After experiencing a downturn for two consecutive years, the global smartphone market has shown promising signs of recovery in 2024, with a year-on-year increase in shipments of 6.40%. This rejuvenation is accompanied by a resurgence in the tablet market, which has sustained positive growth for multiple quartersAccording to industry analysts, the revival in the consumer electronics sector has notably benefitted market leaders like Crystal Optoelectronics, resulting in record-breaking financial performance.

January typically sees a flurry of financial forecasts as companies prepare to report their earningsOn January 10, Crystal Optoelectronics (002273.SZ) disclosed its 2024 performance projections, estimating a net profit attributable to shareholders of approximately 1 billion to 1.12 billion yuan

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This marks a significant increase of between 66.60% and 86.59% compared to the previous year.

A significant highlight for 2024 is Crystal Optoelectronics' shift from relying on a single major product to diversifying its product line, optimizing its structure, and achieving the highest profit levels since going publicAccording to insights from China Merchants Securities, this upward trend is predominantly driven by three key factors: robust revenue growth from major North American clients, the benefits derived from innovations in iPhone periscopes in their microlens business, and the market share and profit increases in their film optical panel segmentsFurthermore, the demand revival in the Android sector has led to a broader adoption of high-value coated filters.

Following the announcement of these impressive results, Futu Securities recognized the company's strong performance and reiterated the significant potential for optical innovation moving forward

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However, they also cautioned against risks due to potential declines in consumer electronics demand, slower-than-expected development in augmented reality (AR), insufficient technology penetration, currency fluctuations, and stock pledge issues.

In summary, the substantial growth in Crystal Optoelectronics’ performance can be attributed primarily to the revival of the consumer electronics marketThe global smartphone market, which faced significant challenges over the past two years, has made a robust turnaround in 2024, with shipments increasing substantiallyGiven its leading position in the smartphone filter and optical panel markets, Crystal Optoelectronics stands to gain considerably during this recovery phase.

Entering the Supply Chains of Major Clients

In the fourth quarter of 2024, global smartphone shipments posted a year-on-year increase of 2.40%, totaling 332 million units and achieving growth for six consecutive quarters

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The total number of smartphones shipped throughout the year reached 1.24 billion, signifying a strong comeback after a prolonged decline.

Furthermore, the tablet market has also exhibited consistent growth over several quartersIDC's reports indicate that shipments in the first quarter of 2024 rose by 1.00% year-on-year to 33.5 million units, which jumped by 22.10% in the second quarter to 35.4 million units, and continued to rise to 39.6 million units by the third quarter, up 20.40% year-on-yearPositive sentiment across the supply side is emerging, which is a favorable sign for the industry.

The introduction of new subsidy regulations in 2025 will offer personal consumers financial incentives when purchasing new smartphones, tablets, or smartwatchesEach individual can receive a subsidy on one product per category, calculated as 15% of the final selling price after discounts, subject to a cap of 500 yuan

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This policy is expected to mitigate the prolonged replacement cycle affecting the domestic consumer electronics marketAs a dominant player in the filter and camera lens markets, Crystal Optoelectronics is well-positioned to benefit from this recovery and the old-for-new policy.

According to financial reports, Crystal Optoelectronics has established five major business segments, including optical components, film optical panels, semiconductor optics, automotive electronics (AR+), and reflective materialsKey products comprise precision film optical components, film optical panels, semiconductor optical modules, automotive head-up displays, and reflective materials among others.

The two primary income and profit sources for the company are its optical components and film optical panelsIn the first half of 2024, the income from optical devices reached 1.245 billion yuan, accounting for 46.91% of total revenue, while film optical panels generated revenue of 945 million yuan, making up 35.61% of the total.

As noted in a report by Futu Securities, the main products in the optical components segment include infrared cutoff filters, composite filters, micro-optical prism modules, and optical low-pass filters

Among these, the infrared cutoff filter remains the company's traditional strength and was the largest single product in the past.

Noteworthily, in recent years, Crystal Optoelectronics has been a pioneer in introducing composite filters to the domestic Android smartphone marketWith the resurgence of the market and a return of major domestic Android clients, sales of these composite filters have entered a phase of rapid growth.

