Summary of the Conference Call for 深格通信 Company Overview - 深格通信 focuses on Ethernet switch chips and modules, covering industrial parks, 5G, and data centers, and has entered the supply chains of major network equipment suppliers like 锐捷, 新华三, 中兴, and 迈普技术, indicating a broad market outlook [2][3][21] Core Business Model and Financial Performance - The company adopts a Fabric business model, outsourcing wafer production and testing to third-party manufacturers while focusing on backend design and solutions [2][6] - Revenue growth from 2019 to 2023 increased from 192 million to 1.037 billion, with a revenue of 508 million in the first half of the current year, driven by high demand for Ethernet switch chips [2][8] - Despite high R&D investments, the company has not yet turned a profit but expects to break even within the next one to two years as high-end chips ramp up production [8][24] Product and Technology Advantages - The product range includes Ethernet switch chips and modules, covering access, aggregation, and core layers, with a focus on high-performance architectures [4][5] - The company has developed proprietary CTC OS and supports the Sonic open-source network operating system, providing customized solutions [4][18] - The latest Arctic series chips have begun to be applied, with ongoing development for larger capacity switch chips [11][22] Market Position and Competitive Landscape - 深格通信 ranks first among domestic self-developed Ethernet switch chip manufacturers and is well-positioned to benefit from the growth in AI and data center demands [3][14] - The domestic Ethernet market is projected to reach 57.42 billion by 2025, with a compound annual growth rate (CAGR) of 10.8%, outpacing global growth [4][14] - The company competes effectively in the mid-to-high-end market, with products comparable to international competitors like 博通 and 思科 [17][22] Financial Metrics and Profitability - The gross margin for Ethernet switch modules reached 63.43%, while the switch business maintained a gross margin of around 60.72% in the first half of the year [9] - The company has shown good expense control, with a downward trend in operating expenses while maintaining high R&D investment [10] Future Outlook - The company is expected to expand its SKU offerings significantly, moving from hundreds to potentially millions of cards, and is well-positioned to benefit from the upcoming Scale Up market developments [23][24] - The anticipated growth in data center demand, particularly from major cloud providers, will continue to drive the need for Ethernet devices [15][21] Industry Characteristics - The Ethernet switch chip industry has high technical barriers and strong customer loyalty, with product life cycles lasting approximately 8-10 years, allowing for the recovery of initial R&D investments [19][20] Conclusion - Overall, 深格通信 is positioned for significant growth in the Ethernet switch chip market, with strong R&D capabilities, a solid product lineup, and a favorable market environment, leading to a positive long-term outlook [24]

Macro Strategy - The report analyzes the low consumption rate in China compared to 38 countries, indicating that while disposable income is relatively high, the consumption tendency is low, suggesting that the majority of residents have a willingness to consume but lack the ability to do so [1][11][12] - China's consumption rate is only 37.2%, which is 16.6 percentage points lower than the average of 53.8% among the 38 countries [11] - The report emphasizes the need to increase the income of the middle and low-income groups to stimulate consumption, as the current tax burden on these groups is low, which does not favor consumption [1][12] Fixed Income - Following the recent interest rate cuts, short-term interest rates have decreased while long-term rates have increased, indicating a market adjustment to the new monetary policy [5][17] - The report suggests that the long-term interest rate trend remains downward, but the market has overreacted to the rate cut expectations, requiring time for adjustment [5][17] - The current yield curve indicates a reasonable spread between 10-year and 1-year government bonds, suggesting potential investment opportunities in the bond market [5][17] Industry Insights - The report highlights the recent developments in BoRui Pharmaceutical, which is raising 500 million yuan through a private placement, with the controlling shareholder fully subscribing, indicating strong confidence in the company's pipeline [6] - The company is advancing its clinical trials for BGM0504, which shows promising results compared to its competitors, suggesting a potential competitive edge in the market [6] - The report also discusses Kangnong Agriculture's expansion in the Huanghuaihai region, projecting steady growth in profits for 2025 and 2026 due to increased sales [7][8] Communication Industry - Shengke Communication reported a revenue of 1.08 billion yuan in 2024, with a focus on high-end product development and cost optimization, leading to improved gross margins [9] - The company is increasing its R&D investment significantly, which is expected to drive future growth and align with the domestic demand for high-end networking products [9][10] - The report notes that the company has successfully entered the supply chains of major domestic network equipment manufacturers, indicating a strong market position [9]