Ren Zhengfei accepted round-table interviews and talked about domestic substitutions. China’s traditional video conferencing industry has a significant effect on domestic substitution, and Haisi has helped the cloud video industry to erupt.
Source: Guotai Junan Communication Research
Author: Guotai Junan Securities
Huang Zijian Ma Tianqi
1. Video conferencing has gone through analog to digital, point-to-point to many-to-many, wired to wireless, single to comprehensive process
Video conference definition: Video conference system, also known as video conference, refers to individuals or groups in two or more different places, transmitting media through various existing communication media, and moving static and dynamic images, voices, Text, pictures and other data are distributed to the terminals of each user (connected to TV, computer), so that geographically dispersed users can communicate and decide together through various means such as graphics and sound.
The brief development of video conferencing: the popularity and development of video conferencing has gone from analog to digital, from point-to-point to multi-point to multipoint, from wired to wireless, from single function to full-featured process.
In 1982, IBM connected the video conferencing system to the company, mainly for the weekly meeting between the Japanese company and the US headquarters. At this time, the video conference was truly promoted to commercial applications, and when it entered China, it was In the 1990s. At the earliest, it was presented in front of the Chinese people with a high-priced and cumbersome hardware model. Due to hardware and network conditions, the State Council, the military, and the Post and Telecommunications Bureau, which had a dedicated line system, became the first users. In November 1996, the H.323 agreement was officially released to open the IP curtain, which made the video conference begin for the people, and soon it showed its huge market explosiveness.
2. China video conference experienced three major stages of import-oriented, domestic substitution, and cloud video outbreak
2.1. Video conferences entered China in the 1990s, with high import prices in the early days.
In the mid-1990s, video conferences officially entered China, and their initial development was slow. At that time, the Post and Telecommunications Bureau began to build a video conferencing system based on the private line network (E1) using CLI products, and first served the State Council and provincial government departments. In 1994, China Telecom established the first domestic conference television party and government network. Two or three years later, various local post and telecommunications bureaus, radio and television, electric power, railways and other line resources with satellite, microwave and other line resources began to launch video conference projects, and walked in the forefront of information construction and modernization. With the strengthening of national power, the demand for timeliness of communication has become higher, and domestic video conferences have followed the pace of development abroad and began to develop steadily. However, as the domestic Internet and enterprise network construction still lags behind the United States, before 2003, the system construction was still dominated by H.320, using transmission means including ISDN, satellite, DDN, Frame? Relay, ATM and so on. At the same time, due to the high use cost of the transmission network and the insufficient popularity of informationization, the video conference industry is developing slowly. With the development of network popularization, network communication costs have dropped significantly. After 2000, the H.323 video conferencing system has matured, and the price of equipment has dropped a lot compared with the H.320 system, which has enabled many small and medium-sized enterprises and third-tier cities to have the ability to build their own video conferencing systems. However, the general public still mostly stay in the concept stage for video conferencing.
In 2003, SARS brought disaster to people, but it created the opportunity for video conferences to enter the mass market, and successfully pushed video conferences into the public’s sight. According to statistics, the units that have deployed video conferencing systems during the SARS period have a surprisingly high frequency of use, which has set off a boom in the development of domestic video conferencing. After 2002, the market demand of videoconferencing systems in China and enterprises has increased dramatically. The huge development potential and expandable space of the domestic market have attracted many well-known IT and security manufacturers at home and abroad. Microsoft, HP, Cisco, etc. have joined the market. In the Chinese market, the video conference in the SARS period in 2002 reached a historical climax, and there was even a situation in which it was difficult to find a machine. Relying on proprietary hardware devices, proprietary networks, quality and C-side products is vastly different, but the overall price is also extremely high. Polycom’s Asia-Pacific history is the largest project, ICBC costs 200 million. In 2006, video conferencing developed to a new milestone. HD video conferencing entered the user’s attention, and major manufacturers have launched their own HD video conferencing solutions. In 2008, the Olympic Games officially adopted high-definition signals for live broadcast, and HD became the most popular term in the industry. Industry players are targeting business opportunities, playing high-definition cards, and high-profile to promote the advent of the HD era.
