The RF Device Revolution in the 5G Era

1 RF devices are the core foundation of wireless connections

1.1 RF devices are converters between binary digital signals and electromagnetic wave signals

Radio frequency devices are basic components of wireless communication equipment and play two important roles in wireless communication. They convert binary signals into high-frequency radio electromagnetic wave signals during the signal transmission process and convert received electromagnetic wave signals into binary digital signals during the signal reception process.

Regardless of the communication protocol, whether the communication frequency used is high or low, configuring the RF device module is an essential basic component of the system. Whether it is the NFC system that uses 13.56Mhz signals as the transmission carrier; or the GSM communication system that uses 900/1800Mhz signals as the transmission carrier; or the unmanned millimeter-wave radar that uses 24Ghz and 77Ghz electromagnetic wave signals as the transmission carrier, the RF device module needs to be configured. As an indispensable basic part of wireless communication, the technological innovation of RF devices is one of the core engines that drive the development of wireless connections. In the environment of large-scale growth of networked devices, the RF device industry is the fastest and most certain directional asset in the future.

The future world is a world where everything is wirelessly connected. According to Gartner's forecast, by 2020, the number of connected devices will reach 25 billion, with an average of three connected devices per person in the world. According to Gartner's statistics, in 2015, there were only 2.9 billion connected devices in the global consumer industry and only 736 million connected devices in the industrial application field. With the trend of wireless connected terminal devices increasing from 3.6 billion in 2015 to 25 billion, the annual output value of RF devices will increase several times.

1.2 The market size reached 11 billion US dollars, and the industry maintained double-digit rapid growth

In 2015, the global mobile terminal RF device market size was approximately US$11 billion. According to Qualcomm Semiconductor's forecast, the compound growth rate of mobile terminal RF front-end modules will be above 13% between 2015 and 2020, and the market size will exceed US$18 billion by 2020.

The RF front-end module market is growing strongly. On the one hand, the global 4G terminal shipments accounted for just over 50% in 2015, and the increase in penetration rate guarantees growth momentum in the next two years. On the other hand, during the evolution from 4G to 5G, the complexity of RF devices is gradually increasing, and the value of RF devices in a single mobile phone will be increased.

2. The demand for wireless connectivity is endless, and the RF device industry has continuous opportunities

As more and more wireless connection protocols are supported by terminals, from the initial 2G network to the current NFC, 2G/3G/4G networks, WiFi, Bluetooth, FM, etc., the value of the RF devices of communication terminals has increased several times. Looking to the future, the penetration rate of 4G has not yet reached saturation, and the increase in penetration will continue to drive the growth of the value of RF devices. In addition, 5G communications bring new growth opportunities to the RF device industry. On the one hand, the number of frequency bands that RF modules need to process has increased significantly. On the other hand, the difficulty of high-frequency signal processing has increased, and the system's requirements for filter performance have also increased significantly.

2.1 The penetration rate of LTE terminal equipment has increased, driving up the value of RF devices

In early GSM mobile phones, the value of RF devices in a single phone was less than US$1. But now in the 4G era, the value of RF devices in Apple and Samsung's high-end flagship models exceeds US$12.75, and the value of a single phone has increased several times in the past decade.

The conversion of 3G terminals to 4G terminals has more than doubled the value of a single device. According to the forecast of Triquent, a US RF device giant, in the 4G era, the value of a single mobile phone RF device will increase from US$3.75 in 3G terminals to US$7.5, and the ASP of terminals supporting global roaming will even reach US$12.75.

2.2 Global LTE terminal penetration rate is about 50-60%

The penetration of 4G terminals has not yet reached saturation. According to data from Taiwan's GaAs foundry giant Win Semiconductor and the United States' Qorvo, the global penetration rate of 4G communication terminal equipment reached 54% in 2015 and is expected to reach 74.5% in 2019.

2.3 5G's three major technology upgrades bring innovation opportunities to RF devices

In order to achieve upgrades in communication speed and capacity, 5G communications have three major technical changes: first, the use of more communication frequency bands; second, the use of MIMO multi-antenna technology; and third, the use of carrier aggregation technology.

2.3.1 More than 50 frequency bands will be added by 2020, driving the opportunities for RF filters

In the LTE R11 version proposed by the global 3G standards association 3GPP in 2012, the frequency bands that cellular communication systems need to support increased to 41. According to the forecast of RF device giant Skyworks, by 2020, the number of frequency bands supported by 5G applications will double, with more than 50 new communication frequency bands added, and the total frequency bands supported by global 2G/3G/4G/5G networks will reach more than 91.

Theoretically, two filters are required to process RF signals in a single frequency band. Since multiple filters are integrated into the filter group, the relationship between the filter devices configured in the mobile phone and the number of frequency bands is not a simple linear proportional relationship. However, as the number of frequency bands increases, the difficulty of filter design and the number of filters will increase significantly, which is a definite trend. The corresponding value and sales volume will be several times that of the current filters.

