Huafu Securities: Google antitrust ruling highlights the value of edge entry, continue to focus on the trend of the fruit chain industry

According to the information obtained from Zhitong Finance APP, Huafu Securities released a research report stating that, based on the recent antitrust ruling of Google (GOOG.US), Google pays Apple (AAPL.US) to become the default search engine for Safari browser. The Google antitrust ruling highlights the huge value of the entrance on the terminal side. From search engines to system AI, AI is expected to drive hardware innovation in two phases. With the rise of system-level AI, the value of terminal devices to users will be further enhanced, and the willingness to pay is expected to increase. At the same time, from search engines to intelligent assistants and system-level AI, user value is further shifting towards device and system manufacturers.

Consumer Electronics Index -3.78% underperforms the market, overseas Apple stock underperforms the Nasdaq Index. This week (August 5th to August 9th), the Consumer Electronics Index fell by 3.78%, while the Shanghai and Shenzhen 300 Index fell by 1.56% during the same period, and the Electronics Index fell by 3.78%. Overseas Apple's stock price fell by 1.65% this week, the Nasdaq Index fell by 0.18%, and Apple's stock price underperformed the Nasdaq.

The Google antitrust ruling highlights the huge value of the entrance on the terminal side. According to the recent Google antitrust ruling, Google pays Apple to become the default search engine for Safari browser. For example, in 2022, Google paid Apple over $20 billion, while Google's search and other business revenue that year was $162.5 billion, accounting for over 12%. According to Canalys statistics, Apple's market share in the mobile phone market in 2022 was 19%. Apple's ability to obtain over 12% of Google's search value with a 19% market share highlights the value of hardware entrance.

From search engines to system AI, AI is expected to drive hardware innovation in two phases. With the rise of system-level AI, the value of terminal devices to users will be further enhanced, and the willingness to pay is expected to increase. At the same time, from search engines to intelligent assistants and system-level AI, user value is further shifting towards device and system manufacturers. Huafu Securities believes that the impact of AI on hardware can be divided into two stages. Firstly, AI loads require changes in chip architecture, memory, and whole machine design, driving up single machine ASP. Secondly, Huafu Securities believes that brand manufacturers will use price increases to capture the potential profit space brought by the increase in user willingness to pay, which must be achieved through hardware upgrades, accelerating the innovation pace of the consumer electronics industry over a long period.

Several AI smart glasses will be released in the second half of the year, with AI continuing to drive the surge in smart glasses. This week, Jiehuan AI Audio Glasses were released, and the development team of this product was previously the team behind Xiaomi's MIJIA Smart Audio Glasses. The glasses offer 8 frame styles and 14 colors, can play music continuously for 11 hours, and are priced at 699 to 1299 yuan. In terms of AI functions, the glasses can access mainstream large models such as Baidu Wenxin, Ali Tongyi, Tencent Hunyuan, Byte Bean, and Xunfei Xinghuo, achieving functions such as AI information summarization and broadcasting, AI chatting, and book interpretation. In the second half of the year, many manufacturers such as Lebird, Meizu, Yingmu, and META will successively release new AI+AR products. It is reported that Yingmu Technology will release the INMOAIR3 product in the second half of the year, using vertical waveguide, upgrading display effects, computing power, and power consumption, focusing on the mobile office scene, and it is estimated that there will be multiple multimodal AI scenarios With the continuous launch of AI + smart glasses products, the scene of deep integration of AI and glasses will be continuously explored, thereby driving smart glasses products towards consumer-level mass production.

Viewpoint: Consumer electronics are at a triple turning point of short-term stabilization and recovery, the arrival of an industry innovation cycle, and continuous catalysis of new products by giants. Short-term consumer electronics terminal demand is recovering. In the medium to long term, AI empowers smart terminals to drive the acceleration of phone/PC upgrades. At the same time, AI workloads require changes in chip architecture, memory, and overall design solutions, driving up single machine ASP, while the exploration of new hardware forms is accelerating. The faster pace of innovation in consumer electronics is expected to lead the industry into a boom cycle, while upcoming heavyweight updates such as Apple's fall launch event/Windows system updates will catalyze intensively.

Event Preview: GoerTek Inc. will release its 2024 interim report on August 15.

Investment Recommendations:

Recommend focusing on Apple's supply chain: Luxshare Precision, Dongshan Precision, Pengding Holdings, Lingyi Intelligent Manufacturing, Lens Technology, Changying Precision, etc.; Smart speakers: Nationz Technologies, Mobvoi, Hengxuan Technology, Juxin Technology, etc.; AIPC industry chain: Lenovo Group, Huqin Technology, Chunqiu Electronics, Longyang Electronics, Zhongshi Technology, Siqun New Materials, Great Wall Tontek, etc.; XR industry chain: GoerTek Inc., Crystal-Optech, Longqi Technology, Jiahe Intelligent, Tianjian Inc., etc.;

Risk Warning

Lower-than-expected downstream demand, intensified industry competition, global trade friction risks