capabilities, creating a high talent barrier for new entrants.
(4) Capital barriers
National key sector customers have extremely high requirements for the safety, reliability, and technological advancement of embedded computer products, which necessitates that relevant product research and production units continuously invest large amounts of capital in research and development upgrades and constant improvement of existing product quality. On the other hand, product research and development also has a certain degree of uncertainty, and the revenue collection cycle for final products is generally long. These factors necessitate that participants in the industry have a certain scale and financial strength, forming a capital barrier for ordinary enterprises entering the field of embedded computers used in key sectors.
(5) Industry experience barriers
On the one hand, the customized nature of embedded computers used in key sectors requires that their production and manufacturing closely align with the needs of downstream industry customers, necessitating that production enterprises have a deep understanding of the business rules, processes, and application environments of downstream industries. On the other hand, projects require long cycles for preliminary research, product finalization, and production, and to meet the industry experience requirements trusted by downstream customers, project undertaking enterprises must possess a certain number of project experiences and product research and development accumulations. The national key sector customers that the company primarily serves have high requirements for the safety and stability of embedded systems, placing greater emphasis on the company’s project experience and success cases. Therefore, the industry experience barrier is high.
By providing long-term, high-quality products and services, enterprises can establish good user relationships and reputations in downstream industry fields, maintaining a stable and loyal customer base, which is a gap that new entrants to the industry find difficult to bridge in a short time.
2. Industry competitive landscape
Products using embedded computers in key sectors are subject to significant restrictions on entry due to the special nature of their application fields, confidentiality, and technological security considerations. The manufacturers involved in product research and development in the industry mainly include domestic large-scale and powerful national key sector research institutes and a few private enterprises with qualifications for supplying key sector products.
In the field of high-end supporting products for key sector equipment, national key sector groups prioritize choosing their own research institutes for product support within their interests. In contrast, private enterprises, constrained by key sector product qualifications and competitive pressures, have only a few companies participating in the competition for mid- to high-end supporting products.
Currently, the two main types of competitive entities in the field of embedded computers used in China’s key sectors are as follows:
The first type mainly consists of subordinate units of large state-owned national key sector enterprises.
This type of competitive entity has been engaged in the research and production of embedded computers used in key sectors since the planned economy period, often possessing industry backgrounds in specific key sectors, giving them inherent competitive advantages. Compared to private enterprises, subordinate units of state-owned national key sector enterprises have a longer history of engaging in embedded computer research and development, rich product research and development experience, a higher proportion of supporting models, relatively rich engineering experience, and larger production scales. Additionally, due to the long supporting time, these enterprises have established relatively stable cooperative relationships with end users, providing them with certain advantages in competing for subsequent projects.
The second type consists of private enterprises that have gradually entered the market for embedded computers used in key sectors.
In recent years, as the procurement field for key sectors has gradually opened, some private enterprises have continuously occupied the market for embedded computers used in key sectors by leveraging their marketing advantages, financial advantages, market awareness, and favorable environment for the development of key sector products. Although there are numerous manufacturers in the domestic market for embedded computers used in key sectors, their product market positioning varies, and the application fields they cover are not entirely the same. In the same sub-market, the degree of technological and product homogeneity among relevant manufacturers is relatively low, resulting in low concentration.
Overall, due to the high demand for new technologies in national key sectors and the rapid update speed that closely follows international advanced technology development levels, private enterprises have certain competitive advantages in the industry due to their fast technology updates, flexible management, good service, and high cost-effectiveness. In recent years, the state has increased the reform efforts for national key sector enterprises, and with the implementation of related policies, enterprises with independent research and development capabilities will gradually have opportunities to participate in the competition for high-end system supporting products, breaking the monopoly position of traditional state-owned national key sector research units.
3. Major enterprises in the industry
The representative manufacturers in the market for embedded computers used in China’s key sectors mainly fall into two categories. The first category includes state-owned enterprises that have long been engaged in the research and production of embedded computers used in key sectors, specifically the subordinate units of China’s twelve major national key sector groups. The second category includes high-quality private enterprises that have entered the market due to the gradual opening of the procurement field for key sectors in recent years, such as Leike Defense, Jingjia Micro, Zhongke Haixun, Jieshi Zhitong, Sichuan Said, and Zhimingda.
(1) Jiangsu Leike Defense Technology Co., Ltd.