In terms of actual application, mobile phones sold in the domestic market generally support five modes and thirteen frequencies, that is, the number of supported frequency bands is 13. Previously, domestic 2G mobile phones only needed to support four frequency bands, and 3G mobile phones supported at least nine frequency bands. The number of supported frequency bands has been greatly increased in the process of upgrading each generation of communication systems.

The US FCC (Federal Communications Commission) delineated the 5G frequency band in July this year, becoming the first country in the world to determine the 5G high-frequency spectrum. The US 5G communication frequency bands include 3.85Ghz, 7Ghz, 27.5-28.35Ghz, 37-38.6Ghz, 38.6-40Ghz, and 64-71Ghz. From the perspective of the 5G frequency bands delineated by the United States, the newly added frequency bands are concentrated in the three low, medium, and high frequency bands of 3.8-7Ghz, 27-40Ghz, and 64-71Ghz. The high-frequency bands have more stringent requirements on the performance of filters, and the filter industry is facing a new technological revolution from materials to manufacturing processes.

2.3.2 MIMO Technology Brings Opportunities to RF Antennas

MIMO technology refers to the communication technology that uses multiple transmitting antennas and receiving antennas at the signal transmitting and receiving ends. MIMO technology increases the communication speed and capacity exponentially and is one of the key technologies for LTE and future 5G. The popularization of MIMO technology has brought a huge incremental market to the antenna industry, and base station and terminal antennas have ushered in rapidly growing industry opportunities.

In order to improve the communication speed, MIMO64x8 is expected to become the standard configuration by 2020, that is, the base station uses 64 antennas and the mobile terminal uses 8 antennas. Currently, most mobile phones on the market only support MIMO2x2 technology. If MIMO64x8 technology is adopted, the number of base station antennas needs to increase by 31 times, and the number of mobile phone antennas needs to increase by 3 times.

2.3.3 Carrier aggregation brings opportunities for RF switches and filters

Carrier aggregation technology combines several narrow frequency bands into a wide frequency band to achieve a significant increase in transmission rate. The introduction of carrier aggregation technology has greatly increased the requirements for RF device performance and the complexity of RF systems.

Currently, RF devices on the market mainly use two-carrier carrier aggregation. In 2017, the three major domestic telecom operators will officially start three-carrier aggregation, and by 2018, four-carrier or even five-carrier carrier aggregation will appear in mobile communication applications. For example, carrier aggregation technology requires RF antenna switches to have extremely high linearity to avoid interference with other devices, and the performance requirements for filters and RF switches will be more stringent.

With the gradual popularization of carrier aggregation, the RF MEMS switch industry will usher in rapid growth. Currently, RF switches based on SOI technology are approaching their technical limits and cannot meet the requirement of IIP3=90dbm. The only switch that can achieve the RF performance target of IIP3>90dbm is the RF MEMS switch, so RF MEMS switches will usher in a definite growth opportunity in the future 5G era.

2.4 Innovative RF technology is expected to be first applied in 4.5G/4.9G

Looking back at the development of communications from 2G to 4G, the development of each generation of communication technology was not achieved overnight, but was formed by the superposition of multiple small technology upgrades. In the 2G era, terrestrial cellular communications experienced three small technology upgrades: GSM, GPRS, and EDGE; and in the 3G era, terrestrial communications experienced three small technology upgrades: UMTS, HSPA, and HSPA+. We believe that in the evolution from 4G to 5G, there will be a small technology upgrade every two years. And each generation of small technology upgrades will promote the complexity of RF device products and the value of a single mobile phone.

3. There is a huge space for domestic substitution of RF devices

The RF devices of mobile phones and other terminals mainly include PA chips, filters, RF switches, and antennas. Antennas are currently the segment with the highest localization rate. Xinwei Communications, Shuobei, etc. have reached the world's leading level in the field of terminal antennas, and their products have entered the supply chain systems of international giants such as Apple and Microsoft. Domestic PA chips have achieved large-scale shipments and sales in 2G, 3G, WiFi, NFC and other communication systems, while in the field of 4G Pa chips, domestic manufacturers are still in the stage of customer certification and commercial negotiations. The localization rate of RF filters and RF switches is relatively low. The products of domestic manufacturers are mainly concentrated in military wireless communication systems and are less used in consumer electronic products such as mobile phones.

my country is the world's largest mobile phone production base, and domestic brands such as Huawei, vivo, oppo, Xiaomi, Meizu, Lenovo and other mobile phone sales account for more than 30% of the world's total. With huge terminal market demand, the transfer of mobile phone supply chain to the mainland is a very certain industry trend. In fact, many domestic RF device manufacturers have entered the thousand-yuan smartphone market. For example, Tianlong, Xike, Haipai, TCL and other manufacturers have begun to use Zhongpuwei's PA chips.

