Understanding the 5G industry chain in one article

Hello everyone, I am Xiaozaojun.

Today I would like to talk to you about the 5G industry chain.

Recently, the topic of "new infrastructure" has flooded us like a tide. The Internet is full of various "in-depth comments" articles, and various "big names" are also cheering for it. They seem to be telling us that if we miss this opportunity, we deserve to be poor in this life.

In fact, I dare not say anything about the other seven fields, but if you wait until they start to make a fuss before investing in 5G, it will be too late. Real investors have already started to take action several years ago. Why wait until now?

The stocks of many 5G-related companies have gone through countless waves of market trends.

But having said that, although there are many analytical articles on the 5G industry chain online, most of them are either too vertical (focusing only on a certain segment) or too fragmented (rambling without explaining the relationship clearly). Some are even more watery, simply accepting all the materials provided by manufacturers, patching them together randomly, and completely out of technical common sense.

I have the guts to write an article today, hoping to sort out the relationship of the 5G industry chain as a whole, and to clarify the common misunderstandings of 5G among lay investors. I am not trying to help you make money from investing, but only to reduce the chances of falling into traps.

I would like to state in advance that I do not know the operating conditions of most companies in the communications industry. The company names mentioned in this article are not recommended as investment targets, and this article cannot be used as an investment reference. Thank you!

After talking nonsense for a while, let’s start today’s content.

What is an industrial chain? In my opinion, the industrial chain is both a product chain and a value chain.

From raw materials to components, and then to products. From small products to large products, and finally to system products, solutions and supporting services, they are provided to users. The enterprises, institutions and individuals involved in this series of chains are all part of the industrial chain.

What the 5G industry chain ultimately delivers is the 5G network service enjoyed by the majority of users.

From a hardware perspective, if users want to use 5G network services, they need two things: 5G network and 5G terminal. To put it bluntly, both the machine and the network are needed.

Let’s talk about the internet first.

5G networks are essentially still mobile communication networks. As we know, only mobile communication operators have the qualifications to build and operate mobile communication networks.

In China, there are a total of four operators, namely China Mobile, China Telecom, China Unicom and China Broadcasting Corporation.

The communication network built and operated by operators across the country is a public communication network, also known as the "public network."

In addition to the public network, relevant departments or units in areas such as railways, electricity, public security, and docks are also authorized to establish communication networks. This type of network is dedicated, with a specified user range and a specified geographical range. It is very small in scale and has a small number of users (relative to the public network), and is also called a "private network."

The size of the private network market is much smaller than that of the public network (but it is actually quite large), so let’s continue talking about the public network.

The "franchise right" model adopted by the public network gives operators an absolute central position in the communications industry. In other words, operators are the largest financiers and the largest party A. Almost all investments in the communications industry (5G investments) come from operators. Most of these investments come from the monthly phone bills we pay, and some come from national investment or the capital market.

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As the most powerful operator, China Mobile is the most financially wealthy of all financial investors.

Operators provide network services to users, but network equipment is not manufactured by the operators themselves. They will purchase from manufacturers through bidding. In addition to equipment hardware and software, they will also purchase services. These services include design services, installation services, maintenance services, etc.

All companies that can provide mobile communication-related products or services hope to become the operators' second parties. These second parties include main equipment manufacturers, equipment manufacturers in sub-sectors, engineering contractors, human resource service providers, etc. The second party also has its own second party, and the second party of the second party has its own second party, forming a chain.

The architecture of the communications industry chain

The 5G industry chain, or the communications industry chain, is not a single chain, but multiple chains. The communications network is a complex whole, which is composed of multiple parts. Each part has its own industry chain.

From a macro perspective, the 5G network industry chain can be divided into three areas, corresponding to the communication network architecture, namely the access network industry chain, the bearer network industry chain and the core network industry chain.

Among these three industry chains, access network and bearer network are the most noteworthy, because for a public network like 5G, it is necessary to build a very large number and scale of base stations and optical fiber communication networks.

Base stations belong to the access network, which is undoubtedly the largest part.

Although optical fiber communication is used in access network, bearer network and core network, it is mainly used in bearer network. The bearer network industry chain is equivalent to the optical communication industry chain.

Let’s first look at the industrial chain of 5G base stations (access networks).

When I introduced the 5G access network technology topic before, I said that 4G base stations are mainly BBU, RRU and passive antennas. 5G base stations have become CU (centralized unit), DU (distributed unit) and AAU (active antenna).

