Jin Jiyan: Tianya/Author Yang Qichao, Shifeng/Editor

With the continuous development and maturity of Internet technology and wireless communication technology, the Internet of Things (IoT) has emerged as a new field, not only bringing forth new product applications but also driving the transformation and upgrading of traditional industries. In 2022, due to weak demand in the consumer electronics and other end-product markets, the sentiment in the IoT industry declined. In the first half of 2024, the market sentiment for end-device demand rebounded, driving an increase in demand for wireless IoT chips.

As a renowned semiconductor and integrated circuit design company with globally competitive products, Tailin Microelectronics (Shanghai) Co., Ltd. (hereinafter referred to as "Tailin Micro") focuses primarily on low-power Bluetooth chips, multi-protocol IoT chips, proprietary 2.4G chips, and wireless audio chips, among others. Its downstream application market exhibits a diversified layout.

In the first half of 2024, Tailin Micro's revenue increased year-on-year, with a further improvement in gross margin, indicating a positive business performance. Tailin Micro has successfully developed a series of low-power wireless IoT system-on-chip (SoC) products with independent intellectual property rights and world-class performance. These products, recognized widely by customers and the market for their excellent overall performance, have gained a leading position in various product and business areas, and have accumulated abundant terminal customer resources globally. In July 2024, Tailin Micro launched its latest generation of products, including China's first multi-protocol IoT wireless SoC with a working current as low as 1mA, a power consumption indicator that is internationally leading, potentially positively impacting its future performance.

I. Resurgence in market sentiment and increased demand in H1 2024, with the long-term development trend of IoT unchanged

As a specialized integrated circuit design company, Tailin Micro is primarily engaged in the research and development, design, and sales of wireless IoT SoCs. The sales of wireless IoT chips are highly correlated with the downstream demand for end-devices.

2023 was a challenging year for the global IoT module market. According to Counterpoint data, affected by reduced demand, global IoT module shipments declined for the first time, falling by 2% year-on-year.

In the first half of 2024, there were clear signs of a market rebound, with relatively strong overseas demand, and positive momentum in sectors such as smart homes, computer peripherals, and audio.

In smart homes, while smart home penetration rates have continued to rise in recent years, less than 20% of households globally currently own smart home devices, indicating that overall penetration remains low.

According to Statista and Meet Intelligence data, the global smart home penetration rates from 2019 to 2023 were 9.3%, 10.7%, 12.3%, 14.2%, and 16.4%, respectively. It is estimated that by 2028, the global smart home penetration rate will reach 28.8%.

Separately, according to Canalys data, global smartphone shipments reached 288.9 million units in the second quarter of 2024, up 12% year-on-year, marking the third consecutive quarter of positive growth. Global PC shipments reached 62.8 million units, an increase of 3.4% year-on-year. Canalys predicts that wearable wristband device shipments will grow by 5% in 2024, with smartwatches expected to achieve a 4% annual growth rate.

As the next wave of the world's information technology revolution following computers, the Internet, and mobile communications, the IoT market is growing rapidly and is vast in size. According to IoT Analytics data, the number of global IoT connections from 2018 to 2022 were 8 billion, 10 billion, 11.3 billion, 12.2 billion, and 14.4 billion, respectively, with an estimated 19.2 billion connections in 2024.

Among them, short-range IoT connections account for the majority due to their widespread applications in consumer scenarios such as smart homes and wearable devices, as well as in various enterprise settings. Market research firm IoT Analytics believes that short-range IoT connections such as Bluetooth and WiFi account for over 70% of total connections.

The number of cellular IoT subscribers serves as an important indicator and bellwether of the IoT market size, with changes largely reflecting shifts in IoT application scale.

According to Ministry of Industry and Information Technology data, the number of domestic cellular IoT connections at the end of each period from 2019 to 2023 and January-July 2024 were 1.028 billion, 1.136 billion, 1.398 billion, 1.845 billion, 2.332 billion, and 2.547 billion, respectively.

In the long run, with the continuous development and popularization of IoT technology, particularly the continuous iteration of communication technologies such as 5G, 6G, Starlink, and quantum communication, the number of global IoT connections will continue to grow.

In summary, affected by factors such as weak demand in the consumer electronics and other end-product markets, the sentiment in the IoT industry declined in 2022. In the first half of 2024, the market sentiment for end-devices rebounded, driving an increase in demand for wireless IoT chips. In recent years, the number of global IoT connections has increased annually, with the continuous development and popularization of IoT technology, ensuring an unchanged long-term development trend for the IoT industry.

II. Revenue up year-on-year with improved gross margin, entering the supply chain systems of many well-known brands

Benefiting from the resurgence in downstream market sentiment, Tailin Micro's revenue has shown an upward trend since 2023, with an increase in gross margin.

