Smart technology has gradually entered a mature stage, and the market is starting to look at tangible results.

Wherewilltrendsheadin2024isthequestionI’mmostaskedrecently.Comparedtotheconfusioninthemarketinpreviousyears,thisyearischaracterizedbyamoreheadlesslackofdirection.Inthefieldofsmarttechnology,thewindchangedattheendoflastyear,withmanymajorcompaniesshuttingdownpartsoftheirIoTplatformbusinesses,suchasLatePostreportingthatAlibabaCloudbegancuttingdownonprojectsthatcustomizeindustrysolutionsforgovernmentandenterprisecustomersanddownsizingitshardwareintegrationbusinessintheIoTbusinesslineandrelatedpersonnel.

Inthisregard,myanswerismoreoptimistic.Everyindustryhasitsownmaturitycurve.Lastyear'ssuccessiveexitnewspreciselyindicatesthatsmarttechnologyisabouttoenteritsnextera-thefirststageofexcessivegrowthhaspassed,anditisinevitablethatfoamwillbesqueezed.Thebeginningof2024isfilledwithimagination.Fromamacroperspective,technologyfirstshoneitsstrengthfromAItechnologicalinnovationssuchasSoraandGemini1.5Pro,causingasensationintechnologycircles.Thenfollowedthediscussionofnewqualityproductiveforce,depictingmorecertaindevelopmenttrendsinsmarttechnology.Focusingonthemicrolevel,theintelligentindustryhasshiftedfromnarrativetounleashingcommercialvalue.Forexample,Tuya'sQ4andfullyearfinancialresultsfor2023showedasignificantyear-on-yearincreaseinrevenue,turninglossesintoprofits.

Next,IwilluseTuyaasanexampletointerpretwhichenterpriseswillgraspmoreopportunitiesinthesecondhalfofsmarttechnologyera,toclarifythedirectionofthesmarttechnologymarket.

TheSecondHalfofSmartTechnology:OntheCuspofEnteringtheClimbingStage

Tuya’sQ4financialreportshowsthatthecompany'srevenueincreasedbyasmuchas42.2%year-on-year;thecomprehensivegrossprofitmarginbrokehistoricalrecords,andthenetcashflowgeneratedfromoperatingactivitiesincreasedto$31.8millionyear-on-year.Fromafull-yearperspective,2023achievedtheannualNon-GAAPnetprofitforthefirsttime.Thecompany'sperformancetooktheleadinstabilizingtheentireindustryandachievedsignificantgrowthinthefourthquarterof2023.Asarepresentativeenterpriseintheintelligentindustry,Tuyaalsoreflectstoacertainextentthedevelopmentoftheentireindustryfromitsperformance.

Tracingthedevelopmenttrajectoryoftechnology,itcanberoughlysummarizedinfivestages:InnovationTrigger;PeakofInflatedExpectations;TroughofDisillusionment;SlopeofEnlightenment;andPlateauofProductivity.Therearetwohigh-returnperiodsfortechnologyinvestment:thePeakofInflatedExpectationsstageofrapidgrowthandtheSlopeofEnlightenmentstage.However,thePeakofInflatedExpectationsstageistheearlystageoftechnologicalinnovation,withextremelyhighrisks.WhileduringtheSlopeofEnlightenmentstage,leadingenterpriseswillbethefirsttoriseinperformanceduetoemergingnewtechnologies,andcorrespondinglyincreasingindustryvaluations.

Returningtothefieldofsmarttechnology:manybelievedthatthePeakofInflatedExpectationsstageoftheindustrywasbefore2021,andintheyearssincethen,theindustryhasusheredintheTroughofDisillusionmentstage.Butbytheendof2023,therearesignsthatthemarkethasheadedontoanewstage.

JerryWang,FounderandCEOofTuyaSmart,saidontheQ4resultsconferencecall,"Overthepastyear,we'vewitnessedaglobaltrend:anincreasingnumberofinfluentialcompaniesworldwideareenteringthesmarttechnologyarena,drivenbycompetitiveforces,industryopportunities,andtheirownstrategicneeds.ThistrendisespeciallypronouncedinemergingmarketssuchasLatinAmericaandtheAsia-Pacificregion,wheretheawarenessandadoptionofsmarttechnologyareonanoticeablerise."

Fromaninvestmentperspective,thesmartindustryhasundergoneathoroughprocessofexpecteddigestion,andthereisalreadysufficientsafetycushionforsectorvaluation.Fromamarketperspective,foronething,productioncapacityhasbeensignificantlycleared,freeingupdevelopmentspaceforcompetitiveplayers;foranother,policyguidancefornewqualityproductiveforcesandtechnologicalinnovationssuchasAIaredrivingthesmartindustryintoamorematureeraofcommercialization.Thepreludetothesecondhalfof"panintelligence"hasalreadybegun.

