Industrial: AIoT demand recovery, combined with edge AI catalysis, Wi-Fi industry chain faces new development opportunities.

Industrial released a research report stating that the gradual completion of AloT inventory clearance, coupled with strong downstream demand recovery, the catalysis of AI on the terminal side is driving intelligence, and the penetration of networking is further improving. AloT is expected to enter an upward channel. Wi-Fi as the mainstream connection method will benefit deeply. Also, because Wi-Fi chips are a core part of the industry chain, higher speed and interoperability are future development trends. Wi-Fi 6/7 is expected to become a major increment in the Wi-Fi market. It is recommended to pay attention to Espressif Systems (688018.SH), Quectel Wireless Solutions (603236.SH), Fibocom Wireless Inc. (300638.SZ), MeiG Smart Technology(002881.SZ), etc. The main points of Industrial are as follows: The improvement in demand prosperity, coupled with the dual drive of AI on the terminal side, the AloT industry is expected to usher in new growth. Wi-Fi as the mainstream connection method in the AloT field is expected to benefit. On the one hand, since 2020, affected by multiple factors such as cyclical fluctuations in the chip industry and macroeconomics, AloT chip and module-related companies have experienced a phase from supply shortages to inventory adjustments. Currently, inventory clearance is gradually completing, and downstream applications such as consumer electronics are showing signs of recovery. Companies in the industry chain like Tuya and Xiaomi are improving their performance and guidance, Apple is targeting the smart home market again, further confirming the upward trend in demand. On the other hand, models like DeepSeek are accelerating the landing of AI, laying the foundation for the explosion of AI on the terminal side. AloT is transitioning from the Internet of Things to the intelligent Internet of Things, empowering emerging fields like AI toys, further strengthening the demand for IoT connections. Transforma Insights predicts that the number of IoT connections will reach 400 billion by 2033, with a compound annual growth rate of 9.6%. Short-distance wireless communication methods like Wi-Fi can meet most of the requirements of AloT applications, with low costs making it the mainstream connection method in the AloT field, benefiting deeply from the development of the AloT industry. Wi-Fi chips are a core part of the industry chain, with higher speed and interoperability being future development trends. Wi-Fi chips are in the upstream of the industry chain, serving as one end of the smile curve and the core of the industry chain's value. According to the terminal type, Wi-Fi chips can be divided into STA chips, router AP chips, and IoT Wi-Fi chips, with IoT Wi-Fi having relatively lower performance requirements for factors like transmission speed, and being more sensitive to cost, power consumption, and size. Therefore, high integration, low power consumption, and low-cost Wi-Fi MCUs have become mainstream in the AloT field. In terms of technological iteration, Wi-Fi transmission protocols are iterated every 4-6 years, with Wi-Fi 6/7 expected to become the main increment in the Wi-Fi market, currently mainly applied in high-end application areas like smartphones, and the Wi-Fi MCU field requiring high cost-effectiveness, upgrading to Wi-Fi 6/7 speeds relatively slow. Smart home, as one of the main application areas of AloT, is hindered by different brand and connection method ecosystem barriers from rapid promotion. Matter's successful breaking of the barriers between smart home devices and ecosystems is expected to accelerate AloT penetration. The Wi-Fi MCU market has the characteristic of a long-tail market with dispersed downstream diversity. Espressif Systems is a leading global Wi-Fi MCU manufacturer, adhering to a 2D2B business model, with a strong influence in the global open-source community, establishing core competitive barriers to seize the opportunities of the long-tail market; at the same time, adhering to research and development investment, forming hardware cost advantages through self-developed IP, and continuously enriching the hardware-software-cloud platform product matrix to drive the acceleration of IoT applications landing. In the emerging Al toy terminal race, Espressif Systems' developer ecosystem is more in line with the needs of start-up customers for new product development. Currently, leading toy companies such as FoloToy use Espressif products, with the company's market share expected to significantly exceed the current market share. Risk warning: downstream demand recovery is not as expected; AloT intelligence penetration rate increases less than expected; industry competition intensifies.