In 2023, Tailin Micro's operating revenue was RMB 636 million, up 4.40% year-on-year, with net profit attributable to shareholders of RMB 49.7718 million, roughly flat compared to the previous year. In the first half of 2024, Tailin Micro's operating revenue was RMB 366 million, up 14.67% year-on-year, with net profit attributable to shareholders of RMB 26.984 million, down 5.69% year-on-year.

It should be noted that the slight decline in Tailin Micro's net profit attributable to shareholders in the first half of 2024 was primarily due to a RMB 27.3353 million increase in research and development expenses compared to the same period last year.

In terms of gross margin, during 2023 and the first half of 2024, the industry was in a de-stocking phase. Additionally, Tailin Micro strengthened inventory control and optimized costs, resulting in gross margins increasing by 2.23 percentage points and 2.99 percentage points, respectively, year-on-year.

On the other hand, Tailin Micro's asset-liability ratio has shown a downward trend year by year in recent years and is significantly lower than the industry average, indicating strong solvency.

According to Eastmoney data, Tailin Micro's asset-liability ratios from 2021 to 2023 and January-June 2024 were 9.20%, 6.58%, 3.64%, and 5.07%, respectively.

Over the same period, the average asset-liability ratio of the 81 listed companies in the integrated circuit design category where Tailin Micro operates, as classified by the China Securities Index, were 22.85%, 19.30%, 18.55%, and 18.45%, respectively. Note that some companies' 2024 interim reports have not yet been disclosed, so the average was calculated based on data from companies that had disclosed their reports by August 23, 2024.

At the end of each period from 2021 to 2023 and January-June 2024, Tailin Micro's monetary funds were RMB 471 million, RMB 478 million, RMB 1.955 billion, and RMB 1.903 billion, respectively; short-term borrowings were RMB 17,000, RMB 76,200, RMB 42,200, and RMB 25,900, respectively; non-current liabilities due within one year were RMB 281,430, RMB 341,900, RMB 312,370, and RMB 571,100, respectively; and there were no long-term borrowings.

Having deeply cultivated the field of wireless IoT SoCs for many years, Tailin Micro's products are widely adopted by leading domestic and international brands, accumulating abundant terminal customer resources globally.

Currently, Tailin Micro has established stable cooperative relationships with many industry-leading mobile phone and peripheral, computer and peripheral, remote control, home lighting, and other manufacturers or their contract manufacturers. Its products are widely used in mainstream terminal brands such as Hanshow, Xiaomi, Logitech, Lenovo, Home Control, Rapoo, Tuya Smart, Ledvance, Renesas, Skyworth, Changhong, Haier, Sharp, Panasonic, Nvidia, and Harman.

Simultaneously, Tailin Micro has entered the supply chains of major international operators such as Charter in the US and Telecom Italia in Italy, and supports and services numerous technology companies' ecosystem enterprises internationally and domestically, including Baidu, Alibaba, Google, and Amazon.

It is worth mentioning that entering the supply chain systems of downstream end-product enterprises poses stringent product requirements, high entry barriers, and specific validation cycles for product technology and quality. Once chip products enter downstream enterprise supply chain systems, they often form stable and sticky cooperative relationships, enabling synergistic sales of multiple product categories.

The aforementioned leading brands have stable demand and robust resilience against economic fluctuations, ensuring the stability of Tailin Micro's long-term performance and constituting its competitive advantage and business barriers.

In brief, Tailin Micro's revenue has shown an upward trend since 2023, with an increase in gross margin. In recent years, Tailin Micro's asset-liability ratio has shown a downward trend year by year and is significantly lower than the industry average, posing low solvency risks. Meanwhile, Tailin Micro has accumulated abundant terminal customer resources, ensuring stable growth in its performance.

III. Diversified layout in downstream application markets, with audio chip revenue and proportion increasing annually

As a renowned semiconductor and integrated circuit design company with globally competitive products, Tailin Micro's primary business involves the research and development, design, and sales of low-power wireless IoT chips, focusing on low-power Bluetooth chips, multi-protocol (including Zigbee, Matter, etc.) IoT chips, proprietary 2.4G chips, and wireless audio chips.

From an application perspective, Tailin Micro continuously enriches its product matrix, offering a diverse range of terminal application products corresponding to its chips. These products are widely used in computer peripherals, smart homes, smart hardware, smart industrial systems, smart commercial systems, and other fields, such as electronic price tags, IoT gateways, lighting, remote controls, weighing scales, smartwatches and bracelets, wireless keyboards and mice, and wireless audio devices.

Among them, Tailin Micro's chips occupy a significant global share in the smart remote control market. In the electronic price tag market, Tailin Micro provides highly cost-effective chips and flexible technical solutions, with shipments increasing annually and a leading position domestically. In the niche audio product segment, Tailin Micro's products have unique market advantages, especially in ultra-low latency and multi-mode coexistence audio devices.