Jiangsu Leike Defense Technology Co., Ltd. (hereinafter referred to as “Leike Defense”) was established on December 11, 2002, and mainly engages in embedded real-time information processing, complex electromagnetic environment testing and verification and evaluation, Beidou satellite navigation receivers, radar, and microwave signal distribution management and processing. Its business is divided into radar system business group, intelligent control business group, satellite application business group, secure storage business group, and intelligent networking business group. On May 28, 2010, Leike Defense successfully landed on the Shenzhen Stock Exchange’s SME Board, abbreviated as “Leike Defense,” with the stock code: 002413.
The intelligent control business group of Leike Defense focuses on the development of intelligent and informationized equipment, relying on integrated comprehensive computer technology and intelligent recognition and processing, combined with accumulated technical experience in combined navigation and servo control to launch various integrated intelligent control systems and component products for air, space, and ground collaboration. In 2022, the intelligent control business group achieved operating income of 224 million yuan, accounting for 16.43% of total business revenue.
(2) Changsha Jingjia Microelectronics Co., Ltd.
Changsha Jingjia Microelectronics Co., Ltd. (hereinafter referred to as “Jingjia Micro”) was established in April 2006 and has formed a product series including embedded graphics display control boards, single-board computers, ruggedized electronic products, integrated circuits, and microwave radio frequency. The products in the graphic display control field are the main source of income for the company, with operating income in this area accounting for 56.41% in 2022. The company has undertaken multiple national key projects’ research, production, and supporting service tasks, with products widely used in high-reliability demanding fields such as aviation, aerospace, navigation, vehicle-mounted, and industrial control. On March 21, 2016, Jingjia Micro successfully landed on the Shenzhen Stock Exchange’s Growth Enterprise Market, abbreviated as “Jingjia Micro,” with the stock code: 300474.
(3) Beijing Zhongke Haixun Digital Technology Co., Ltd.
Beijing Zhongke Haixun Digital Technology Co., Ltd. (hereinafter referred to as “Zhongke Haixun”) was established on July 18, 2005, and has long focused on the research, production, and sales of sonar-related products, mainly providing customers with signal processing platforms, sonar systems, underwater big data and simulation systems, and unmanned detection systems. The company’s products are mainly applied in the sonar equipment field of the national special electronic information industry, with the main role of sonar equipment being underwater target detection and identification, underwater communication and data transmission, and underwater navigation and mapping. The signal processing platform is its main source of income, with operating income in this area accounting for nearly 84.28% in 2022. On December 6, 2019, Zhongke Haixun successfully landed on the Shenzhen Stock Exchange’s Growth Enterprise Market, abbreviated as “Zhongke Haixun,” with the stock code: 300810.
(4) Beijing Jieshi Zhitong Technology Co., Ltd.
Beijing Jieshi Zhitong Technology Co., Ltd. (hereinafter referred to as “Jieshi Zhitong”) was established on July 12, 2003, and mainly engages in the development and sales of embedded computer hardware and software products, which are widely used in national key sector electronics, rail transit, power control, and other industries, involving network security, signal processing, communication systems, cloud computing and cloud storage, industrial control, and other related technical fields. Embedded computer products are the company’s primary source of income, with operating income in this area accounting for 88.58% in 2022. On October 16, 2013, Jieshi Zhitong successfully listed on the National SME Share Transfer System, abbreviated as “Jieshi Zhitong,” with the stock code: 430330.
(5) Sichuan Said Information Technology Co., Ltd.
Sichuan Said Information Technology Co., Ltd. (hereinafter referred to as “Sichuan Said”) was established in 2007 and has long focused on the development and research of high-speed embedded processors, high-speed data acquisition, digital intermediate frequency, and intelligent avionics technology. Its product series includes high-speed DSP parallel processing series, high-speed PowerPC computing platform series, digital image processing and tracking modules, software-defined radio/digital intermediate frequency processing platform series, etc. The company’s products have been successfully applied in electronic (information) systems, radar, digital communication, automatic control, image processing and tracking systems, virtual instruments, testing and control equipment, among others. The high-speed processing platform accounted for 24.98% of its operating income in 2022. On December 18, 2017, Sichuan Said successfully listed on the National SME Share Transfer System, abbreviated as “Sichuan Said,” with the stock code: 872496.
(6) Chengdu Zhimingda Electronics Co., Ltd.
Chengdu Zhimingda Electronics Co., Ltd. focuses on the research, production, and sales of embedded computer modules used in key sectors, having participated in the supporting research and production of national key model projects multiple times and gaining recognition from clients in various fields, possessing a certain degree of reputation and influence in the industry. The products comprehensively cover airborne, missile-borne, and other key sector equipment platforms, providing fully customized solutions in terms of data acquisition, signal processing, data processing, communication exchange, interface control, image processing, large-capacity storage, and high-reliability power supply. The company has supplied products for multiple key equipment models, and as the company continues to develop, the number of models being supplied is constantly increasing, making it one of the main suppliers in the field of embedded computers in China. Zhimingda successfully listed on the Sci-Tech Innovation Board on April 8, 2021, with the stock code 688636.