At this stage, most of the video conferencing systems used in China are imported from abroad, and the prices are high. Major manufacturers include Polycom, Cisco, and Hewlett-Packard. Domestically, there is no research and development of video conferencing and production conditions of related equipment. The main customer groups are the government and a small number of large companies, and because of the imported equipment, the price is extremely expensive.
2.2. In 2000, we ushered in the process of accelerating domestic substitution and confidentiality requirements.
After the SARS epidemic in 2002, the country ushered in the outbreak of video conference development. Domestic manufacturers have also sniffed business opportunities and have begun to lay out the development of video conferences. In August 2002, Shanghai Telecom officially named the video service “Xinshitong”, and successively opened public video services from Shanghai to Los Angeles, Xinjiang Urumqi, Shihezi, Karamay and other regions, and also launched for commercial customers and individual users. The promotion plan. In addition to the “New Vision” business launched by Shanghai Telecom, Netcom, cable networks and other companies have launched their own video systems in Shanghai.
In 2003, larger video conferencing vendors included Shanghai Telecom, China Netcom, Cable Networks, and Great Wall Broadband. At that time, telecom companies not only wanted to provide communication network operators (providing public video networks) and product providers (providing video-related terminal products), but also service platform providers (providing system rental and other ASP for customers). Service) and industry application system providers (providing customers with application solutions in different industries), the first two roles are the operational basis, and the latter two roles are the competitive winning points.
Due to the requirements of confidentiality and information security, the government has gradually removed the procurement plan for foreign manufacturers in the field of video conferencing system procurement. March 2015: The government adjusts the purchase list to remove the purchase plan for the Cisco video conference. 2016 to 2017: The government has intensively released policies and network security has risen to national strategy. After 2017, the video conferencing programs used by the government are mostly produced by domestic companies. From the ten projects with the largest amount of winning bids in 2018, the winning bidders are domestic companies. The special requirements of information security and confidentiality have hindered the entry of foreign video conferencing vendors into the party building market, thus bringing broad prospects for domestic manufacturers.
2.2.1. Huawei is the leader of the domestic private network video conference
As the leader of the domestic private network video conference, Huawei has continuously increased investment in research and development and achieved rapid development.
From 1993 to 2006, the independent research and development of the MCU was carried out. Since 1993, the company has independently developed video systems, and the company has obtained 700+ patent applications. As of Q4 2015, Huawei’s video terminals have shipped more than 250,000 units worldwide, ranking first in the world and third in the world. IDC report shows that in China’s immersive video conferencing market, Huawei has a market share of 57.8%, ranking first; in the conference video conferencing market, Huawei ranked first with 39.7% market share; in the video conference multi-point control unit MCU In the market, Huawei also occupied the first position with a market share of 36.4%. Huawei has panoramic telepresence, RP series multi-function telepresence, TE series HD terminals, TE Desktop & Mobile soft terminals, and other video conferencing products and solutions that meet different venues and different scenarios. It has multiple advantages such as stability, high definition, and ease of use. Users can get the best face-to-face communication experience whether they are in a conference room, office or on a business trip, SOHO at home.
Table 1: The company’s history in the field of video conferencing
Source: Huawei official website, Guotai Junan Securities Research
Figure 1: Huawei’s video conferencing system has experienced rapid development
Source: Huawei official website
2.2.2. ZTE’s large-scale video conferences for ministries and commissions around 2000
As the largest listed company of communication equipment in China, ZTE has been committed to the integration and innovation of video conferencing products and achieved brilliant results in the network, multimedia, business and other aspects. In 1994, it took the lead in video conferencing research and development in China. In 1996, it first owned independent intellectual property rights in China. In 1998, it took the lead in exporting overseas. In recent years, it has matured and applied new ideas. ZTE Multimedia Video has a large number of users all over the world. The products have been successfully applied to a large number of operators and industry video conferencing backbone networks, and tens of thousands of devices are running stably in various places.
In the field of video conferencing hardware terminals, ZTE’s market share has dropped from 12% in 2015 to 6% in 2016. In recent years, private network video competition has increased, and the industry has also been affected by the cloud video field. Therefore, the development of ZTE’s video services is limited, and the market share is also declining. At the same time, however, the share of overseas manufacturers has declined, and the market share of domestic manufacturers has continued to climb.