Over the past two years, Tailin Micro has invested resources in the automotive sector, developing solutions for various applications and actively expanding the market. Tailin Micro has begun shipping chips for smart digital car keys. Additionally, wireless connectivity technologies will be used in automotive applications such as battery management systems (BMS), making the automotive market a significant opportunity for wireless connectivity technologies.

It is noteworthy that Tailin Micro's chips have cumulatively shipped over 2 billion units globally, with product reliability and stability recognized by customers. The company holds prominent advantages in multiple sectors within its industry, occupying a solid position.

In terms of low-power Bluetooth SoCs, Tailin Micro's products have long been at the forefront of the market, representing one of the world's leading companies.

In the Zigbee domain, Tailin Micro is the largest domestic Zigbee chip supplier by shipment volume and ranks among the top globally, with strong competitive strength in both local and international markets. Furthermore, Tailin Micro's Thread and Matter SoC chips closely follow the latest protocol standards, occupying a place among the world's leading chip suppliers. Tailin Micro also leads in the 2.4G proprietary protocol SoC domain, particularly in key application markets represented by keyboards, mice, and electronic price tags.

In wireless audio SoCs, Tailin Micro supports multiple wireless audio technologies, including the latest low-power Bluetooth audio technology. Its chips have successfully entered the product lines of international leading brands. Tailin Micro's audio chip products have relatively obvious advantages in low latency and dual-mode online capabilities.

From 2021 to 2023 and January-June 2024, Tailin Micro's audio chip revenue was RMB 11.3013 million, RMB 38.4773 million, RMB 46.7281 million, and RMB 30.7673 million, respectively, accounting for 1.74%, 6.32%, 7.35%, and 8.42% of operating revenue in the corresponding periods.

In summary, Tailin Micro's chips correspond to a diverse range of terminal application products, with a diversified layout in downstream application markets. In recent years, the company has intensified its presence in the automotive sector, further enriching its product matrix. Meanwhile, Tailin Micro's low-power Bluetooth SoC chips have long been at the forefront of the market, and its audio chip products exhibit relatively obvious advantages, with revenue and proportion increasing annually.

IV. Distinct advantages of SoC architecture, certified by major protocols to enable multi-protocol support capabilities

Currently, the ARM architecture dominates in embedded processors. Compared to the ARM architecture, the RISC-V architecture offers significant advantages in terms of instruction set autonomy, chip architecture scalability, and chip cost optimization.

Tailin Micro's chip architecture design is primarily based on the hardware architecture of SoCs, integrating the primary hardware modules required for product development. In most application environments, downstream customers require only a small number of peripheral devices to realize the entire system's functionality. Tailin Micro's latest generation of products, the TLSR9 series, adopts an MCU (microcontroller unit) based on the RISC-V architecture.

In August 2021, certified by the Terminal Laboratory of the China Academy of Information and Communications Technology (formerly the Telecommunication Research Institute of the Ministry of Industry and Information Technology), Tailin Micro's TLSR9 microcontroller product became the world's first RISC-V architecture chip to receive Platform Security Architecture (PSA) certification.

On September 13, 2021, the China Academy of Information and Communications Technology officially reported that "The TLSR9 microcontroller product has become the world's first RISC-V architecture chip to receive PSA certification, signifying a crucial advancement for domestic chip enterprises in RISC-V architecture chip research and development and application, as well as reaching an internationally leading level in chip information security protection capabilities."

As different chips correspond to specific wireless IoT application domains, in addition to the chip hardware itself, Tailin Micro also provides downstream customers with supporting self-developed firmware protocol stacks, reference application software, and software development kits (SDKs) comprising the first two, based on the chip's hardware architecture. This assists customers in realizing the functions required for their final application scenarios.

It should be noted that IoT low-power short-range wireless connectivity technologies are primarily based on wireless communication technologies and protocols such as low-power Bluetooth, ZigBee, 2.4G, Thread, and HomeKit, connecting end-devices to networks and enabling wireless connectivity between physical devices and virtual information networks through data transmission.

Tailin Micro attaches great importance to the certification and development of major IoT protocols: it was selected as a member of the Bluetooth Special Interest Group (SIG) Board of Directors in July 2019; is a Participant-level member of the Zigbee Alliance (now renamed the Connectivity Standards Alliance); possesses comprehensive support capabilities ranging from providing basic 2.4G software development kits (SDKs) to customizing proprietary upper-layer protocols based on customers' different usage scenarios; is a Contributor-level member of the Thread Alliance; and is a MFi development member and Adjunct Technology Development member of Apple. The company became one of the first members of the Sparkle Alliance in 2020 and has been closely tracking the progress of Sparkle standards, consistently investing in related research and development.

