Haitong Strategy: What are the current highlights of consumer electronics?

Haitong releases research report stating that the consumer electronics industry has gradually entered a mature stage with both cyclical and growth attributes. This is reflected in the fact that the demand in the stock market fluctuates with the global economic cycle, and the incremental growth space depends on breakthrough technological innovations. Looking back at the A-share consumer electronics sector, systematic trends often accompany multiple fundamental indicators rebounding. Among them, subdivision sectors with thematic catalysis tend to have better excess returns. The future of consumer electronics will focus on two main points: how much will AI empower new products to drive consumer electronics demand, and whether global macro trends will stabilize and rebound. Review of the development of the consumer electronics industry: gradually combining cyclical and growth aspects. Mainstream product demand increasingly relies on macro environment fluctuations, giving consumer electronics a certain cyclical attribute. In the field of consumer electronics, smartphones and PCs are important components of the industry. Generally, during the introduction and growth periods of the product lifecycle, market demand tends to grow rapidly, with frequent technological innovations and product upgrades, showing strong growth momentum in the market. However, as the market gradually enters a mature stage, with the increase in product penetration rates and the slowdown in penetration rate growth, market demand gradually tends to saturate, and the growth rate of product sales begins to slow down. When new products do not have significant breakthroughs in technology, functionality, and user experience, the replacement cycle for consumers will lengthen, further slowing down market demand. At this point, consumer electronics market demand increasingly depends on changes in the macroeconomic cycle. Despite market demand being influenced by the macroeconomic environment, the industry's growth attributes cannot be overlooked. Growth attributes mainly come from emerging markets and new product demands brought about by technological innovations. Technological innovation is the core driving force of the consumer electronics industry's development. The continuous emergence and application of new technologies inject new vitality into the market. Behind market performance: industry recovery is the main logic. How to grasp which stage the electronics industry is in its development cycle? When analyzing the consumer electronics industry, attention needs to be paid to the supply-demand relationship and fundamental indicators. In addition to observing shipments of smartphones and PCs, trackable indicators include the global semiconductor cycle, Taiwan's electronic manufacturers' revenue data, and industry new orders and inventory. By analyzing historical data on the semiconductor cycle and the performance of the A-share electronics industry, we can see that when the supply and demand situation improves and fundamentals turn better, the A-share electronics industry as a whole often shows sustained excess returns. In addition, the performance of subdivision sectors will differ with thematic catalysis. Before 2018, the demand improvement-driven consumer electronics and components subdivisions were the main drivers of the rise in the electronics sector. Since 2019, with the strengthening of the domestic substitution logic amid external disturbances, the excess returns of the A-share semiconductor industry have significantly increased. Current focus: How much will AI technology drive consumer electronics? Since the second half of 2022, the rapid development of generative artificial intelligence has attracted global attention, with a variety of related products and applications emerging. However, at present, AI development faces issues on two levels. One is the slowdown in the development of large models. The second is a long way to go for AI applications to expand into super applications. Against the backdrop of the gradual slowdown in AI development, the market is gradually pinning its hopes on AI intelligent terminal products to further expand the application scenarios of AI technology. If the launch of AI-enabled terminals such as AI smartphones and AIPC stimulates replacement demand from existing users, consumer electronics empowered by AI are expected to enter a new upward cycle. In addition to the new demand empowered by AI technology innovation, the operation of the global economic cycle directly affects the demand for consumer electronics products, requiring close attention to global economic indicators to assess the impact of changes in the economic cycle on the consumer electronics market. Furthermore, geopolitical factors have a significant impact on the global supply chain and market environment of electronics. Geopolitical risks may lead to supply chain disruptions, rising production costs, affecting the supply and prices of consumer electronics products. In addition, policy changes also have an impact on the consumer electronics industry. Government support policies for the technology and electronics industry, tax incentives, etc., will all have a significant impact on the industry's development. Risk alerts: Global macro environment deteriorates beyond expectations, and AI development progresses slower than expected.