Suzhou Centec (688702) 东吴证券·2024-07-01 10:00Investment Rating - The report gives an "Overweight" rating to the company, citing its strong position in the domestic Ethernet switch chip market and its potential for growth in the AI and white-box switch sectors [50] Core Views - The company is a leading domestic Ethernet switch chip designer with a comprehensive product portfolio and strong customer relationships, benefiting from the growing demand for data center and white-box switch solutions [16][37] - The domestic Ethernet switch chip market has significant room for localization, with the company well-positioned to capture market share as it has already entered the supply chains of major domestic switch manufacturers [7][12] - The company's R&D investment remains high, with a focus on improving product performance and narrowing the gap with international competitors, which supports its long-term growth potential [28][252] Market and Industry Analysis - The global Ethernet switch chip market is expected to grow, driven by the increasing demand for data centers and the adoption of white-box switches, with the commercial market projected to account for 55% of the total market by 2025 [49][168] - The domestic Ethernet switch market is dominated by local players, with Huawei holding a 40% market share, while the switch chip market is still largely controlled by foreign companies like Broadcom and Marvell, presenting a significant opportunity for domestic substitution [7][9] - The white-box switch market is expected to grow rapidly, with a projected CAGR of 15.1% from 2022 to 2029, driven by its cost efficiency and flexibility in data center applications [66][213] Company Performance and Product Development - The company has successfully developed a series of Ethernet switch chips, including the CTC7132, CTC8096, and CTC5160, which have been recognized as "internationally advanced" by the Chinese Electronics Society [3] - The company's Ethernet switch chip revenue has grown significantly, with a CAGR of 93.9% from 2019 to 2023, and it is expected to continue growing at a high rate, driven by data center demand and the increasing penetration of white-box switches [16][162] - The company is focusing on high-end products, with its latest chips supporting port speeds of up to 800G and switching capacities of 12.8Tbps and 25.6Tbps, which are competitive with international peers [29][37] Financial Projections - The company's revenue is expected to grow from 13.8 billion yuan in 2024 to 22.1 billion yuan in 2026, with a CAGR of 24%, driven by the growth in its Ethernet switch chip business [50] - The company's gross margin is expected to improve, with the Ethernet switch chip business projected to achieve a gross margin of 38% by 2026, up from 28.8% in 2023 [20] - The company is expected to turn profitable by 2025, with net income projected to reach 52.2 million yuan in 2026, representing a significant improvement from the current loss position [20] Competitive Advantages - The company has a first-mover advantage in the domestic Ethernet switch chip market, having entered the supply chains of major domestic switch manufacturers like ZTE, H3C, and Ruijie Networks [12][31] - The company's strong R&D capabilities and extensive product portfolio allow it to meet the diverse needs of its customers, particularly in the data center and white-box switch markets [28][252] - The company's long product lifecycle and strong customer relationships create high barriers to entry for new competitors, as customers are reluctant to switch suppliers due to the high costs and risks involved [6][12]