5. Industry Chain Situation
The situation of the embedded computer industry chain is as follows:
1. Upstream Industry Development Status
The upstream primarily consists of electronic components, integrated circuits, and other hardware devices, as well as the system software industry. The upgrading of upstream raw materials directly promotes the improvement of the technology level of embedded computers. Additionally, due to the customized characteristics of the industry, prices remain stable, supply is relatively dispersed, and supply and demand are basically balanced, keeping prices stable.
The overall competition in the upstream basic hardware market is quite sufficient, with abundant product supply, among which the localization rate of general components and external devices is relatively high. Domestic manufacturers producing integrated circuit chips are also rapidly developing, increasing the localization rate of integrated circuit chips. Influenced by market demand in recent years, upstream manufacturers of general components and integrated circuits have expanded production on a large scale and gradually increased capacity.
2. Downstream Industry Development Status
Currently, the downstream demand fields for embedded computers used in key sectors are broad, including airborne, missile-borne, and other markets. With the enhancement of national economic and political strength, the importance of the ocean has become increasingly prominent, and the investment in national security and key sectors has been continuously increased, a significant portion of which has been allocated to the procurement of advanced key sector equipment such as fighter jets, missiles, and naval vessels. The increased procurement of advanced key sector equipment will correspondingly drive the demand for embedded computers. The strong demand for embedded systems in downstream industries exerts a powerful pull on the development of this industry. Meanwhile, the high requirements for the advancement and reliability of embedded computers in downstream industries compel manufacturers in the embedded industry to continuously increase their investments in new product development and technological innovation to better meet the needs of downstream industry customers.
The main downstream market application analysis is as follows:
(1) Airborne Market
The aviation industry is a strategically high-tech industry for the nation. Since the 21st century, China has prioritized the modernization and equipment upgrades of air and maritime forces as key development directions for national key sectors. The strategic positioning confirmed in 2015 marked the beginning of a new phase in the development of China’s key sector air forces. Currently, China’s key sector air forces have entered a vigorous development phase. However, the current long-range strike, large-area patrol, and out-of-area attack capabilities of China’s key sector air forces remain limited. In the next decade, the demand for fourth-generation and above fighter jets and large transport aircraft in national defense construction will be extremely strong, and there will also be a substantial demand for the use of aircraft in key sector maritime forces.
Embedded computers are widely used in various devices of aircraft, such as radar, communication, navigation, identification, electronic countermeasures, optical detection, flight control, interference deployment, power management, and external management, requiring functions such as data acquisition, signal processing, data processing, communication exchange, interface control, high-reliability power supply, and large-capacity storage and image processing. The renewal and new procurement needs of key sector aircraft in China will greatly promote the development of airborne embedded computer products.
On the one hand, the increase in the number and quality of key sector aircraft provides a market foundation for the development of embedded computers used in key sectors. According to Flight Global’s “World Air Forces 2021,” the number of key sector aircraft in China is far lower than that of certain major powers. Meanwhile, in terms of quality, some of the key sector aircraft currently in service in China are older models. The key sector aircraft in China are at a critical stage of renewal, and in the next ten years, most of the existing old models will be retired, with new-generation models gradually becoming the main force, and there will also be a significant increase in the number and renewal needs of key sector aircraft such as transport aircraft, bombers, early warning aircraft, and unmanned aerial vehicles.
On the other hand, the system modification and upgrades for fighter jets, upgrading the core computing systems of active aircraft, enhancing the combat capabilities of aircraft, and extending the service life of key sector equipment platforms provide a realistic and effective means. Since the last century, mainstream key sector air forces worldwide have begun to replace the cockpit and avionics equipment on some fighter jets. Since then, due to improvements in the core computing systems and other aspects, their combat capabilities have greatly increased, extending the service life of the aircraft. In order to adapt to new battlefield needs, China has also continuously upgraded major aircraft models, producing multiple subsequent upgraded models of the same type. Therefore, in the future, apart from some aircraft being gradually phased out, some models will continue to undergo upgrades, providing a market foundation for embedded computers used in key sectors.
As a guarantee for various advanced functions of high-tech key sector aircraft, the demand for embedded computers per aircraft is expected to increase significantly compared to traditional aircraft, and the airborne embedded computer market will have substantial market space as the informationization of key sector aircraft continues to improve.
