Core Viewpoint - The consumer electronics sector has experienced a 47.5% increase year-to-date, slightly underperforming the electronic index by 0.6 percentage points, while outperforming the CSI 300 index by 29.1 percentage points. Despite concerns over rising storage prices affecting terminal demand, the sector's fundamentals are expected to remain low, with a clear trend of accelerated AI innovation in 2026-2027 driven by major companies like Apple, Google, and OpenAI [1][2][18]. Group 1: 2025 Market Review - The consumer electronics SW industry index increased by 47.5% year-to-date, underperforming the electronic SW industry index by 0.6 percentage points and outperforming the CSI 300 index by 29.1 percentage points [2][28]. - The market saw steady growth due to the launch of the DS-R1 open-source model and expectations of accelerated AI deployment, but concerns over storage price increases began to affect demand towards the end of Q3 [2][28]. - In terms of sub-sectors, PCB and consumer electronic components outperformed the electronic industry index, driven by AI computing demand, while optical components and brand consumer electronics lagged behind [2][30]. Group 2: Terminal Demand and Innovation Tracking - In the smartphone sector, 2026 will see significant AIOS innovations, with storage price increases potentially impacting overall sales, particularly for mid-range Android devices, while iPhone demand remains manageable [3][19]. - The PC and tablet market is expected to benefit from Windows 11 upgrade cycles, with a focus on AI PCs and the impact of storage price increases on demand in 2026 [4][19]. - The wearables and IoT sectors will see innovations in AI headphones, glasses, and home robots, with significant attention on Apple's AI camera headphones and the anticipated releases from major players like Meta and Google [4][20]. Group 3: Industry Chain Tracking - Major brands like Apple, Google, and OpenAI are expected to lead AI innovation in 2026, while Android brands face challenges from rising storage prices [8][9]. - The assembly sector is positioned to benefit from the long-term AI cloud-side innovation cycle, with companies like Luxshare Precision and BYD Electronics expected to gain from AI product launches [9][10]. - The storage chip sector is experiencing upward cycles, with domestic companies projected to see continued performance improvements due to favorable supply-demand dynamics [10][11]. Group 4: Investment Strategy for 2026 - Despite the headwinds from rising storage prices, the AI terminal market is expected to accelerate innovation, with major companies focusing on AI hardware and software integration [18][19]. - Key areas of investment include AI PCs, wearables, smart home devices, robotics, and smart vehicles, with a particular emphasis on the supply chain for high-quality components [18][21].