Mobile Phones: OPPO’s Danxia original color lens and Mate70’s red maple lens are both multi-spectral CIS, with 2 million pixels, priced higher than traditional 2M. The mobile phone specifications are advancing, and in some niche areas (small pixel domains), Samsung holds a high market share.
Automotive: In 2024, $850 million, with $5.9 billion in revenue, a 30% growth. This year, if domestic car manufacturers use 12 cameras, the CIS value per vehicle exceeds $100. Domestic manufacturers have put significant pressure on joint ventures, forcing them to upgrade. Domestic brands are expected to see high growth rates in the automotive sector over the next 25-30 years.
In 2024, medical applications are expected to grow by 50%, and emerging markets by over 40%: Industrial vision solutions, AR/VR, and action cameras are future growth points, with higher gross margins.
In edge AI, we have a complete product lineup, including eye tracking and ultra-small cameras, which we excel at. In the second half of the year, our LCOS products will be used in Meta’s glasses, and we expect to see sales in the millions soon.
What is the overseas proportion of each segment?
Our overseas product proportion is not high, with 30% overseas share. The automotive CIS has a high proportion in Europe, mainly in automotive, with some in security.
Will ON Semiconductor’s countermeasures affect our market share?
Currently, the situation is hard to predict; the short-term impact will not be significant. ON Semiconductor’s CIS is fabricated at TSMC, while their power and analog products are fabricated in the US. Fairchild Semiconductor is also based in the US, and MOS/PMIC products may be slightly affected. ON’s market share in the US is not high; we have a higher market share in Europe compared to ON, and our technology is leading, so the impact on us is minimal. The limitations on power and analog products may have a positive effect on us.
What about the distribution business?
We represent Taiwanese and Japanese products.
What are the reasons for the improvement in gross margins?
The application market structure is changing; the gross margin for mobile phone CIS is relatively low, while the margins for cameras, IoT, and medical applications are higher. Additionally, the gross margin for new mobile phone products has improved. Last year, we just cleared out old inventory, and inventory is accounted for on a first-in, first-out basis. The cost accounting reflects higher initial costs, while last year’s foundry prices were stable. SMIC and TSMC’s foundry costs remained stable, and last year the CIS market was not saturated, with automotive increasing by 1,000 pieces per month.
Wafer fabs do not have long-term contracts. The order-to-delivery cycle is: automotive 6 months, mobile phones 4.5 months, security 5 months. If wafers are in production, they will not be withdrawn.
What is the layout and value of the automotive business?
The automotive ‘Eye of God’ uses 12 cameras, with a value of $100. If using LCOS for AR HUD ambient lighting, each LCOS costs $50. We are currently developing PMIC, LDO, LVDS, MCU, CAN, LIN, etc., mainly focusing on CIS. BYD’s Eye of God has two specifications: 3M and 8M, and we have reserves for 17M products.
What is the growth potential for mobile phone CIS?
Excluding Apple and Samsung, the mobile phone CIS market is $6 billion. Last year, we held a 40-50% share in flagship main cameras, but we have little share in secondary cameras. Sony mainly dominates the high-end flagship market. We are developing in the wide-angle and telephoto lens markets for mainstream and secondary flagship phones. We are involved with all major clients except Apple, and the top five clients are primarily based on global market share. We expect to regain our share in flagship main cameras in 2023 (we have always had a presence in the $2000-3000 price range for secondary flagships).
What are the gross margins for various downstream segments?
Mobile phones have a gross margin of 25-30%, while automotive is around 40%. This year, the camera segment has high margins, with DJI and Insta360 as our clients, and DSLRs priced above $200 have CIS.
Is there a trend of tight capacity in analog products?
Currently, there is no tight capacity in analog products, and prices have not increased. We can see domestic alternatives for MOSFETs in various industrial, battery, and automotive fields. Analog products consume very little wafer volume, while CIS consumes a lot. We are focusing on expanding our automotive market clients, as we previously mainly served mobile phone market clients. The differences in analog products in automotive are significant, and we are actively introducing them.