3.1 The rise of GaAs wafer foundry and the standardization of interfaces have helped the localization of PA chips

3.1.1 Interfaces tend to be standardized

Before 2014, each manufacturer used its own independent interface between RF devices and baseband chips, which were incompatible with each other. Once the sales of a certain model of mobile phone exceeded expectations, there would be no alternative RF device manufacturers to choose from, so RF devices such as PA, RF switches, and RF filters were the most out-of-stock components in mobile phones.

In 2014, MediaTek launched the "Phase 2" overall solution, cooperating with Skyworks, RFMD, Murata and other manufacturers to launch pin-compatible RF PA products. The "Phase 2" solution greatly improves the flexibility of terminal manufacturers to replace PA devices. Even if a single supplier is out of stock, products from other manufacturers can be quickly substituted.

Pin standardization provides an opportunity for domestic RF device companies to enter the 4G market. Domestic PA manufacturers Vanchip and Airoha joined MediaTek's public board certification in 2015 and entered MediaTek's low-end chip products.

3.1.2 Gallium arsenide becomes the mainstream production process

Gallium arsenide PA chips are the mainstream in the current market, accounting for more than 90% of shipments. In the 2G era, PA chips mainly used CMOS technology, but in the 3G era, the production process turned to gallium arsenide process technology with higher electron mobility and higher cutoff frequency.

Domestic manufacturers have already invested in many projects in the field of gallium arsenide wafer manufacturing. With the commissioning of gallium arsenide production lines of Sanan Optoelectronics and Hitech High-tech, the R&D and production environment of domestic PA chip manufacturers will be greatly improved.

3.1.3 Domestic manufacturers based on 2G/3G market and launched a breakthrough into 4G market

At present, 4G mobile phones are generally equipped with 4 PA chips, and some high-end flagship models are equipped with 5 PA chips, such as Apple iPhone 7. Domestic chip design manufacturers have seized the opportunity of the rise of domestic mobile phone brands and successfully entered the PA chip industry. A number of RF PA chip manufacturers have emerged, including RDA, Hantianxia, ​​Zhongpu Microelectronics, Guomin Feixiang, Vanchip, etc. At present, the main sales products of domestic PA chip manufacturers are concentrated on 2G/3G PA chips, and the market share in the 4G PA chip field is relatively small.

PA chips are important components that determine the quality of transmitted signals, and their linearity and conversion efficiency determine the quality of calls. RDA, a leading domestic RF company, achieved customer batch verification of 4G PA chips in December 2015, marking a breakthrough for domestic manufacturers in 4G products.

3.2 The rise of domestic substitution of saw/baw filters

3.2.1 SAW and BAW filters are the mainstream filters in mobile phone applications

The performance of Saw and BAW filters (low insertion loss and high Q value) is far superior to that of PCB circuit filters, BST filters and MEMS filters, and they are the mainstream filters currently used in mobile phones.

The frequency bands processed by saw filters and baw filters are different. Saw filters are mainly used for applications below 2.1 GHz, while baw filters are mainly used for frequency bands above 2.1 GHz.

3.2.2 RF filters are the fastest growing segment in front-end modules

Filters are the fastest growing segment of RF front-end modules. Qualcomm predicts that the RF filter market will grow from the current market size of US$5 billion to US$13 billion in 2020. In response to the rapidly growing filter market opportunities, Qualcomm and Japanese filter giant TDK established a joint venture company, RF 360, at the beginning of this year, with an estimated investment of more than US$3 billion.

According to Mobile Experts' forecast, the filter market will grow from US$5 billion in 2015 to US$12 billion in 2020. Mobile Experts' forecast is basically consistent with Qualcomm's, and RF filters are a high-growth sub-industry generally recognized by the industry.

3.2.3 Foreign manufacturers monopolize most of the market, and domestic filters have been applied in mobile phones

Globally, the main suppliers of saw filters are TDK-EPCOS and Murata, which together account for 60-70% of the market share; the main suppliers of baw filters are Avago and Qorvo (Triquint), which together account for more than 90% of the market share.

For example, the iPhone 7 is equipped with 2 large filter groups and 2 filters, of which TDK supplies 2 filter groups and 1 filter, and Murata supplies 1 filter.

In the field of SAW filters, major domestic manufacturers include scientific research institutes represented by China Electronics 26th Institute, China Electronics Deqing Huaying, Wuxi Haoda Electronics and other manufacturers. The overall strength of domestic manufacturers is relatively weak, and the products of scientific research institutes are mainly for military communication terminal equipment. Wuxi Haoda Electronics' SAW filter products have been sold in mobile phones, and its customers include ZTE, Yulong, Gionee, Samsung, Sapphire, Foxconn, Meizu and others.