Driven by both user demand and national investment, 5G has led the development of PCB communication in a new era. As early as the 4G era, global mobile internet traffic has exploded. According to statistics from the Ministry of Industry and Information Technology of China, domestic mobile internet traffic has doubled year after year, far exceeding the global average growth rate of 15%. The application scenarios of high-definition video, the Internet of Things (IoT), VR/AR, etc. are gradually emerging, which brings a strong demand for enhanced mobile broadband, massive connectivity, low latency and high reliability communication technologies. As a breakthrough mobile communication technology, 5G will lead a new era of communication development driven by both user demand and national investment.

After experiencing a cycle of "2G following, 3G breakthrough, and 4G synchronization" in mobile communication every decade, China is expected to lead the world in the 5G era.

The construction of 1G~4G mobile communication in China lags behind the world, but continues to strive to catch up. The TDD communication system dominated by China in the 4G era will become the mainstream 5G system. In the 5G era, China has taken the initiative to establish the IMT-2020 Promotion Group, leveraging the entire industry chain to actively promote the development of 5G technology standards, and is expected to achieve dual technological and market leadership.

In 2018, China will enter a critical turning point in 5G promotion, and the commercial timeline is expected to exceed expectations

The China IMT-2020 promotion team's 5G testing plan is divided into two steps for implementation: technology research and development testing (2015-2018) and product research and development testing (2018-2020). In 2017, China established the world's largest 5G field testing base in Huairou, Beijing. On January 16, 2018, the China IMT-2020 Promotion Group released the "Phase III Specification for 5G Technology R&D Trials". China Mobile announced that it would conduct large-scale pilot projects in 12 cities across the country, while China Unicom submitted the pilot projects for 7 cities with young society and completed the construction of outfields in Shanghai and Shenzhen. We predict that large-scale 5G pilot projects in China will be launched in the second half of 2018, and the trial commercial period will enter in 2019. The issuance time of the official 5G commercial license may exceed expectations.

Taking History as a Mirror and Looking Forward to the Future Pattern of the 5G Industry Chain from 3G/4G Perspective

The upgrade of 5G network and terminal software and hardware will bring profound changes to the industrial chain and industry landscape. Operators: The right to speak leans towards China. In the 3G/4G era, the global operator market is constantly integrating and concentrating. In the 5G era, mainstream operators such as Vodafone and China Mobile are stronger than Hengqiang, and Chinese operators will have global discourse power. Main equipment supplier: Strong leadership in the industry chain, with upstream devices facing great opportunities. Huawei, ZTE, Ericsson, and the new Nokia stand on top of each other. In the 5G era, Chinese manufacturers will further squeeze the market share of their European counterparts, bringing opportunities for upstream device localization. RF devices: With numerous 4G participants, the gross profit margin of the traditional RF device industry has decreased. Due to the application of MassiveMIMO in 5G, 2/3 of the additional value of the antenna will be transferred to the PCB board where the antenna oscillator is installed. According to the global PCB sampling brand service provider "Jieduobang", combining ultra-dense networking technology will bring new opportunities for PCB and high-frequency copper clad plate materials. Optical device industry: with the fluctuation of 3G/4G cycle, the overall concentration ratio of the industry continues to decrease. In the 5G era, the cycles of network investment by operators and investment in internet data centers overlap, and Chinese manufacturers have emerged. Optical fiber and optical cable industry chain: the industry pattern of golden tower is presented. The manufacturers with integrated light rod, optical fiber and optical cable production capacity will continue to maintain competitive advantages, and the industry concentration ratio will be further improved.

Investment advice

We anticipate that the large-scale construction of 5G may commence from 2019 to 2020. The investment scale of 5G is expected to exceed that of 4G, and the capital expenditure of operators will continue to rise after 2019, and will continue to increase with the increasing demand in the 5G market. We suggest following: 1) 5G leader: ZTE; 2) 5G RF leader: Shengyi Technology; 3) 5G optical communication: Fenghuo Communication, Zhongji Xuchuang, Xinyisheng, focusing on Guangxun Technology and Hengtong Optoelectronics; 4) 5G wireless RF: Shanghai Electric Corporation (PCB), Shennan Circuit (PCB), Dongshan Precision (filter/antenna), San'an Optoelectronics (PA compound semiconductor), Feirongda (antenna oscillator).

Risk statement

The commercial progress of 5G is not as expected, and there is a risk of systemic market fluctuations.