Figure 2: 2015-2016 video conferencing hardware terminal industry market share changes greatly
Source: China Industry Information Network, Guotai Junan Securities Research
2.2.3. Suzhou Keda deep cultivating special network communication segment, the main service public inspection law customer
Suzhou Keda is a leading video technology integrated service provider. The company’s predecessor, Keda Communication, was established in 1995. In 2016, the company was listed on the Shanghai Stock Exchange and has decades of industry experience in the field of network video. After decades of accumulation, the company has built two end-to-end product lines for video conferencing and video surveillance, and has accumulated a wealth of industry solutions.
The company’s video conferencing business benefited from customer advantages, stable performance and strong profitability. The company’s video conferencing business mainly serves the public security department and other departments, with high customer barriers and low price sensitivity. The company’s products and solutions are widely used in the Central Office of the Communist Party of China, the State Council Office, the Supreme People’s Procuratorate, the Ministry of Public Security, the Ministry of Industry and Information Technology, the Ministry of Justice, the Emergency Management Department and many other party and state leading agencies as well as provincial and municipal governments. Departments, the company’s user industry has a high status, and a good relationship with users can help the company accurately grasp the direction of market development. The company’s video business revenue and gross profit have maintained a growth rate of more than 20% since 2014.
Figure 3: The company’s video conferencing business revenue growth is relatively stable
Source: Wind, Guotai Junan Securities Research
Figure 4: The profit growth of the company’s video conferencing business is stable
Source: Wind, Guotai Junan Securities Research
2.3. Domestic competitiveness has gradually increased, and manufacturers such as Yilian have led the industry in recent years.
2.3.1. Yilian Network VCS “cloud + end” tuning structure, improve the video conferencing product line
The brand effect of Yilian is obvious, and it is frequently developed in the market. SIP voice terminal products have laid a solid foundation for the promotion and channel construction of VCS: more than 500,000 customers worldwide use Yilian’s products, and video conferencing has also been recognized by customers around the world. The company’s SIP terminal products are marketed in more than 100 countries and regions, covering 6 continents, and have also obtained certification cooperation with mainstream operators and platforms such as Verizon, AT&T, BT, KPN, Microsoft, and Broadsoft. At this stage, in addition to taking into account the overseas market, the company has further developed its efforts in the domestic market to polish products and develop channels closer to users. At present, the video conference has been recognized by many authoritative organizations. The latest industry research report of Frost & Sullivan, an internationally renowned market research professional, shows that the Yilian video conference terminal is in the leader quadrant.
Yilian concentrated on investing resources to develop video conferences, and VCS business accounted for half of the revenue at home and abroad. Yilian has established a VCS product line, increased brand investment, and deployed offices and exhibition halls in various places; strengthened the expansion of large projects and established industry benchmarks; increased promotion and formed online and offline linkages. Relying on excellent product strength, high cost performance and profit margin reserved for channel operators, VCS has been able to maintain a relatively high growth rate in the initial stage of development. In terms of market layout, from the perspective of overseas markets, Yilian has the advantage of the second echelon “scissors difference”: the revenues of the first echelon companies such as Polycom and Cisco have fallen into the growth bottleneck, and the enterprises in the third echelon have not seen obvious follow-up. The company has a cost-effective advantage and is expected to overtake the curve; from the domestic market point of view, the domestic replacement and the second echelon will be the next major change: due to network security regulations, the government and state-owned enterprises began to turn to domestic brands; Cisco, Polycom, Huawei, etc. The market space of an echelon is becoming saturated, and the second echelon companies belonging to the company are facing development opportunities.
2.3.2. Huichang Communication Deeply Plows Industry Solutions, Technology Leading Advantage
The advantages of integration of the communication terminal + cloud platform + industry solutions are outstanding, and the core competitiveness of the technology leading industry is solid. The company has developed rapidly in the classroom education and other subdivisions of the double division.
Huichang Communication Cloud video technology is dominant and has core competitiveness: On the technical level, improving the processing power of cloud platform will become the key to competing for the cloud video market share. The strategic significance of the cloud platform is not only “defense”, but also the improvement of service quality. The flexibility and versatility of the cloud platform can solve the bandwidth problems encountered by customers in communication services, voice quality issues, network speed issues, billing issues and other issues to better meet the needs of multi-party conferences. Compared with other video conferencing vendors, the company’s main competitive advantages are product stability, reliability, platform capacity and relatively low price.
