Nuggets are on the trillion-dollar IoT track, Quectel has turned from profit to loss, is the industry prospect overestimated?

Text/Yang Jianyong

In the context of digital transformation and upgrading in various industries, enterprises continue to innovate using technologies such as artificial intelligence, cloud computing, and the Internet of Things. With the advancement of digital upgrades in various industries, the Internet of Things has become one of the important infrastructures for digital transformation. The integration of tens of billions of extensive IoT connections with technologies such as artificial intelligence and cloud computing supports the digital transformation of thousands of industries. Therefore, enterprises’ investment in the field of Internet of Things is also expanding.

According to data given earlier by IDC, global IoT spending is expected to reach US$805.7 billion by 2023, a year-on-year increase of 10.6%. By 2026, investment related to the Internet of Things will exceed US$1 trillion. China is expected to become the world's largest IoT market and maintain a steady and positive trend in the next five years. IDC also predicts that by 2026, China’s IT spending on the Internet of Things will be close to US$300 billion.

It is worth mentioning that the Internet of Things is widely used in various industries such as cities, finance, retail, and manufacturing. The number of Internet of Things connections is growing rapidly, forming an era of interconnection of everything. IDC predicts that it will reach 5.6 billion in 2022 and will increase to approximately 10.25 billion by 2026, with a compound growth rate of approximately 18%.

The number of IoT connections continues to grow, which has a huge impact on the industry. Integration with technologies such as artificial intelligence and cloud computing promotes the transformation from the Internet of Everything to the Intelligence of Everything, and information technology enters the AIoT era.

With the rapid development of the Internet of Things, the demand for Internet of Everything scenarios continues to increase. As an important part of the Internet of Things industry chain, the demand for wireless communication modules is also increasing.

Quectel Communications is a company focusing on wireless communication modules and solutions in the field of Internet of Things. Due to the popularity of IoT connections and the increased demand for 5G modules, LTE modules, vehicle modules, smart modules, etc., Quectel's module business has grown steadily. This trend has been going on for several years, allowing Quectel to achieve rapid growth over the past few years.

Quectel's revenue will increase from 6.1 billion yuan in 2020 to 14.2 billion yuan in 2022, with a compound annual growth rate of 52%.

Unfortunately, Quectel encountered growth difficulties last year, causing profits to turn into losses. According to financial report data for the first three quarters of 2023, Quectel’s revenue was 9.967 billion yuan, a year-on-year decrease of 1.67%. At the same time, the company lost 18.02 million yuan in the first three quarters, compared with a net profit of 435 million yuan in the same period last year. This shows that Quectel faces a series of challenges and needs to take steps to turn things around.

In response to the reasons for the loss, Quectel responded to investors saying that, on the one hand, affected by factors such as the global economic environment and market sentiment, the downstream demand in the Internet of Things industry is in a stage of gradual recovery. On the other hand, some new businesses and product lines have been laid out that will have a positive impact on future performance. The growth of businesses such as GNSS, computing power modules and ODM requires a lot of manpower, and the corresponding R&D investment increases.

Fortunately, since Q2, Quectel has adopted a series of cost reduction and efficiency improvement measures to control expenses, and the business situation has gradually improved. And there was some recovery in the market in the third quarter, and domestic business revenue improved in the third quarter. Among them, 5G modules, smart modules, and new business products are growing rapidly.

In the third quarter of 2023, Quectel’s revenue was 3.455 billion yuan, a slight increase of 0.22% year-on-year. However, net profit profitability rebounded in the quarter. Although net profit fell by 38.63%, compared with the loss in the first half of the year, Q3 achieved a profit of 97.35 million yuan, showing that profitability is improving month-on-month.

Finally, the Internet of Things industry has a vast space and the market size continues to expand. Domestic digital transformation is in a stage of rapid development, bringing opportunities for a new round of technological revolution and industrial transformation. Technologies such as 5G, AI, and big data are accelerating iterative upgrades, and the demand for various industries such as Internet of Vehicles, smart industry, and smart payment continues to rise.

Among them, 5G RedCap technology can reduce costs, help promote 5G large-scale applications, and may bring new market opportunities in the Internet of Things business. In the field of RedCap, Quectel took the lead in launching the RedCap module Rx255C series in March last year. Based on the Rx255C series, it actively carried out relevant testing and verification, and continued to make efforts in actual network testing. It not only took the lead in completing the implementation of terminal network compatibility It has also obtained the RedCap module evaluation certificate through network testing, laying a solid foundation for RedCap’s commercial deployment in the medium and high-speed IoT field. It is expected to gradually start shipping this year.

As one of the representative companies in the Internet of Things industry chain, the continued advancement of the Internet of Things and the increasing deployment of 5G have further promoted the development of the Internet of Things industry. Quectel claims that it will seize the opportunity, strive to improve efficiency, continue to consolidate measures to reduce costs and increase efficiency, increase revenue, adjust product structure, and guide the shipment of more high-margin products.

Overall, new technologies with artificial intelligence, the Internet of Things, and cloud services as the core inject innovative vitality into various industries, thereby promoting the development of the Internet of Things industry. For manufacturers on the track, prospects are expected to be further unleashed, opening up a broader space for performance growth.

Personal point of view, only for reference.

Yang Jianyong, a contributor to Forbes China, is committed to in-depth interpretation of cutting-edge technologies such as the Internet of Things, cloud services, artificial intelligence and smart homes.

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