(2) Missile-borne Market
Missiles have demonstrated an increasingly important position and role in recent local wars due to their superior combat performance. In this year’s Russia-Ukraine conflict, the high-level C4ISR technology performed prominently, but this is not the first time this technology has been used. It has been utilized in previous conflicts such as the Vietnam War, Afghanistan War, and Gulf War, where precision-guided munitions have played an increasingly important role in modern warfare. Embedded computers used in missile systems are primarily utilized in guidance systems and flight control systems, with the guidance system accounting for about 50% of the total missile cost, and the proportion of precision-guided munitions reaching over 70%. Therefore, with the accelerated deployment of advanced precision-guided main battle equipment, the market for embedded computers used in missile systems will enter a phase of rapid growth.
Additionally, there is still a certain gap between China’s active missiles and those of developed countries. However, with the continuous increase in investment in national defense construction, China’s missile systems have developed rapidly in recent years. In recent years, China has established a special rocket force beyond the land, sea, and air, primarily consisting of an attack and defense system centered on ballistic missiles, marking an important milestone in China’s national defense efforts and indicating that the missile industry is solidifying its position in China’s national key sector industry.
As China’s national defense policy gradually shifts to a proactive defense policy, the requirements for the new procurement of missiles and various performance specifications will further increase. The existing missiles will also gradually be replaced according to new performance requirements. Furthermore, with the steady improvement of domestic missile technology in recent years, the demand for missiles is gradually opening up, and the total manufacturing quantity of missiles in China will further increase. For example, active guidance systems in missiles have the ability to “fire and forget,” requiring devices such as radio control, automatic radar, infrared or laser guidance, and radio fuzes, with embedded computers being major components of these devices. Therefore, as the number of missiles increases and upgrades occur, the market for missile-borne embedded computers will grow in tandem.
(3) Other Markets
Embedded computers used in key sectors are not only applied in airborne and missile-borne equipment but also in other fields such as shipborne, vehicle-mounted, satellite-borne, unmanned equipment, individual combat equipment, and other radar applications.
1. Shipborne Market
With the enhancement of China’s national strength and economic development, the importance of the ocean has become increasingly prominent, and China’s key sector maritime forces will gradually shift from near-sea defense to a combination of near-sea defense and far-sea escort, constructing a composite, multi-functional, and efficient maritime combat force system to improve strategic deterrence and counterattack, maritime maneuver warfare, joint maritime operations, and comprehensive defense operations and support capabilities.
Since the 21st century, the modernization and equipment upgrades of key sector air and maritime forces have been prioritized as key development directions for national key sectors, and national defense expenditure has begun to tilt towards key sector air and maritime forces.
The total tonnage of China’s frontline warships has exceeded 2.4 million tons, including various types of vessels such as aircraft carriers, destroyers, frigates, and light cruisers. Although the number and quality of destroyers, frigates, and submarines in China have rapidly improved in recent years, and aircraft carriers have begun to be deployed in China’s key sector maritime forces, there is still a significant gap between China’s maritime forces and traditional key sector powers globally. Therefore, for a considerable period in the future, there will still be a large demand for upgrading destroyers, frigates, submarines, and constructing large vessels. As China strengthens its efforts to safeguard maritime rights, the future national key sector maritime forces will require vessels with higher levels of informationization.
Modern shipborne equipment and administrative vessels are large, complex, and difficult for operators to fully understand the vessel and external situations. Embedded computer products can be used in electronic warfare systems, communication systems, optical systems, positioning and navigation systems, and friend-or-foe identification systems on vessels, transmitting key information from various systems to operators, facilitating decision-making. Furthermore, the core computing systems of vessels are complex, and each vessel has a high demand for embedded computers. The upgrading of new vessels and existing vessels will require advanced embedded computer products, providing a vast market space for embedded computers used in key sector maritime forces.
2. Vehicle-mounted Market
Key sector land forces are the mainstay of China’s traditional national defense, and embedded computers are primarily applied in tanks, armored vehicles, and other vehicle-mounted equipment.
