ZHONGJI INNOLIGHT(300308)2024-10-23 01:32Key Points Industry and Company - Industry: The company operates in the optical communication industry, specifically focusing on silicon photonics and optical modules. - Company: The company is a leading player in the industry, with a strong focus on research and development in silicon photonics technology. Core Views and Arguments - Revenue Growth: Q3 revenue experienced a year-over-year growth of 9-10%, driven by strong order demand. However, delivery gaps were significant due to material shortages. - Gross Margin: Gross margin remained high and stable, with a Q3 consolidated gross margin of 33.6% compared to 33.4% in Q2. - Net Profit: Net profit increased by over 80 million yuan compared to the previous quarter, reaching 1.465 billion yuan. The appreciation of the RMB in late September had a significant impact on the company's financials, leading to exchange losses of over 80 million yuan in Q3. - CPO Layout: The company has made significant investments in R&D for silicon photonics chips, including 400G, 800G, and 1.6T. It also possesses the technology to develop CPO silicon photonics engines and is actively involved in R&D. - Material Shortages: The company has been affected by material shortages, particularly in DSP and optical chips. However, it has adopted a hedging strategy to mitigate the impact. - Domestic Suppliers: The company is actively working with domestic chip manufacturers and has already started using some domestic CW sources in certain models. - Silicon Photonics: The company plans to increase the proportion of silicon photonics shipments, particularly in 800G and 1.6T solutions. It expects to see a significant increase in silicon photonics shipments in Q4 2024 and 2025. - 1.6T Silicon Photonics: The company expects to start shipping 1.6T silicon photonics solutions in Q4 2024, particularly in December. - Exchange Rate Fluctuations: The company experienced exchange losses of over 80 million yuan in Q3 due to the appreciation of the RMB. However, this was a paper loss and not an actual loss for the company. - Capacity Expansion: The company is continuously investing in capacity expansion, both domestically and overseas, to meet the growing demand for high-speed products like 800G and 1.6T. - Material Shortages: The company expects material shortages to continue in 2024, with a potential缓解 in the first half of 2025. It plans to increase its procurement of EML in 2025 to improve delivery capabilities. - CPO: The company is actively involved in the development of CPO products, both independently and in collaboration with customers. - Excess Capacity: The company is considering increasing capacity in 2025 and 2026 to meet the growing demand for high-speed products. - Material Price Increases: The company has confidence in passing on price increases to downstream customers, particularly for key materials like EML and optical chips. - Silicon Photonics vs. Traditional Solutions: The company offers different solutions based on customer needs. However, 3.2T presents a greater challenge for EML. - Expansion: The company is expanding its production capacity in both China and Thailand to meet the growing demand for high-speed products. - Customer Interest: Most customers are interested in using the company's silicon photonics products, particularly in 2025. - Material Shortages: The company expects material shortages to continue in Q4 2024, with a potential significant improvement in Q1 2025. - Price Transmission: The company has confidence in passing on price increases to downstream customers, particularly for key materials like EML and optical chips. - Co-linearity: Most production lines can be used for both EML and silicon photonics solutions, except for some coupling processes. - Price Negotiations: Most customers will negotiate prices with suppliers in Q3 and Q4 2024 for 2025, with some models being priced based on the time of introduction. - Hedging: The company is considering using hedging products to mitigate exchange rate risks. - Silicon Photonics vs. EML: CW sources can save half the number of traditional EMLs and are cheaper, providing a clear advantage in the BOM. - Silicon Photonics Supply: The company has long-term partnerships with suppliers for traditional EML and can also find new suppliers for CW. - Order Visibility: The company can see some orders for Q1 2025, with strong demand expected for 800G and 1.6T products. - Delivery Capabilities: The company expects to improve its delivery capabilities in Q4 2024, particularly due to the increased proportion of silicon photonics shipments. - Profitability: The company expects to maintain stable margins in 2025, driven by strong demand for upstream chips and modules, as well as cost reduction efforts. - Optical vs. Copper: Optical modules are primarily used in switches and network architectures, while copper cables are used for short-distance connections. However, optical technology has the potential to enter these scenarios in the future. - Margin Improvement: The company's gross margin is expected to increase due to the strong demand for 400G and 800G products, as well as improvements in yield and cost reduction efforts.