For automotive CIS WLCSP packaging, we are with Chipone, while the older ones are with Tongxin (BGA packaging). Consumer-grade capacity is shifting towards automotive, and the usage of 2M products in mobile phones is relatively low. Switching capacity may lead to structural tightness, and price increases are structural; for example, a certain factory’s Sony 3M products have increased from $7-8 to $20.
Convertible bonds will not be adjusted in June.
What is the market share for automotive CIS?
China accounts for 60-70%, Europe 30-40%, Japan has single-digit shares, and Korea is growing annually. Currently, we have one client, and automotive CIS foundry is mainly with TSMC, with some switching to domestic foundries. In the first half of next year, 3M will only be delivered through domestic foundries. We have a high share with BYD, which is also looking to ON and Sony for entry.
We have made impairments in touch control, but it does not affect our long-term confidence. We supply domestic screen manufacturers. Display drivers have not been profitable for three years, so we conducted impairment testing. Hong Kong’s New Transmission is working on TDDI, SIRUI is on TED, and another DDIC company, Jidisi, has been evaluated for impairment based on models, mainly influenced by Jidisi. CIS will not be impaired.
What are the revenue and profit expectations for this year?
This year, revenue and profit are expected to grow by 30%. Last year, we held about 25% market share in mobile phones. This year, mobile phone CIS is expected to have a low start and high finish, with annual expectations in line with last year. We hope to achieve a 40% share in the future. The global DSLR market is 6-7 million units annually, with 2 million in China. We hope to reach 1 million units, with ASP above $200. The action camera CIS starts at $10-20, with Insta360 priced at $15-20 per unit.
We strictly control inventory through weekly meetings, as downstream inventory is limited in each industry.
Who are the automotive clients?
The largest domestic clients are BYD and Geely, with joint ventures expected to follow up by the end of the year, including SAIC Volkswagen, GAC Toyota, and GAC Honda.
European clients are mostly top-tier, and now mid-tier clients are shipping, including BBA, Volvo, and Volkswagen. Currently, the automotive CIS supply-demand situation is tight, and automotive project cycles are long. The automotive market is expected to reach $4 billion by 2028, with both 8M and 3M in tight supply.
At TSMC, we can add 1,000 pieces per month without resistance, and packaging only takes a month. The wafer cycle is 4.5 months, and TSMC is expediting. BYD purchases $70-80 million worth of CIS each quarter, and we will see if other car manufacturers follow. TSMC’s automotive CIS capacity is 15,000 pieces, and BYD’s order in March exceeded our capacity by 200,000 units, with a quarterly average of $70-80 million at an average price of $8-8.5 per unit, totaling about 10 million CIS per quarter. BYD, Mercedes-Benz, and BMW are our top three automotive clients, and we do not easily raise prices for automotive CIS. We expect mobile phone revenue to remain stable this year, while automotive revenue is expected to grow to $1.3 billion, approaching mobile revenue levels. The growth rate of automotive CIS revenue will gradually reflect in the second quarter, and our delivery capacity is gradually improving.
What is the product layout for glasses?
The typical glasses solution uses 5 CIS, with two for eye tracking, two for gesture recognition, one for viewfinder, and two LCOS. The cost for CIS + LCOS in glasses is about $100. CIS without ISP costs $1-2 each, while those with ISP cost $3 each. Our target cost for LCOS is $30, with new products planned at $40 by the end of next year.
This year, a certain camera client is expected to rank among the top five clients, and we are optimistic about IoT CIS revenue expectations of $250 million this year. The major contributors to gross margin this year are automotive and IoT (cameras).
Others: TSMC is not producing many mobile phone chips; mobile phone CIS is mainly fabricated at SMIC, while mid-to-low-end products are at Huali and East Korea. TowerJazz is in discussions (expected in a year). The glasses market is mainly looking towards 2027, with distribution revenue expected to reach $550 million in 2024. The automotive analog market will require a 3-year ramp-up. Distribution involves passive components, and we have a one-month payment term with TSMC (prepaid). H Company’s own CIS is fabricated at Huali and Wuhan Xinxin, solving their supply chain issues without external sales.