This year’s shopping festival may be a “life-saving festival” for home appliance manufacturers. Affected by the epidemic, the retail sales of my country’s home appliance market in the first quarter of 2020 totaled 117.2 billion yuan, a year-on-year decrease of 36.1%. During the May 1st period, the home appliance market ushered in a recovery: the online retail sales of small home appliances reached 1.32 billion yuan, a year-on-year increase of 67.8%. Home appliance manufacturers were greatly encouraged by this and hoped to use “618” to get out of the haze of the epidemic in one fell swoop.
However, China’s home appliance market is actually facing a crisis of stalling: public data shows that the total retail sales of domestic home appliances in 2019 reached 803.2 billion yuan, a year-on-year decrease of 2.2%; in 2018, the retail sales of home appliances reached 821.1 billion yuan, with a growth rate of only 2017. 14% of the year.
The city gate was on fire, and the pond fish was affected. The crisis quickly spread to the upstream PCB manufacturers for home appliances. Such manufacturers are under pressure to increase the price of raw materials on the one hand, and are limited by the stalled home appliance market on the other hand, leaving little room for profit. Under the crisis, there may be two ways to go:
First, with the accelerated implementation of 5G, AI and other technologies, the explosion of the smart home appliance market is just around the corner. At this time, home appliance PCB manufacturers can make early preparations;
Second, the downstream applications of PCB are broad, diversify business risks through diversified transformation, and get rid of the stall restriction of the home appliance market.
Aohong Electronics is a star manufacturer of home appliance PCBs. Affected by the stall of home appliances, the 720 million operating income brought by home appliance PCBs is in jeopardy. Instead of waiting for the “Dongfeng” of smart home appliances passively, it is better to give it a go and actively dive into the broader blue ocean. In recent years, the company has continued to develop communications and automotive electronics PCB. Is there a blue ocean “potential” in the two fields? How to effectively diversify risks?
Home appliance PCB is in crisis
Known as the “mother of Electronic products”, Printed Circuit Board (PCB) has indeed assumed the role of giving life to electronic products.
A conductive pattern is attached to the insulating substrate of the PCB, which can be used as a support for electronic components. The electronic components are connected to each other through the “holes” on the board to form an integrated circuit. The power of all electronic products comes from this small “board”, despite its “unremarkable appearance”, it actually “deeply hides merit and fame”.
Home appliance PCBs are mainly used in home appliance control systems. From 2008 to 2017, China’s home appliance industry exploded. In 2008, the total domestic home appliance sales reached 434.5 billion yuan, and in 2017, it nearly doubled to 812 billion yuan. Most home appliance PCB manufacturers are “getting rich” at this time.
Aohong Electronics “was born at the right time”. Around 2005, the PCB boards it produced were “appetite” for home appliance companies, and successfully entered the supply chain of well-known companies such as Hisense, Haier, and LG. Ten years later, the company’s revenue exceeded 500 million, and in 2017 it exceeded 800 million, far ahead of its peers.
It has been focusing on PCB for home appliances for many years, and its large-scale supply capacity has been continuously enhanced, forming a clear scale advantage. During the reporting period, the gross profit margin and net profit rate of the main business were higher than the average level of the same industry.
Although the absolute value is dominant, from the perspective of changing trends, both indicators are declining, which is in sharp contrast with most of its peers.
PCB profitability is mainly affected by two factors: upstream raw material prices and downstream bargaining power.
In terms of raw materials, the value of copper clad laminates accounts for the highest proportion. According to the prospectus of Aohong Electronics, from 2016 to 2018, the proportion of the purchase amount of copper clad laminates has always been higher than 75%. The market price of CCL is relatively transparent. Affected by the rise in international copper prices, the unit price of CCL per square meter in 2016 was about 69.36 yuan, and it has risen to 80.51 yuan in 2018.
However, the price increase of copper clad laminates is a problem that all PCB manufacturers have to face, and the “culprit” that caused Aohong Electronics to widen the gap with other peers is actually an overly concentrated business structure.
From 2016 to 2018, the proportion of PCB revenue for home appliances continued to rise, reaching 85.63%, 88.48% and 87.31% respectively, and nearly 90% of the business was concentrated in a single downstream market. At the same time, the main customers are highly concentrated, with the top ten customers accounting for 94.05%, 93.65% and 92.94% of the revenue respectively.
As a result, the bargaining power of Aohong Electronics is fully demonstrated. In 2017, the sales unit price of PCB boards per 10,000 square meters was 241.95 yuan, and in 2018, it dropped to 233.72 yuan. In addition, the home appliance industry as a whole stalled, making profit margins even more scarce.
Snatch communication, automotive PCB
Looking for opportunities in crisis, PCB downstream application network can be described as “extending in all directions”, and manufacturers limited by the home appliance market can find another way.
According to Prismark data, in 2018, the global PCB market share for industries such as communications, computers, consumer electronics, automotive electronics, industrial control, military aerospace, and medical enterprises was 33.4%, 29.4%, 15.1%, and 10%, respectively. .1%, 5.1%, 4.7% and 2.2%.
So, among the many “roads”, which one is the most promising?
With the rise of 5G and new energy vehicles, two major fields of communication and automotive electronics are releasing positive information:
In the field of communication, PCB is mainly used in wireless network, transmission network, data communication and fixed network broadband. 2019 is the first year of 5G commercial use in my country. According to the prospectus of Aohong Electronics, the overall market size of the domestic 5G industry is expected to reach 1.15 trillion yuan during 2019-2026. Since communication equipment is an important support for 5G network construction, it will definitely drive the demand for communication PCBs to surge.
