Zhitong Financial APP learned that Citic Securities released a research report saying that from the demand side, the consumer electronics industry is facing the dual challenges of global population growth slowdown and geopolitical disturbance; from the supply side, after the smartphone growth rate slows, domestic mid-stream overcapacity exists objectively, anti-globalization continues, and upstream IC design / manufacturing is still partially restricted. However, the innovation of the consumer electronics industry has never stopped, superimposing the opportunities brought by channel innovation and the rapid growth of overseas emerging markets, the bank believes that domestic upstream / middle / downstream industrial chain companies are expected to benefit from brand upgrading & the incremental opportunities brought by AI innovation, firmly optimistic about the domestic consumer electronics industry chain innovation to keep up with AI and continue to face the development trend of global layout in the future.

1) downstream brandsMatchgamehollywoodsquareshourPay attention to the incremental demand brought about by brand going out to sea, brand upgrade and accelerated penetration of end-side AI; 2) midstream components: focus on AR/VR innovation and end-side AI computing power upgrade; 3) upstream chips: pay attention to the continuation of domestic substitution trend and end-side AI computing power upgrade.

The main points of Citic Securities are as follows:

Downstream brands: under the trend of rational consumption, look at brand upgrading, market going out to sea and embracing AI.

At present, we have observed that from the characteristics of the market structure, since the downstream demand weakened in 2022, the high-end market and the performance-to-price market of ToC have developed at both ends, and the consumer behavior has become more rational; from the perspective of channels, the intensive innovation of business models (live e-commerce, short videos, etc.) has led to the upgrading of white brands to brands. In terms of demand, TechInsights expects the consumer electronics market in 2024 to exceed US $1 trillion for the first time, with a wide range of categories and significant growth in emerging markets. We comprehensively analyze the layout focus and strategy of each terminal head manufacturer, and are optimistic about the three major trends of brand upgrading, brand going out to sea and product innovation.

Middle zero group: both internal and external macro pressure, depending on innovation ability, management ability, layout boldness.

For the middle zero group link, the current internal (partial link overcapacity + upstream price pressure) and external (election year tariff policy + industrial chain return) double macro pressure objectively exist, but the domestic mid-stream manufacturers' strategic considerations on business operation, industrial chain layout, product matrix, customer structure and so on also follow the adjustment and actively break the situation. We believe that innovation from the perspective of the industry: 1) pay close attention to the upgrading and increment brought about by core innovations such as AI and XR. From the perspective of the company, management and layout: 1) continuously promote the relocation of the industrial chain under the background of anti-globalization; 2) upgrade the automation of production lines; 3) customer diversification and globalization; 4) strengthen the trend of vertical integration.

Upstream chip: crisis coexists, look at AI innovation + M & An integration trend + head customer introduction progress.

In recent years, the domestic semiconductor market has grown rapidly and accounted for a large proportion of sales, but it still takes time to catch up with the developed economies led by the United States in terms of output volume and technology. We observe that the upstream IC design company is also accelerating its growth following the three major trends of self-reliance, rationalization of consumption and brand going out to sea in the consumer electronics industry. Standing at the current point of time, we are optimistic that with the cycle upward, each segment of IC areas gradually recover and develop with the downstream prosperity. Looking forward to the follow-up, we are optimistic about the trend of M & An integration in the industry from "small and beautiful" to "big and strong", domestic manufacturers are optimistic about clinging to big customers, continuously strengthening the trend of domestic substitution, and benefiting from technology upgrading and incremental demand driven by AI innovation.

Risk factors:

1) risk of global macroeconomic downturn; 2) downstream demand recovery is not as expected; 3) significant changes have taken place in the international industrial environment; 4) AI product innovation is not as expected; 5) AI commercialization progress is not as expected; 6) end-side AI product shipments are not as expected; 7) hardware terminal computing power upgrade is not as expected; 8) large model iteration speed is not as expected; 9) AR/VR shipments are not as expected. 10) intensified competition in the industry; 11) the risk of rising prices of raw materials, etc.