Data indicates that in the first half of 2024, the sales of composite filters surged significantly, marking further optimization in product structureAdditionally, statistics from Chao Dian Smart Research suggest that Chinese firms are maintaining a stronghold in the global filter supply market, with a market share exceeding 90%, placing Crystal Optoelectronics third in shipments and holding an 11% market share.

Moreover, a report from Western Securities indicates that Apple has completed comprehensive upgrades for its front and rear cameras, now utilizing composite filter products

Crystal Optoelectronics has successfully secured direct collaboration opportunities with Apple.

Importantly, in the area of prism products, the company has begun supplying Apple in bulkPublic data confirms that the iPhone 15 Pro Max, iPhone 16 Pro, and iPhone 16 Pro Max have all incorporated four-reflective prism technology, suggesting a potential for widespread adoption of this technology across various iPhone models in the future.

The manufacturing process of Apple's four-reflective prisms is intricate, presenting challenges for mass productionNevertheless, in June 2023, Crystal Optoelectronics successfully developed and commenced the mass production of these prisms, marking the first instance of the company collaborating with Apple as an ODM.

Once integrated into the supply chain of large clients, the revenue from Crystal Optoelectronics' film optical panels surged from 304 million yuan in 2019 to 1.849 billion yuan in 2023, reflecting a compound annual growth rate of 57.04%. This segment has now positioned itself as the second-largest business for the company.

Harnessing a Second Growth Curve

Similar to other consumer electronics firms like Luxshare Precision and Lens Technology, Crystal Optoelectronics recognizes the need to diversify and reduce dependence on consumer electronics sectors to smooth out performance fluctuations over various reporting periods

Therefore, while maintaining stable growth in existing businesses, the company is actively developing automotive-related ventures.

Data from the China Association of Automobile Manufacturers indicates that from January to July 2024, cumulative sales of new energy vehicles in China reached 5.93 million units, marking a year-on-year growth of 31%. Furthermore, the penetration rate of new energy vehicles continues to rise, attaining 44% by the end of July 2024. Additionally, intelligence is a significant selling point for these vehicles, with statistics showing the overall intelligence proportion of new energy vehicles in China at approximately 50%, peaking at 53.90% in May, a new high over the past year.

Head-up display (HUD) technology is crucial in enhancing the intelligence of new energy vehicles

By projecting essential driving data, such as speed and navigation cues, directly onto the windshield in the driver's line of sight, HUDs seamlessly integrate information into the driving environment, thereby bolstering safety.

Available information categorizes automotive HUD technology into several types, including Conventional-HUD (C-HUD), Windshield-HUD (W-HUD), and Augmented Reality-HUD (AR-HUD). Western Securities reports that when compared to C-HUD and W-HUD technology paths, AR-HUD offers advantages such as larger imaging size, high projection brightness, seamless environmental integration, distant virtual imagery, and a lack of necessity for external glass.

According to data from Zossi Auto Research, the penetration rate for front-mounted HUDs in vehicles in China reached 14.30% in the first half of 2024. Additionally, data from Gao Gong Intelligent Automotive Research Institute indicates that for the same period, 1.3556 million vehicles equipped with W-HUD and AR-HUD were delivered to the Chinese market, resulting in a year-on-year increase of 45.82%.

Notably, as technology has advanced and production volumes have increased, the costs of AR-HUDs are gradually decreasing

The cost barrier between W-HUD and AR-HUD is diminishing, primarily attributable to parameter upgrades and functional enhancementsAccording to data from the Automotive Surging Report, the market share of AR-HUD has escalated from 5.80% the previous year to 26.40% in the first half of 2024, reflecting a significant market expansion.

As noted in a report by Futu Securities, Crystal Optoelectronics has emerged as the first manufacturer in China to mass-produce AR-HUD systemsSince 2020, following their supply of AR-HUDs to Hongqi EHS9, the company entered the automotive HUD market, providing core optical components to major HUD manufacturers as a Tier 2 supplier while also directly supplying complete units to automotive manufacturers as a Tier 1 supplier.

In terms of domestic clients, Crystal Optoelectronics maintains close collaborations with leading companies such as Changan Shenlan, Geely, Great Wall, and BYD, and has also begun to work with prominent manufacturers such as SAIC Volkswagen and Li Auto in the first half of 2024.

On the international front, in 2023, the company successfully secured trials for several HUD products with Jaguar Land Rover, establishing itself as the first Chinese supplier to penetrate mainstream European and American brand markets