In the field of automotive electronics, PCBs are mainly used in electronic information systems such as powertrain, chassis, and body. It accounts for about 2% of the cost of the entire automotive electronic device. The PCB consumption of traditional automobiles is about 1 square meter, which is worth US$60; the PCB consumption of high-end vehicles and bicycles is 2-3 square meters, which is worth US$120-130; Add electromagnetic management system, vehicle controller, etc., the value of PCB bicycle can be as high as 280 US dollars.
At this stage, China’s auto production remains the world’s largest, and the overall demand for automotive electronics is strong. At the same time, the government vigorously promotes new energy vehicles and driverless technology, which will greatly improve the degree of automotive electronics and stimulate upstream PCB demand.
Compared with the field of home appliances, communication and automotive electronics are not only in a state of increasing demand for PCBs, but also have a much lower level of competition, so they can become “blue ocean markets”.
Aohong Electronics saw the market opportunity and began to deploy in time: in 2015, its product line extended to the fields of communications and automotive electronics, and the revenue of the two accounted for as high as 6% at one time, and successfully established a cooperative relationship with customers in the industry.
At present, the PCB business for communication and automotive electronics is in the ascendant. What difficulties need to be overcome in the future? What resources can be used?
Pay close attention to technology and production capacity
First of all, PCB product technology needs to highly meet the needs of downstream electronic equipment. Home appliance products have more demand for low-end PCBs, while communication electronic products and automotive electronic products are upgrading to the direction of light, thin, short, high frequency and high speed. From home appliances to communications and automotive electronics, PCB boards need to go further in the direction of high density and high performance.
“High density” means to increase the distribution density of components on the PCB, so that the same size substrate can carry more electronic components. The specific technical operation requires reducing the aperture of the circuit board, reducing the number of holes, and increasing the number of components to achieve high-density interconnection, so this technology is called high-density interconnection technology (High-density interconnection technology).
Density Inter-connector, HDI).
“High performance” means that the PCB board needs to maintain stable performance while working at high frequency and high speed. Generally speaking, the more layers of conductive patterns on the circuit board, the more stable the performance. That is, the performance of high-rise boards will be better than that of single-sided or double-sided boards.
Image source: TTM, Orient Securities Research Institute
Previously, Aohong Electronics’ R&D investment was highly concentrated on low-end PCB boards, and it has yet to be optimized in HDI technology and high-level board technology. Therefore, it plans to raise 51.516 million yuan to invest in the “R&D center upgrade and transformation project” to conquer higher-density, high-performance PCB board production technology. Combining technology and talent accumulation, the project is expected to quickly achieve breakthroughs in HDI technology and high-level board technology.
Second, the PCB industry is characterized by a high degree of customization. Each company needs different PCB boards, and there are even different requirements for precision and size of a single type of PCB board. Therefore, product orders often have the characteristics of multiple varieties, small batches, and non-standardization.
This requires enterprises to achieve efficient and flexible production. Aohong Electronics “has a head start” and completed the automation upgrade of the production line as early as 2011. In 2018, the per capita output value was 782,200 yuan, far ahead of listed companies in the same industry. In addition, Aohong Electronics also continues to promote product quality control to ensure production efficiency while strictly controlling the product qualification rate.
It can be seen that in order to dive into the blue ocean of communications and automobiles, Aohong Electronics has made two preparations: first, it is ready to make breakthroughs in technology, and second, efficient and flexible production capacity is already in place.
However, entering the broader downstream application market essentially requires companies to produce more products, and Aohong Electronics still has production capacity difficulties to overcome.
From 2016 to 2018, its capacity utilization rate reached 94.58%, 102.21% and 95.50%, respectively. Due to insufficient production capacity, some orders and processes were entrusted to suppliers for processing and production, and the amount increased year by year, reaching 42,281,100 yuan, 59,753,400 yuan and 63,446,400 yuan respectively.
In terms of production capacity structure, its high-end PCB board production capacity remained at 780,000 square meters for three consecutive years; low-end PCB board production capacity accounted for a larger proportion, while the growth was slightly slower, 2.4 million square meters, 2.7 million square meters and 3 million square meters respectively. square meters.
Obviously, the existing production capacity is completely insufficient to meet the demand for PCB boards in the future communication and automotive electronics fields, and the production capacity structure dominated by low-end boards does not meet the market demand structure.
If you rely on outsourced processing for a long time, it will only increase production costs; if the production capacity structure is not adjusted in time, it will be eliminated from the market due to the lack of high-end products. Therefore, it is imperative to expand production capacity and adjust production capacity structure.
Aohong Electronics raised 716.0102 million yuan to invest in “a construction project with an annual output of 1.2 million square meters of high-precision multi-layer boards and high-density interconnected laminates”, which can “expand” and “adjust structure” at the same time. In addition, the superposition of new and old production capacity can also form economies of scale and reduce operating costs.
Ninety percent of revenue is bet on the field of home appliances, which is not only the brilliant record of Aohong Electronics, but also the biggest weakness under the crisis of home appliance stall. Looking for opportunities in crisis, the field of communication and automotive electronics is forming a “blue ocean”. While breaking through HDI technology and high-level board technology, while expanding the production capacity of high-end PCB boards, Aohong Electronics can not only transfer the risk of home appliance stall, but also take advantage of the opportunity to enter the high-end market. The “king” of PCB for home appliances is about to become a “new star” in the field of communication and automotive electronics PCB.