Components of a 4G base station

Evolution from 4G base stations to 5G base stations

You may be more familiar with traditional antenna companies, such as Shenglu, Tongyu, Mobi, and Jingxin.

In the 5G era, Massive MIMO (massive antenna array) technology has begun to be applied, and the antenna has changed from passive to active, which has greatly increased the technical complexity. The relationship between the antenna and the base station main equipment has become closer, and it is no longer just radiating signals in a specified direction.

This is disadvantageous to traditional antenna companies. The antenna market share will be affected by the base station main equipment market share (which is beneficial to the main equipment manufacturers).

The 5G base station active antenna (AAU) contains a large number of oscillators and circuit boards (PCBs) and an antenna cover on the outside.

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The green one is the vibrator array inside the 5G antenna (on both sides are other antenna covers, which are also the outer shells)

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This is a bit clearer (antenna element array)

5G antenna appearance

Radio frequency devices are important components of base stations, including filters.

Take filters, which we often hear about, as an example. In the 3G/4G era, base station filters were mainly based on metal coaxial cavities. In the 5G era, ceramic dielectric filters with high Q value, low loss, and low temperature drift are expected to become mainstream.

The main base station equipment manufacturers are Huawei, ZTE, Ericsson, Nokia, Datang, etc. They began to eat into the antenna market that they had not paid attention to before.

The 5G base station main equipment CU and DU contain a large number of circuit boards and electronic components, as well as a large number of chips. Their function is to perform some protocol processing and calculations.

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Base station main equipment

Speaking of chips, let me say a few more words. People often talk about 5G chips, but in fact, 5G chips is a general term. Chips are semiconductors used for computing. Where there is computing, there are chips. There are chips in the main equipment of base stations, and there are also chips in bearer networks and core network equipment. Not to mention in mobile phones, everyone hears and sees advertisements every day.

The 5G chips mentioned in online articles are mostly the SoC chips in 5G mobile phones. It is just a small member of the huge chip family in the communications industry.

The chips in 5G base station equipment are completely different from mobile phone chips or computer CPU chips. They have their own unique functions, designs and algorithms. These chips (especially important chips) are basically self-developed by ZTE Microelectronics and Huawei HiSilicon.

In addition to the main equipment, base stations also have a large number of supporting equipment, such as computer room power supply, batteries, air conditioners, security monitoring and even integrated station buildings and towers, each of which has its own subdivided industrial chain.

In addition to outdoor macro base stations, there are also micro base stations that are mostly used indoors.

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5G Micro Base Station

Micro base stations are divided into ordinary micro base stations and O-RAN micro base stations. In fact, they do not have much technical content, and they are both signal modulation and RF processing. O-RAN is an open source base station. You can refer to this article (link). Due to space limitations, I will not introduce it in detail.

O-RAN Micro Base Station

Let’s take a look at the bearer network.

As I just said, the bearer network industry chain is almost equivalent to the optical communication industry chain. In today's era, optical fiber is undoubtedly the best (only) choice for wired data transmission.

Optical communication generally includes optical fiber cables, optical modules and optical communication main equipment.

I guess everyone is very familiar with optical fiber and cable, including Changfei Optical Fiber, Zhongtian Technology, and Hengtong Optics. Although the usage is large, the profit margin is extremely low.

The optical module is more complex, and it is mainly composed of optical chips, optical components, PCB, etc. The main value is concentrated in the optical chip. Basically, the low-end and mid-end optical chips have been domestically produced, but the profit margin is not high. The technology of high-end optical chips (100G and above) is currently more in the hands of foreign manufacturers, and domestic manufacturers are stepping up to catch up.

Optical modules that can be paid attention to include Zhongji Xuchuan, Accelink Technology, Xinyisheng, Hisense Broadband, Gigalight, Mentech Optoelectronics, etc. These companies have also successively produced their own 400G optical modules.

Optical modules are generally installed on the main equipment. The main optical communication equipment is those OTN, PTN and other equipment. To put it simply, it is the optical transmission equipment with optical ports. The domestic companies that do well in this are Huawei, ZTE, FiberHome, H3C and others.

As mentioned before, all main equipment has chips inside. The chips of optical communication main equipment also have high technical content. Huawei and ZTE have their own chips and are very strong.

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Optical communication main equipment

It is worth mentioning that the optical communication industry chain is not only an important part of the 5G industry chain, but also an important part of the fixed-line broadband access industry chain and the data center industry chain. In other words, this industry chain serves both operators and Internet companies. Another major area of ​​new infrastructure, big data centers, is also an important market for optical communications.

