大中华区网络硬件：给带宽机器供电

1、September 9, 2020 08:00 PM GMTGreater China Networking HardwareFeeding the Bandwidth MachineThe worlds insatiable demand for bandwidth is driving long-term hardware upgrade cycles at datacenters and in telecom. The recent share-price pullback due to temporary inventory digestion has created a good e

2、ntry point. We initiate on Accton and Eoptolink at OW, and upgrade Innolight to OW.Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of

3、 Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= Analysts employed by non-U.S. affil

4、iates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.ContributorsMORGAN STANLEY ASIA LIMITED+Yunchen TsaiEqu

5、ity Analyst+852 2848-5636 HYPERLINK mailto:Yunchen.Tsai Yunchen.TsaiMORGAN STANLEY ASIA LIMITED+Green CaiResearch Associate+852 2848-5686 HYPERLINK mailto:Green.Cai Green.CaiMORGAN STANLEY TAIWAN LIMITED+Sharon ShihEquity Analyst+886 2 2730-2865 HYPERLINK mailto:Sharon.Shih Sharon.ShihMORGAN STANLEY

6、 & CO. LLCMeta A MarshallEquity Analyst+1 212 761-0430 HYPERLINK mailto:Meta.Marshall Meta.MarshallMORGAN STANLEY & CO. LLCJoseph MooreEquity Analyst+1 212 761-7516 HYPERLINK mailto:Joseph.Moore Joseph.MooreMORGAN STANLEY & CO. LLCCraig HettenbachEquity Analyst+1 212 761-6435 HYPERLINK mailto:Craig.

7、Hettenbach Craig.HettenbachMORGAN STANLEY & CO. LLCKaran JuvekarResearch Associate+1-212-761-9817 HYPERLINK mailto:Karan.Juvekar Karan.JuvekarGreater China Networking HardwareTFeeding the Bandwidth Machinehe worlds insatiable demand for bandwidth is driving long-term hardware upgrade cycles at datac

8、enters and in telecom. The recent share-price pullback due to temporary inventory digestion has created agood entry point. We initiate on Accton and Eoptolink at OW, and upgrade Innolight to OW.WHATS CHANGEDEoptolink Technology FromTo Inc LtdRatingNAOverweightPrice TargetRmb0.00Rmb80.00Accton Techno

9、logy CorporationRatingNAOverweightPrice TargetNT$0.00NT$280.00Zhongji Innolight Co LtdPrice TargetRmb55.00Rmb70.00RatingEqual-weightOverweightAccelink Technologies Co. Ltd.Price TargetRmb29.00Rmb34.00Bandwidth upgrade cycle to drive accelerating growth into 2023; we prefer datacom over telecom thank

10、s to its faster growth: With the bandwidth upgrade trend being propelled by working and studying from home, as well as high-definition video, we think the recent share-price pullback provides a good entry point. We expect speed upgrades in both the datacom (400G for between racks in datacenters) and

11、 telecom (5G) markets, though we believe datacom will deliver higher annual growth of 21-24% through 2023.Pandemic has delayed 400G deployment at some hyperscalers, but we expect procurement to resume into 2021 as supply-chain issues including the cost of optics and compatibility with the PAM4 proto

12、col are resolved. Orders from US hyperscalers appear to be stabilizing in 2H20, but Chinese hyperscalers continue to trim orders, although the latter are a much smaller portion of the addressable networking market. Switches and transceivers theoretically should share similar ramp-up times and benefi

13、t together from growing 400G deployment at hyperscalers. Further, smartNICs are becoming more popular as a way to offload certain computing tasks from Industry ViewGreater China Technology Hardware - In-Lineservers, conserving the computational power of CPU cores. Amazon is a pioneer in this area an

14、d other hyperscalers are following.Whitebox should outgrow the market; this trend has been accel- erating in datacom and could also emerge in telecom: We esti- mate the whitebox datacom switch market will outgrow the total switch market with a 26% CAGR during 2020-2023, as hyperscalers continue to d

15、rive down costs. The whitebox trend in telecom (OpenRAN) isnt picking up as quickly, though we note the current debate about switching out of Huawei could accelerate the trend.Initiate coverage of Accton and Eoptolink at OW; upgrade Innolight to OW: Accton is our top pick thanks to its exposure to w

16、hitebox switches for hyperscalers (40% of revenue), smartNIC assembly (10%), and potential upside from whitebox telecom switches. In 2021, aside from 400G in datacom, enterprise should also grow off a low base. For transceivers, we like both Innolight and Eoptolink for their exposure to rising 400G

17、sales. Innolight has the largest share of the 400G market (60%+ with US hyperscalers); Eoptolink enjoys an improving product mix thanks to its transition from lower-speed switching products (below 40G) to higher-speed ones (100G). Innolight has underperformed Eoptolink so far in 2020 as 400G rollout

18、s (hence product upgrades) have been limited this year. We keep Accelink at EW as telecom transceiver growth should decelerate following the large pull-in for 5G in 1H20, but we expect the other suppliers to trade at the higher end of their historical valua- tion ranges thanks to accelerating sales.