Table 2: Comparative Advantages of Huiyun Communication Cloud Video Solution
Source: Hui Chang Communication, Guotai Junan Securities Research
Huichang Communication has obvious technical advantages in the field of cloud video and has bright prospects. In the cloud video field, international giants Polycom and Cisco face the problem of rigid product and low applicability in the Chinese market. Products and services are facing the risk of being replaced by domestic manufacturers. Xiaoyu Yilian is the benchmark of the industry, and its business is growing rapidly, using artificial intelligence technology. Can double classroom, give direction for the company’s development; Huichang Communication will maintain the multi-party communication market with high-quality services. The cloud technology is as hard as the small fish, the audio and video processing technology is not inferior to the international big manufacturers, and the target customer group is positioned in the large and medium enterprises and the vertical field. Good service, wide coverage and channel construction are the core competitiveness of the company. Huichang Communication has more powerful capacity expansion, better Internet video effects and lower price than traditional manufacturers, and has better compatibility, more advanced coding technology and higher user-friendliness than cloud manufacturers. The more advanced cloud video communication technology enables Huichang Communication to have core competitiveness, and it is expected to enjoy the growth bonus of the dual-teacher classroom market and win the top spot.
2.3.3. Yuzhong Technology focuses on the field of display and control, and its technical advantages are obvious.
Since its inception, the company has been engaged in the provision of display control system equipment and solutions, and has been in the leading position in the industry, providing equipment and solutions for a series of major events or landmark projects. During the reporting period, the company added 19 new patent applications. By the end of 2018, the company had obtained 29 authorized patents, including 13 invention patents. There are many domestic leading technologies in the field of display and control, such as data pre-processing and data. Processing, image fusion processing, code stream access and other technologies.
3. The development of American video conferencing has gone through the private network, cloud stage, Zoom and other platforms to transform
3.1.Picture Tel develops the first private network product, Polycom Cisco for the giant
3.1.1. The initial video conference is a private network video, which is costly and has strong security stability.
VCS equipment is more complicated, and manufacturers are more competitive. Usually, it is necessary to set up a private network and professional equipment, that is, it needs self-built video conference system and dedicated maintenance. The customers in this field are mainly governments with high security requirements and some large-scale enterprises. enterprise. Traditional VCS video services have high requirements for hardware devices and are more widely connected with hardware. Hardware devices account for a large proportion of sales; while cloud video services have lower requirements for hardware devices and are cheaper (currently cloud video products) The price is only 1/10 of the price of VCS products, hardware equipment accounts for a relatively low proportion, and software services account for a relatively high proportion.
3.1.2. The first real commercial video conferencing product development company was acquired by Polycom
Founded in August 1984, Picture Tel was founded by MIT students and professors to create the first real-time visual system. The company released its first product in 1986, when the first product was priced at $80,000, while AT&T’s Compression® Labs released a video conferencing product for $250,000. With high-quality experience and low prices, the company reached its peak in sales in 1996 and 1997, achieving sales of $490 million. In October 2001, Picture Tel was acquired by Polycom. Later, most of the video coding standards for two-way communication and video broadcasting were based on the current codec technology, including the most widely used H.264 and MPEG-4 AVC standards.
3.1.3. Polycom leads the video conference, in recent years, the main “end”, with hardware as the focus
Table 3: Polycom’s main technical architecture
Source: Polycom’s official website
The limitation of Polycom: based on the operation of the dedicated line network, it can not effectively cover the base layer and cannot provide external services; MCU centralized codec, resource consumption is extremely high, relying on DSP processing, it is difficult to support large-scale video access; application scenarios are limited to conference rooms, mobile applications The ability is weak; it needs to be debugged in advance, dedicated operation, and dedicated maintenance. It is difficult for business personnel to complete the use by themselves; limited by the network, scale, scene, and operation limit, traditional video cannot be universally used in the first-line business communication scenario.
Polycom was privatized and delisted in 2016 and was acquired by Plantronics in 2018. At present, Polycom has taken the initiative to change, and has a more obvious “end” trend, and began to cooperate with only software cloud video companies to provide traditional audio and video hardware equipment.