Tanks and armored vehicles, as representatives of key sector vehicles, are the core power of land forces. In the 1990s, China’s tanks and armored vehicles were still relatively traditional. Since the 21st century, China has increased investment in tanks and armored vehicles, transforming its key sector land forces into highly mechanized and informationized modern national defense forces. In the past decade, China’s key sector land forces have actively updated their key sector equipment while significantly reducing the variety of equipment, retaining multifunctional equipment with upgrade potential. As the core combat power of key sector land forces, upgrading the core computing systems of existing tanks and armored vehicles will play an important role in enhancing their attack capabilities and battlefield survivability. For instance, achieving precise targeting during enemy and friendly forces’ movements has always been a challenge. Adding embedded computer modules to fire control systems can effectively solve this problem and enable precise strikes. In addition, embedded computers are widely used in the fire control systems, vehicle auxiliary defense systems, communication systems, positioning and navigation systems, and other aspects of key sector equipment systems. Therefore, advanced embedded computers have a good market demand in the renewal and new procurement market for tanks and armored vehicles.
3. Satellite-borne Field
Satellites, as strategic resources for China, are currently widely constructed and utilized across multiple fields. Embedded computers are mainly applied in components required by satellites, such as transponders, sensors, telemetry transmitters, etc. According to updates from the UCS satellite database on May 1, 2022, the number of satellites in orbit globally reached 5,465, with certain major powers having the most satellites in orbit, reaching 3,433, far exceeding those of China (541) and Russia (172). This indicates that there is still a significant development space for China compared to the number of satellites in the U.S.
4. Unmanned Equipment
According to the “National Defense in the New Era of China,” the new round of technological revolution and industrial transformation is accelerating the application of cutting-edge technologies in key sectors, leading to more evident trends of remote precision, intelligent, stealth, and unmanned capabilities in key sector equipment. The form of warfare is rapidly evolving towards information warfare, with intelligent warfare beginning to emerge. In July 2020, General Secretary Xi Jinping emphasized during an inspection of a certain university that “the large-scale emergence of unmanned systems is profoundly changing the nature of warfare. We must strengthen research on unmanned combat, improve the professional construction of unmanned systems, enhance practical education and training, and accelerate the cultivation of talents for the operation and command of unmanned systems.” The drone industry has become a strategically important area for national development.
China’s unmanned systems, especially various unmanned equipment, have developed later than certain major powers, Israel, and the UK. In recent years, the development of unmanned systems in China has shown a trend of accumulation and explosive growth. Various aviation enterprises and institutions have leveraged their technological and industrial advantages to push the product technology and industrial system towards high-end development, closely following the international development frontiers of core technologies and mainstream products of unmanned systems used in key sectors. The development momentum of China’s unmanned systems is rapid, entering a new phase of innovative leapfrog development. In recent years, China has successively introduced multiple strategic plans and policies related to the manufacturing of unmanned aircraft and other aviation equipment, clearly designating aircraft manufacturing as a strategic high-tech industry and an important strategic position in the national economy and national defense forces, comprehensively supporting the development of the unmanned equipment industry from development strategies, industry legislation, industrial policies, and financial investments.
5. Individual Combat Equipment
In modern warfare, an individual soldier acts as an information processing unit and a firepower point. Against the backdrop of a significant reduction in key sector teams, the future is bound to shift towards enhancing the combat capabilities of individual soldiers. In contrast, certain major powers are able to complete global key sector strategies even with fewer personnel, showcasing their advantages in the quality and advanced equipment of individual soldiers. The standard configuration for individual soldiers in certain major powers includes personal protection, survival assurance, key sector equipment, and night vision equipment. For instance, the load of infantry soldiers in certain major powers includes night vision devices, Beidou, handheld computers, reconnaissance equipment, and biochemical detection instruments. Among these, night vision equipment utilizes photoelectric conversion technology for night vision instruments, and embedded computers can enable functions such as zooming, focusing, video switching, and high-stability control of gimbals for night vision devices. Additionally, embedded computers are also widely applied in individual Beidou, handheld computers, reconnaissance, and other devices. It is evident that individual soldiers in certain major powers have a high level of informationization, while China’s key sector teams, in the context of the 11th round of troop reductions, will also enhance the informationization level of individual soldier equipment to improve individual combat quality and meet the needs of future information warfare.
6. Other Radar Applications
Radar plays a significant role in detecting and discovering enemy situations and guiding combat on the battlefield. With the continuous advancement of detection targets, radar equipment technology has also evolved synchronously. The typical technology of radar has gone through four stages: electron tubes and non-coherent, semiconductors and fully coherent, integrated circuits and fully solid-state, as well as phased arrays, multifunctions, and adaptability, and target recognition. China’s active phased array radar is already at the forefront of global radar technology development. According to market disclosure information, it is expected that the market size for radar used in key sectors in China will reach 57.3 billion yuan by 2025, and as one of the main technologies for upgrading radar technology, the market size for embedded computers will also grow in tandem.