19、ContentsOrder of PreferenceKey Charts8Investment Summary151. Switches: Structural Share Gains for Whitebox22 2. Transceivers: Rise of Chinese Players32 3. SmartNICs: A Growing Networking Product to Offload ComputingAccton: Leveraging whitebox and SmartNIC trends, Initiate at OWAccton: Financial Summ

20、aryRisk Reward Accton Technology Corporation (2345.TW)Accton: Investment Positives and ConcernsAccton: Key Assumptions and Valuation42 Accton: Company DescriptionEoptolink: Share Gainers in the 400G Upcycle; Initiate at OWEoptolink: Financial SummaryRisk Reward Eoptolink Technology Inc Ltd (300502.S

21、Z)Eoptolink: Investment Positives and ConcernsEoptolink: Key Assumptions and Valuation52 Eoptolink: Company DescriptionZhongji Innolight: Sustaining Momentum into 2021; Upgrade to OWZhongji Innolight: Earnings Estimates and Valuation RevisionsZhongji Innolight: Financial SummaryRisk Reward Zhongji I

22、nnolight Co Ltd (300308.SZ)Accelink: Slowing Growth Amid Inventory Digestion and Pricing Pressure; Stay EWAccelink: Earnings Estimates and Valuation RevisionsAccelink: Financial SummaryRisk Reward Accelink Technologies Co. Ltd. (002281.SZ)67 Appendix: GlossaryOrder of PreferenceExhibit 1:Order of Pr

23、eferenceAcctonEoptolinkInnolightInphiBroadcomII-VILumentumAristaAccelink2345.TW300502.SZ300308.SZIPHI.NAVGO.OIIVI.OLITE.OANET.N002281.SZRatingOverweightOverweightOverweightOverWeightOverWeightEqual-WeightEqual-WeightEqual-WeightEqual-WeightTrading CurrencyTWDCNYCNYUSDUSDUSDUSDUSDCNYPrice Target280.0

24、080.0070.00162.00415.0045.0084.00230.0034.00Current Price222.561.7956.00101.33350.5437.5473.11207.1933.73Upside/(Downside) (%)26%29%25%60%18%20%15%11%1%Market Cap (in USD mm)4,138.02,952.45,842.65,432.3147,927.93,598.25,666.016,455.23,094.1Avg Daily Traded Vol (in USD mm)32.476.755.724.2771.568.4110

25、.941.768.0Street View: RatingsBuy/Overweight| 57%| 83%| 95%| 88%| 78%| 71%| 88%| 25%| 65%Hold/Equal-weight| 43%| 17%| 5%| 13%| 22%| 29%| 13%| 75%| 35%Sell/Underweight0%0%0%0%0%0%0%0%0%Bull Case Value350.00100.0090.00215.00486.0056.00108.00285.0052.00Upside (%)57%62%61%112%39%49%48%38%54%Bear Case Va

26、lue190.0045.0040.0097.00271.0025.0054.00104.0017.50Downside (%)-15%-27%-29%-4%-23%-33%-26%-50%-48%Risk/Reward Skew3.92.32.126.31.71.51.80.81.1Morgan Stanley EstimatesFY20eTWDCNYCNYUSDUSDUSDUSDUSDCNYSales53,5762,0767,20368223,8242,3801,6792,2935,845EPS8.561.161.113.3221.952.725.428.780.67FY21eSales67

27、,2732,9768,69280025,0472,9481,7772,6946,838EPS10.851.591.483.6124.522.405.599.990.76FY20 MSe vs. Consensus MeanSales0.1%9.3%3.9%-0.1%0.0%1.3%1.1%1.9%-3.7%EPS-4.7%-4.5%-9.5%0.5%0.1%25.7%7.1%1.3%-0.4%FY21 MSe vs. Consensus MeanSales8.0%14.6%-4.2%-0.3%-3.2%-1.9%-1.3%5.3%-5.5%EPS-5.8%-3.2%-11.5%-2.6%-3.