3.1.4. US private network giant Cisco enters the industry through acquisition and undergoes transformation
In 2011, Cisco acquired Norwegian Tandberg (Tengbo) to enter the video conferencing field. Tandberg is principally engaged in the design, development and marketing of video, voice and data systems and software, providing sales, support and value-added services to customers in more than 90 countries and regions around the world. After the acquisition, the overall revenue of corporate collaboration in Cisco voice, video conferencing, telepresence, and unified communications in 2015 was $4.004 billion.
Figure 5: Cisco Unified Communications Business has a high revenue and a large international market share
Source: Bloomberg, Guotai Junan Securities Research
In 2011, Cisco acquired Webex, which is based on cloud for video conferencing development. Cisco’s hardware video conferencing solutions are mainly from Polycom and Radvison. With two acquisitions, Cisco has perfectly implemented a software and hardware integration solution and has become a video conferencing giant. Cisco is a leader in the networking equipment industry, but it is also facing the impact of other cloud vendors. The rise of Google, Amazon, Facebook and other vendors in the cloud service sector has had a certain impact on Cisco’s development.
Cisco is splitting different services and no longer binding hardware and software licenses, transforming hardware companies into software companies. Previously, Cisco’s services required to run on the same brand of hardware and complete systems. Since becoming CEO of Cisco, Chuck Robbins has been committed to launching software-based networking, security and management products, while increasing investment in data analytics software and data center cloud tools to offset telecom operators and corporate spending. Decline on the impact of its network gateway and router’s main business. Cisco has said it will invest heavily in cloud services to build data centers to help run the new Cisco Cloud Services project. Cisco expanded its advantage in cloud video conferencing through acquisitions. In 2007, Cisco acquired WebEx, a web conferencing service company, for $3.2 billion and positioned it as a video conferencing and collaboration platform. In 2010, Cisco acquired Norwegian video conferencing company Tandberg for $3.3 billion. ASA; Cisco acquired cloud computing network company Meraki for $1.2 billion in 2012; Cisco acquired Tropo in May 2015 to complement PaaS service capabilities in collaboration; in November 2015, Cisco acquired video conferencing collaboration system Acano for $700 million; In March, Cisco acquired Synata, a cloud search technology startup, to integrate its technology into Cisco’s cloud-based collaboration service, Cisco Spark.
Cisco has its own line of collaborative software products, and the company’s collaborative software division provides audio, video, data and mobile applications over fixed and mobile networks. Cisco also introduced a more modern collaborative software platform called Project Squared, and invited the former Skype CTO to join Cisco to create a new collaborative platform.
3.1.5. Technical limitations make the giants have a strategic transformation, Cisco is still the leader
Since traditional private network video has a series of technical problems, the needs of enterprises have gradually shifted to cloud video. As a result, most private video conferencing providers are now undergoing a strategic transformation. Polycom itself has developed a cloud direction strategy, but the implementation of the strategy still needs to be improved. Cisco entered the cloud by acquiring Webex. From the current hardware video conferencing competition pattern, Cisco is still the industry leader, leading more than one position, Polycom ranked second, but the gap is obvious. Although Avaya acquired Radvision, it is still tepid.
Figure 6: Cisco is still the video industry leader
3.2. Cloud video former leader Webex was acquired by Cisco, and companies such as Zoom developed rapidly.
3.2.1. Cloud video conferencing is the mainstream mode of the second phase of video conferencing
Cloud Video is a video streaming service based on the concept of cloud computing technology, covering all processes from acquisition to playback, enabling customers to build professional video systems in a cost-effective and efficient way. In the cloud video service process, the video collected by the content provider is first encoded into a specific format, after which the video is uploaded to the cloud server, transcoded in the cloud to adapt to different playback servers, and finally, the video is accelerated via a content distribution network (CDN). Distribute, after decoding, play in the terminal.