In 2021, Telink Semiconductor's TLSR9 series of high-performance SoC chips received the first Thread certification in mainland China issued by UL IoT Lab. Since then, the flagship TLSR9 series chips have obtained all the latest certifications for low-power wireless IoT connectivity standards, including Bluetooth Low Energy, ZigBee, and Thread. In 2022, Telink products also obtained the latest Thread 1.3 certification.

Relying on a deep understanding of various individual protocol standards, Telink Semiconductor independently developed protocol stacks for IoT communication standards such as Bluetooth Low Energy, Classic Bluetooth, ZigBee, Thread, Bluetooth Mesh, and HomeKit, and supports open-source projects such as OpenThread and Matter, among others.

In addition to supporting the flexible operation of multiple-mode IoT protocol stacks on a single chip, Telink Semiconductor has also achieved various flexible and dynamic protocol stack working modes such as dual-mode switching, dual-mode coexistence, and triple-mode communication, allowing customers to flexibly combine multiple protocol stacks for communication and networking, greatly reducing the difficulty of supporting multiple low-power IoT standards.

Leveraging its chip architecture advantages and outstanding multi-protocol support capabilities, Telink Semiconductor has formed a healthy and abundant downstream application ecosystem advantage.

V. R&D investment and its proportion have increased year by year, and the power consumption indicators of the new generation of products are internationally leading

As a high-tech enterprise, a national-level specialized, refined, innovative, and unique "little giant" enterprise, and a technology-driven enterprise, Telink Semiconductor attaches great importance to R&D and long-term corporate development, continuously increasing R&D investment for technological upgrades and product iterations, and continuously launching chip products, supporting protocol stacks, and reference applications that meet the latest standards for Bluetooth Low Energy, Matter, Zigbee, wireless audio, etc.

From 2021 to 2023 and January-June 2024, Telink Semiconductor's R&D investments were 125 million yuan, 138 million yuan, 173 million yuan, and 103 million yuan, respectively, accounting for 19.20%, 22.66%, 27.16%, and 28.12% of the revenue for the corresponding periods.

In terms of R&D team building, Telink Semiconductor has cultivated a professional and high-level design and R&D team. The backbone members of the R&D team have profound technical expertise and years of experience in IC design. As of June 30, 2024, Telink Semiconductor's R&D team consisted of 256 people, accounting for 71.31% of the total number of employees.

After years of independent R&D and technical accumulation, Telink Semiconductor possesses comprehensive independent R&D capabilities ranging from MCU cores to firmware protocol stacks, internationally leading chip design capabilities, and extensive chip design experience. It holds core patents for global intellectual property rights such as the "dual-mode RF transceiver architecture," "dual-mode device and method for realizing simultaneous communication," and "synchronization control method within a wireless network, wireless network, and smart home device," and has established a complete intellectual property rights system.

As of the end of June 2024, Telink Semiconductor and its subsidiaries held 84 patents, including 59 domestic invention patents, 1 domestic utility model patent, and 24 overseas patents; 15 exclusive rights for the layout design of integrated circuits; and 24 software copyrights.

Telink Semiconductor has successfully developed a series of low-power wireless IoT system-on-chip products with independent intellectual property rights and world-class performance. Its main chip products have reached the global advanced level in terms of multiple key functions and performance indicators such as multi-protocol support, system-level architecture development, RF link budget, and system power consumption.

In the first half of 2024, through active R&D investment and product development, Telink Semiconductor further consolidated and strengthened its existing core technologies, continuously increased and expanded the coverage areas of its core technologies, and developed related products to help downstream customers achieve rapid mass production, further maintaining its core competitiveness.

Among them, Telink Semiconductor completed the certification of the Zigbee R23 protocol stack and the certification of the Matter protocol version 1.3. Based on the next-generation Bluetooth Low Energy standard, Telink Semiconductor's self-developed low-power wireless high-precision positioning chip, algorithm, and software protocol stack technology can achieve indoor high-precision positioning with minimal increase in hardware area and has already been introduced among leading customers. The single-chip developed by Telink Semiconductor based on an advanced process platform, which integrates multiple RISC-V MCUs and high-performance DSPs, has also been introduced among leading customers.

On July 3, 2024, Telink Semiconductor announced that the TLSR925X series SoC is the latest generation of Telink Semiconductor's high-performance, low-power, multi-protocol, and highly integrated wireless connectivity chip family. It is the first domestic multi-protocol IoT wireless SoC to achieve a working current as low as 1mA. Compared to competitors, the TLSR925X SoC has significant power consumption advantages and is at the international forefront.

In the future, Telink Semiconductor will continue to focus on the IoT chip field, seize the industrial opportunities arising from the explosion of IoT device demand, make in-depth layouts in multiple fields such as IoT and wireless audio, increase R&D investment, continuously launch chip products with market competitiveness, further consolidate its leading position in niche markets, and strive to become a first-class chip design enterprise based in China and facing the world.