28、1%-6.8%-3.3%3.2%-9.4%Valuation Multiples at Last CloseFY20eP/E25.5x53.1x50.5x30.5x16.0 x13.8x13.5x23.6x50.2xEV/Sales2.0 x9.7x5.6x8.3x7.6x2.6x3.5x5.9x3.4xFY21eP/E20.1x38.8x37.9x28.1x14.3x15.7x13.1x20.7x44.3xEV/Sales1.6x6.7x4.5x7.0 x7.0 x1.8x2.7x4.7x2.9xImplied Multiples on MS Price TargetFY20eP/E32.7

29、x68.7x63.2x48.8x18.9x16.6x15.5x26.2x50.6xEV/Sales2.6x12.5x7.0 x13.1x8.8x2.6x3.6x6.7x3.4xFY21eP/E25.8x50.2x47.4x44.9x16.9x18.8x15.0 x23.0 x44.7xEV/Sales2.4x9.8x6.4x17.7x12.9x2.7x6.9x12.9x3.6xStock Price Performance1 Month-1.5%-14.1%-3.6%-19.2%7.6%-27.5%-20.0%-10.2%5.9%3 Month6.2%32.1%-5.1%-8.4%10.4%-

30、22.8%-6.4%-10.6%11.0%1 Year34.0%106.0%16.4%60.6%20.1%-3.6%26.8%-12.1%5.5%YTD32.4%115.5%7.4%36.9%10.9%11.5%-7.8%1.9%13.3%Source: Morgan Stanley Research, Thomson Reuters (consensus mean). e = Morgan Stanley Research estimates Note: Past performance is no guarantee of future results. Results shown do

31、not include transaction costs.Source: Thomson Reuters, Morgan Stanley Research estimates. Share prices as of 8 Sep 2020.Key ChartsExhibit 2:An overview of networking subsectors and playersSubsectorMarket sizeCAGR %IncumbentsNew EntrantsEmerging Trend (US$bn, 2020E)2020E-23ESwitchDatacenter2.124%Acct

32、on (Whitebox), Arista, Cisco-Increasing penetration of whitebox withEnterprise25.53%Cisco, HP, Juniper, Huawei, H3C-hyperscalers at lower tiers and potentialTelecom1.81%Huawei, ZTE, Cisco, Ciena, NokiaWhiteboxpenetration into telco marketTransceiversComponent: Inphi, Broadcom, II-VI, LumentumDatacen

33、ter*3.821%Eoptolink Packaging: Innolight, II-IV, Lumentum, Broadcom Co-packaging could benefit IDM in the long-Telecom6.09%Component: Accelink, Inphi, Broadcom, II-VI, LumentumInnolight Packaging: Accelink, Eoptolink, II-IV, Lumentumrun, but not a game changer in 400G cycleSmart NIC Datacenter Enter

34、prise0.415% Accton (ODM)- Xilinx, Broadcom, Mellanox-Still in early stage, increasing adoption ofSmart NIC by hyperscalers & telco edgeTelecom-computing*Datacenters for transceivers include hyperscalers and enterprise datacenters Source: IDC, Dell Oro, Morgan Stanley ResearchExhibit 3:Revenue exposu

35、re of key playersRevenue exposureTelecomEnterpriseDatacenterProductCompanySmartNICInnolightTransceiver70-80%10%10-20%EoptolinkTransceiver5%90%+-AccelinkTransceiver20%80%-AcctonSwitch50%+10-15%25-30%Source: Company data, Morgan Stanley Research estimatesDSP chipMAmazon (AMZN US)Microsoft (MSFT US)Fac

36、ebook (FB US)Google (GOOGL US)Alibaba (BABA US)Tencent (0700.HK)Baidu (BIDU US)Inphi (IPHI US)Broadcom (AVGO US)MaxLinear (MXL US)MACOM (MTSI US) MExhibit 4:ChipComponentEquipmentSystemsClientsNetwork operating system (NoS)RoutersVendorOpen sourceProprietaryWhiteboxSwitchDatacomOperatorsEquipmentAss

37、emblyIDMPassiveActiveTransceiversTelecomOptical componentInnolight(300308.SZ)Accelink(002281.SZ)Eoptolink(300308.SZ)Hisense(Private)Source Photonics (Private)OE Solutions(138080.KW)Huagong Tech(000988.SZ)Hisense(Private)AAOI(AAOI US)Huawei(Private)ZTE(0763.HK)Ericsson(ERIC STO)Nokia(NOK N)Fiberhome(

