By｜Fu Chenshuo, Liu Haibo, Xu Tao, Chen Zhuo
Sensors are the core devices of the perception layer, serving as a bridge between the real world and circuit signals. Driven by various fields such as automotive electronics, industrial applications, consumer electronics, aerospace, and humanoid robotics, MEMS and other sensors are experiencing robust growth; domestic companies are seizing golden development opportunities at the forefront of localization. We believe that expanding categories, fields, and extending downstream are the main pathways for sensor companies to continue growing, with external mergers and acquisitions being the primary method, while technology, cost, and market capabilities are the core competitive elements for enterprises. We are optimistic about the long-term development trends of the domestic sensor industry, where companies with technological leadership, strong cost control, and excellent market capabilities are expected to continue to thrive.
▍Connecting Reality and Perception.
Sensors are devices that can sense specified measurements and convert them into usable signals according to certain rules, acting as a bridge between the real world and circuit signals. There are many subcategories of sensors, which can be divided into physical sensors, chemical sensors, and biological sensors, encompassing 42 subcategories and over 20,000 specifications; their downstream applications are widespread, mainly covering consumer electronics, automotive electronics, communications, industrial, medical, and aerospace fields. A systematic approach is an important strategy for the development of sensing technology, with miniaturization, low power consumption, and intelligence being the development directions for sensor devices; MEMS sensors, which use a “CMOS process + MEMS module” manufacturing method, are characterized by small size, low power consumption, and low cost, becoming a major technological direction for sensors. Due to the need for MEMS sensor performance to be deeply integrated with the manufacturing process and the high degree of customization, global leaders often adopt the IDM model, while growing companies tend to adopt the fabless model due to considerations of asset investment.
▍Data Foundation for Various Industries, Domestic Surge in Competition.
According to data from CCID Consulting, the global/domestic sensor market size in 2022 was $184.05 billion / ¥309.69 billion, with a CAGR of approximately 6.6% / 12.3% from 2019 to 2022. In the domestic market, pressure, image, and position sensors were the top three categories in 2022, with automotive, industrial, and consumer electronics being the top three downstream applications. The penetration rate of MEMS technology continues to rise, with the market size in 2022 being approximately ¥98.21 billion, and a projected CAGR of about 17.0% from 2023 to 2025. Driven by multiple fields, the sensor industry is experiencing rapid growth, with CCID Consulting forecasting CAGRs for domestic industrial/automotive/consumer electronics MEMS sensors of approximately 17.8% / 19.6% / 15.6% from 2022 to 2025:
1) Industrial: Under the trend of new industrialization, sensors will be widely used throughout the manufacturing process;
2) Automotive: As the “nervous system” and “senses” of vehicles, sensors are widely used in powertrains, chassis & body systems, and autonomous driving, benefiting from the rapid increase in penetration rates of new energy vehicles and autonomous driving;
3) Humanoid Robotics: The perception links involve 3D cameras, torque sensors, encoders, IMUs, etc.;
4) Consumer Electronics: Widely applied in smart homes and MR wearable devices;
5) Aerospace: The demand is driven by the deployment of weaponry, civil aircraft, and commercial aerospace. In terms of market structure, overseas leaders dominate the global sensor market, with a high concentration of subcategories; the overall localization rate in China is about 40%, with MEMS sensitive chips and mid-to-high-end intelligent sensors urgently needing localization, while domestic companies are developing rapidly and have gained certain influence in some subcategories.
▍Paths for Company Growth: Three Pathways and Three Core Competencies.
Reviewing the growth path of global leader Honeywell, we believe that expanding categories, downstream fields, and extending downstream are the three main pathways for sensor companies to sustain growth, with external mergers and acquisitions and endogenous expansion being the primary methods. Considering the significant differences in technical principles among different sensor categories, and the varying requirements for sensor parameters and reliability across different fields, we believe that external mergers and acquisitions are the most efficient and primary means for companies to expand categories, fields, and value downwards.
We believe that technology, cost, and market capabilities are the three core competitive factors for enterprises, where technology and cost represent “hard power,” while market capability represents “soft power.” Technology is key for downstream enterprises to expand categories, fields, and extend value downwards; in the absence of significant differences in technical indicators, cost becomes an important factor affecting a company’s ability to win orders and profitability; market capability helps enterprises enhance customer stickiness, rapidly introduce new products, and expand into different fields and clients. For different downstream applications, the importance of technology, cost, and market capabilities varies, and the growth logic of enterprises and the bottlenecks for cross-field expansion are also different: 1) Aerospace & Industrial: Technology and market capabilities are core, with cost being a focus for cross-field expansion; 2) Automotive: Technology and cost are core, with cost being a focus when expanding into consumer electronics, while technology is a focus when expanding into industrial; 3) For technology and cost, the focus is on technology and market capabilities when expanding into other fields.
▍Risk Factors:
Risks from changes in the macro environment; technology iterations for MEMS and other technologies falling short of expectations; downstream demand falling short of expectations; intensifying industry competition; rising raw material and labor costs; and the pace of domestic substitution not meeting expectations.
▍Investment Strategy:
Driven by multiple fields such as automotive electronics, industrial applications, consumer electronics, and aerospace, the sensor industry, represented by MEMS sensors, is experiencing robust growth. Under the trend of domestic substitution, domestic companies are competing vigorously, seizing golden development opportunities. We believe that expanding categories, fields, and extending downstream are the main pathways for sensor companies to continue growing, while technology, cost, and market capabilities are the core competitive elements for related enterprises. We are optimistic about the long-term development trends of the domestic sensor industry, where companies with technological leadership, strong cost control, and excellent market capabilities are expected to continue to thrive. 1) Aerospace; 2) Industrial; 3) Automotive electronics; 4) Consumer electronics.
This article is an excerpt from the report “Manufacturing Industry Sensor Series Report (1) – Perceiving Everything, Growing Strong” published by CITIC Securities Research Department on February 9, 2024. For detailed analysis content (including related risk warnings, etc.), please refer to the report. In case of any ambiguity arising from the excerpt of the report, the complete content as of the report’s publication date shall prevail.
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