3.2.2. Cloud video leader Enterprise Webex develops twists and turns, is wholly-owned by Cisco
Webex finally won the market in a way other than price competition. In the year of Nasdaq, the survival pressure after listing did not ease. In the form of guerrilla warfare, Netcom lobbied the small departments of large companies one by one to sell higher quality services at a lower cost than the department’s own operation of Microsoft Netmeetings. After the small department was infiltrated into a certain amount, it was lobbied to obtain the complete contract of the company. This method of obtaining the Boeing, General Electric, General Motors and other major Microsoft customers one by one, announced the success of countering Microsoft. With the advantage of differentiation, NetEx gradually has a place in the industry and is getting bigger and bigger. During the period, Netsun conquered a number of multinational companies, Cisco, Hewlett-Packard, IBM, Ricoh, YAHOO, etc. have become their customers. Although it has not yet achieved profitability, but with the increasing market share, in July 2000, Netsun, which was founded only four years ago, successfully landed on Nasdaq, with an issue price of US$14, and closed at more than US$38 on the same day. The market value exceeded 16 One hundred million US dollars, was praised by investors as “the stock market will be Yahoo tomorrow.” However, due to the bursting of the US Internet bubble, Netsun was hit, and its share price has changed from the highest of $51 to less than $9. Moreover, the company was not profitable at the time, and it cost $20 million per quarter. If the next four quarters are not profitable, the company will go bankrupt. Zhu Min decided to strictly control the cost. In the end, Netcom fulfilled the promise of listing, realized a year of profit, and achieved a profit of 20% within two years, and spent the winter of the Internet.
After the crisis, NetEx focused on marketing, and adopted a variety of measures such as price leadership to seize market share. The initial investment in NetMeeing originally used by Boeing was free, with a late investment of $200. Netcom used the price war to get Boeing’s contract for $100. Relying on the “extended service”, Netcom has won more than 60% of the market share. In many large enterprises in the United States, “Let’s do a WebEx” has become a saying. Microsoft’s territory is shrinking, eventually not only stopped the NetMeeting business, but also began to use WebEx as a training tool. In 2002, Netmeetings was abolished by Microsoft.
Microsoft countered Webex through acquisitions, but it ended in failure. In May 2003, Microsoft acquired NetWare’s largest competitor, Placeware, which also focused on conference services and had a market share of more than 20%. Subsequently, Microsoft launched a variety of attacks on NetEx. First, the price of the product was reduced to 1/4 of the network, and a large number of sales backbones were dug away from the Internet. Bill Gates also uses his personal effects as a product. And NetEx relies on the high cost performance of software and services, firmly control a large number of well-known corporate customers, and use this as a business card to further promote the trend of this change. In the end, the market share of Placeware, which was owned by Microsoft, fell to 14%. No one can shake the chair of the Net Xun King.
Zhu Min returned to China to start investing and finally decided to sell the network to Cisco. On March 14, 2007, Cisco announced the acquisition of WebEx for $3.2 billion in cash. The purchase price was approximately US$57 per share, which was 23% higher than the closing price of US$46.20. The acquisition price far exceeds MySpace ($580 million), YouTube ($1.65 billion) and Skype ($2.6 billion) in the same period as the Internet companies. Cisco currently has a 53% share of the global web conferencing market (source: Synergy Research, second quarter of 2016), with approximately 7.1 billion people attending web conferencing each month, and is a well-deserved leader in web conferencing platforms.
3.2.3. Former Webex Kaishan Engineer founded Zoom, the company has grown rapidly in recent years
Zoom is a video conferencing system that focuses on user experience created by the departure entrepreneurial team from WebEx, but there are still barriers to entry into the Chinese market. Zoom cuts in from SMEs and education verticals. Users can buy video accounts for $15, and they can conduct video conferences online, which is easy to use. Zoom is gradually transforming into a platform, and its ambition is more than just becoming a communication tool.
4. Earnings forecast
Table 4: Recommended Company Profit Forecast Table
Source: Wind, Guotai Junan Securities Research
5. Risk warning
5G investment is less than expected. Sino-US trade friction may have a greater impact on the communications industry. 5G is an important area of the Sino-US game, and the cloud video industry is at the 5G application layer. Therefore, if the initial investment is less than expected, it will affect the further development of cloud video.
The cloud video industry has not developed as expected. Traditional video conferencing has been widely used by the government and Fortune 500 companies, and the growth rate has slowed down this year. In the process of traditional video conferencing to cloud video conversion, whether the penetration rate of vertical application of SMEs and industries is lower than expected, it will affect the development of the overall cloud video industry in China.
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This article only represents the author’s personal views, does not represent the position of the public, and does not have investment advice.