38、600498.SS)China Mobile(0941.HK)China Unicom(0762.HK)China Telecom(0728.HK)Avago/Broadcom (AVGO US)Finistar/II-VI (IIVI US)Oclaro/Lumemtum (LITE US)NeoPhotonics (NPTN US)Sumitomo (8053 JP)Hisilicon (Private)Accelink(002281.SZ)Hisense (Private)Huagong Tech(000988.SZ)Finistar/II-VI(IIVI US)Lumemtum(LIT

39、E US)Avago/Broadcom(AVGO US)Finistar/II-VI (IIVI US)Oclaro/Lumemtum (LITE US)Sumitomo (8053 JP)Accelink (002281.SZ)NeoPhotonics (NPTN US)Huagong Tech (000988.SZ)Hisense (Private)AAOI (AAOI US)O-net(877.HK)NEL(Private)TianfuCommunication (300394.SZ)Browave (3163.TW)Networking supply chain overview: B

40、andwidth demand a secular trend; we prefer share gainersLaser chip25GSilicon PhotonicsAcacia/Cisco (CSCO US)Luxtera/Cisco (CSCO US)Intel (INTC US)SiFotonics (Private)Switch ASICProprietary MerchantCisco(CSCO US)Juniper(JNPR US)Huawei(Private) Broadcom(AVGO US)Barefoot/Intel(INTC US)Cavium/Marvell(MR

41、VL US)Mellanox/NVDIA(NVDA US)Innovium(Private)Cisco(CSCO US)Juniper(JNPR US)Huawei(Private)HP(HPE US)H3C(000938.SZ) Arista(ANET US)Ruijie Networks(002396.SZ)Accton(2345.TW)Celestica(CLS US)Quanta(2382.TW)Delta(2308.TW)Cisco(CSCO US)Juniper(JNPR US)Huawei(Private)HP(HPE US)H3C(000938.SZ) Big Switch/A

42、rista(ANET US)Ruijie Networks(002396.SZ)Cumulus(Private)Pica8(Private)Cisco (CSCO US)Huawei (Private)Alcatel-Lucent/Nokia (NOK N)Juniper (JNPR US)Source: Company data, Morgan Stanley ResearchExhibit 5:Optical components and networking equipment compsTickerCompanyClosing Price 9/8/2020RatingPrice Tar

43、get (LC)Upside %Market Cap (US$mn)20EEPS (LC)21E22EEPS Growth (%)20E21E22EP/E (X)20E21E20EP/B (X)21E20EP/S (X)21EROE (%)20E21EOpticalTransceivers300502.SZEoptolink61.79O80.0029%2,9941.161.592.0079.937.025.753.138.811.69.29.36.528.731.3300308.SZZhongji Innolight56.00O70.0025%5,8471.111.481.8254.133.3

44、23.550.537.95.04.55.24.311.414.0002281.SZAccelink33.73E34.001%3,3400.670.760.7925.113.33.750.244.34.64.33.53.010.010.6000988.SZHuagong Tech23.30-NANA3,4300.630.740.8525.717.315.737.131.63.43.13.62.910.210.6603083.SSCIG23.97-NANA8850.641.141.44542.878.125.837.320.9nana1.71.43.19.6AAOI.OApplied Optoel

45、ectronics9.94-NANA226-0.740.130.89-77.8-118.2564.2-13.574.20.80.80.80.7-6.2naComponents300394.SZTFC Optical61.10-NANA1,7771.331.742.2559.230.529.545.835.18.87.314.810.819.221.0300548.SZBroadex Technologies54.15-NANA1,1910.631.492.321114.6136.555.786.036.311.79.39.95.014.026.0IDMAVGO.OBroadcom350.54O

46、415.0018%140,98218.1321.3623.384.917.89.519.316.46.25.96.25.930.537.8LITE.OLumentum73.11E84.0015%5,4984.474.734.7437.15.70.316.315.53.62.73.83.223.221.5IIVI.OII-VI37.54E45.0020%3,8921.731.712.25-20.4-0.931.621.822.02.21.91.91.213.59.6ChipsIPHI.NInphi101.33O162.0060%5,2621.261.482.72-21259.717.183.98

47、0.268.514.511.38.06.819.620.7MTSI.OMacom30.79-NANA2,0590.961.481.72-116.553.416.331.920.87.25.63.93.511.124.9Networking EquipmentNetworking ODM2345.TWAccton222.50O280.0026%4,2478.5610.8513.50-3.926.724.426.020.57.96.52.31.837.239.1002396.SZStar-net Communication28.28-NANA2,4151.281.571.8621.723.518.