I also mentioned it when I wrote a special topic on leaf-spine networks some time ago (link). Data centers use leaf-spine network structures extensively, which places greater demands on optical modules and optical fiber cables.

Let’s take a look at the core network.

Oh, how can I put this into words? How about I just not say it?

Just kidding, haha! As core network is my specialty, I still need to talk about it.

Among the three major areas of access network, bearer network and core network, the core network is the least interesting. Because its quantity demand is too small, so even if the unit price is high, it accounts for the smallest proportion in the entire network investment. In many overseas projects, the core network is given away for free.

In domestic projects, because there are many sites and the volume is still a bit large, the bidding amount seems to be acceptable. Especially now that operators are working on SA core networks, the entire platform needs to be replaced, and the amount is relatively large.

It should be noted that the 5G core network uses virtualization technology and general-purpose servers are fully adopted in hardware, so its hardware industry chain is basically the same as the industry chain of general-purpose x86 servers in data centers.

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Huawei's core network virtualization platform is all x86 blade servers

In terms of software, many companies have developed core network software (open source core network), but considering the reliability requirements of the telecommunications industry, operators should still mainly use core network solutions from companies such as Huawei and ZTE, and are reluctant to directly use those from small manufacturers. The core networks of small manufacturers are mainly aimed at small and medium-sized overseas operators and the private network market.

I almost forgot to mention that in addition to computing equipment, the 5G core network also has a large number of data communication switching equipment, such as telecom-grade high-end routers, which are actually more related to the bearer network and overlap with the data center. Alas, the cloud-based core network will be the data center, the cloud, and it is increasingly unnecessary to talk about it separately.

After talking about the network, let’s talk about the terminal.

For the consumer Internet, terminals basically refer to wearable devices such as mobile phones and phone watches.

The mobile phone industry chain is very lively, and the industry is well researched. Everyone knows about cameras, screens, HiFi, etc. But I don’t understand much and haven’t studied it.

Components of a mobile phone

For 5G mobile phones, the most important thing is the 5G SoC chip and 5G baseband chip. There are only a few companies in the world that can do it. If you want to know more, you can read this article: link. In addition to the chip, what is related to 5G is the RF module and antenna in the mobile phone, which have a certain technical content.

In fact, in addition to the consumer Internet, the more important application area of ​​5G is the industrial Internet. In other words, the main service objects of the 5G network are not mobile phone users, but industry users. As an important carrier of the Internet of Everything, 5G will provide services in industries including industry, agriculture, logistics, and transportation. In different application scenarios, there are different 5G terminals.

For example, in the Internet of Vehicles, 5G cars are 5G terminals in a sense. If a car wants to use the 5G network, it must install a 5G module. The core of the 5G module is still the 5G chip. The same is true for 5G drones. Drones with 5G modules and chips are also 5G terminals.

Therefore, module manufacturers are also an important part of the 5G industry chain. Representative module manufacturers include Gosuncn, Fibocom, Quectel, Sunsea, and Mega.

Quectel's 5G millimeter wave module

In addition to modules, IoT-based management platforms, system integration and application services are also a huge market.

In fact, if we call 5G networks and 5G terminals the direct industrial chain, then 5G-based application development can perhaps be called the 5G indirect industrial chain? Well, I'll call it that for now.

As a communication technology, 5G plays a role in connection. It is a pipeline, and pipelines are heavy asset investments with a very low rate of return.

All the 5G industry chains mentioned above are actually for earning money from operators' investment in network construction. Although the amount is large, the profit margin is extremely low. Moreover, operators are having a harder and harder time now, and as the operator's second party, life will certainly become harder and harder. I believe everyone can see the low-price competition and ultra-low discounts in the communications industry in recent years. Therefore, it is actually very uneconomical to invest more money in network construction.

The correct approach should be to use the 5G network built by operators to develop industry solutions, build an IoT ecosystem, and sell products and services to end users, which will make more money.

For example, investing in the Internet of Vehicles can provide driverless services for car owners; investing in 5G healthcare can provide patients with 5G wearable health bracelets and health monitoring services; investing in 5G education can provide students with 5G remote VR video course content. These new applications enabled by 5G networks have broader investment prospects.

Just like when 3G, 4G and smartphones were introduced, a large number of companies developed apps, such as mobile ordering, mobile group buying, mobile payment and mobile navigation, and became unicorns and industry giants. These are obviously more promising, aren't they?

Well, that’s all I want to say about the 5G industry chain. I hope it helps you. I emphasize again that this article is not intended as an investment reference! Don’t come to me if you make a profit or a loss, thank you!