48、222.218.03.42.91.51.315.916.6CLS.NCelestica7.26-NANA9470.870.910.8663.83.7-5.08.38.0nana0.20.28.29.6Branded SwitchCSCO.OCisco40.00O54.0035%169,3372.852.793.093.6-1.910.614.014.35.33.94.03.536.131.1DELL.NDell64.15O70.009%47,9026.897.017.381.01.85.39.39.1NM31.60.40.5NMNMANET.NArista207.19E230.0011%15,

49、7527.378.599.68-13.016.412.828.124.14.94.07.26.120.320.4HPE.NHewlett Packard9.43E11.0017%12,1311.321.431.63-25.48.414.27.26.60.80.70.50.510.011.5JNPR.NJuniper22.76U20.00-12%7,5511.001.211.23-18.821.11.322.718.7NDND2.02.07.38.9000938.SZUnisplendour30.20-NANA12,6460.811.011.2525.324.524.337.430.02.92.

50、71.41.17.68.9Server ODM2382.TWQuanta74.40O100.0034%9,8717.077.187.4071.31.53.110.510.41.91.80.30.319.218.36669.TWWiwynn665.00O1,000.0050%4,21846.0159.9872.3830.230.420.714.511.14.83.90.60.539.742.92356.TWInventec22.80-NANA2,7912.191.942.1843.3-11.112.010.411.71.51.50.20.214.012.6Source: Thomson Reut

51、ers, Morgan Stanley Research estimates. Thomson Reuters estimates for non-rated companies.Investment SummaryBandwidth demand a secular trendLive online interaction and high-resolution video driving up bandwidth demand: Owing to the Covid-19 pandemic, working from home has become the norm, increasing

52、 demand for bandwidth. The resumption of school will also raise bandwidth demand, as most stu- dents are attending classes at home through applications like Google Classroom, Canvas, Blackboard, and Zoom. To enable a superior user experience during these live online interactions, smooth network capa

53、city is required. We believe the largest part of data traffic demand will continue come from hyperscalers, rather than enter- prises, as more than 70% of internet traffic will come from 4K video (YouTube, Netflix, Google Classroom, and others) by 2022, according to Cisco.400G upgrades a question of

54、when, not ifWe expect 400G upgrades (between the racks in datacenters) to kick off as the supply chain stabilizes: Although there has been much discussion around 400G upgrades since 2019, we havent seen massive adoption yet. Apart from the impact of the pandemic, we believe 400G upgrades are not hap

55、pening as quickly as the 100G upgrade cycle in 2017 for several reasons:Cost of optics is an obstacle. Laser manufacturing capacity is an issue and hence optics remain expensive. Our checks suggest that what Google uses for 400G is actually 2x200G, as this is cheaperthan true 400G because the supply

56、 chain hasnt yet stabilized.The compatibility issue with the PAM4 protocol, i.e. compatibility between a Broadcom PAM4 driver and an Inphi PAM4 driver, etc. For transceivers, the move from 100G to 400G will involve a mod- ulization change from NRZ to PAM4. This requires fine-tuning PAM4 drivers, las

57、ers, and core switch ASICs.The pandemic has also delayed 400G deployment as the macro outlook is uncertain.All in all, we think switch chip throughput and the cost of optics determine the pace of upgrades. Our checks show the pace of upgrades lies largely with switch chipset upgrades (Broadcom has o

58、ver 90% share in switch chips) and the cost of optics. 100G trans- ceiver pricing has come down quickly in the last two years, but 400G transceivers remain expensive.Until the supply chain improves, some hyperscalers will continue to buy 100G to increase capacity. Were still confident 400G upgrades

59、will come as 1) we have seen explosive demand for bandwidth and 2) upgrading the throughput of single switches and transceivers enables better operational management than increasing the volume of hardware.Amazon has been a pioneer, while other hyperscalers are waiting for the supply chain to mature:

60、 Most US hyperscalers have adopted 100G within their datacenter racks and are look to move to 200G or 400G, but Chinese hyperscalers are mostly looking to upgrade to 100G.Exhibit 6:Video will make up more than 70% of global data traffic by 2022Exabytes per MonthExhibit 7:High-resolution video is inc