PragmaticandProgressive,Tuya’sStrategyLeadstoRevenueGrowth

Manyyearsago,TuyaproposedthattheultimatescenariooftheInternetofThings(IoT)wouldinevitablybetheArtificialintelligenceofThings(AIoT).Tuyaclearlypositioneditselfonaneutral,"panintelligence"basefromthebeginning.Thecompanydoesnotstandinfrontofthestage,buthasalwaysbeenbehindthescenes,drivingtheAIoTwithinnovativetechnologies,strivingtobecomethebestpartnerforeveryenterprisewithneedsofsmarttechnology.Itprovidescutting-edgetechnologiessuchasIoT,AI,andcloudcomputingtohelpcustomersbuilddiversifiedsmartbusinessscenarios,sparingnoeffortinhelpingcustomerssucceed.Inthemeantime,TuyawillalsoshareitsexpertiseinIoT,AI,andcloudcomputingtechnologieswithmoredevelopers.Itistherebyborntoempowerthepan intelligence.

Onthisbasis,Tuyain2023hasdoneatleasttwothingstoseizesuchopportunities:focusingonmajorcustomersatglobally,andenhancingitsproductofferings.Thismeansabandoningtheextensivecommercialrouteadoptedbythepublicandfocusingoncultivatingintelligentfieldswithhighvalueandhighpotential.

Theessenceofa"key-accountstrategy"istofocusoncustomerswithhighpotentialandefficiency.Itisobviousthatthekeyaccountsareoftenthemainforcesofindustrytransformation.Thus,Tuyachoosestometiculouslycultivatemajorcustomers,deeplyunderstandtheneedsofhigh-qualitycustomers,andthereforeuncovershigherintelligentvalue.Forexample,Tuya,alongwithmajorclientssuchasMideaandHaier,hascontinuouslyexpandedintodiversefieldssuchasenergyandwholehouse,exploringopportunitiesforbusinesscollaboration,andworkingtogetherattheforefrontofthemarkettomeetmarketdemandatafasterpace.

Moreover,Tuya’sinherentglobalgenesalsomakeitscustomerbasemorerisk-resistant.Inrecentyears,Tuyahasbeenbalancingitsglobalcustomerlayout,expandingitsreachtocustomerslikeBrazil’stopoperatorgroupVivoandoneofthelargestchainsupermarketsinLatinAmerica,Choppies,amongothers.LeveragingthegloballyrecognizedCubeCloudsmartprivatecloudsolution,ithassecuredordersfromgiantgroupssuchasChinaGas,Indonesia’sTelekom,Thailand’sSCG,aleadingtelecomgroupinMalaysia,andGermany'scentury-oldshipbuildingcompany,supportingthesekeyaccountstorealizetheirsmartbusinesses.

Theessenceof‘productenhancement’istoexpandhigh-valuesmartsolutions.Bybuildingastrongerandmorefocusedproductmatrix,allthreebusinesslinesofTuyahavepostedstronggrowthinrevenue,amongwhich,the"smartdevicedistribution"sectorinQ4achievedapproximately$7.8millioninrevenue,ayear-on-yearincreaseof64.6%,withthegrossmarginhasgraduallyincreasedfromaround10%-15%in2022toaround30%.Themainsourceofrevenueforthissectorbefore2023camefromprovidingsupplychainrelatedservicesofsmartdevicebusinesstocustomers,butin2023,ithassuccessfullytransformedintoprovidinghigher-valuesmartsolutionsunderthestrategyofproductenhancement.TherevenueofIoTPaaSbusiness,SaaSandotherbusinesscameinat$47.2millionand$9.5million,respectively,withyear-on-yeargrowthof44.6%and19.3%,andgrossmarginsof44.8%and74.2%,maintainingstability.Therevenueandgrossmarginoftheabovesectorshavesteadilyincreased,pushingtheoverallgrossmarginofTuyato47.3%inQ4,settinganewall-timehighforthesecondconsecutivequarter.

Withthefocuson"highvalue",Tuyaendedthepastyearwithstrongmomentumpoweredbyconsecutivequarterlygrowth.

MorganStanleyreleasedareportstatingthatTuya'srevenueandprofitmarginforthefourthquarterof2023significantlybeatexpectations,reiteratingitsoverweight(OW)ratingforTuyaandfurtherraisingitstargetpriceto$3,withapproximately50%-60%upsidefromthecurrentprice.Afterachievingayear-on-yearrevenuegrowthrateof35.7%inthethirdquarterof2023,Tuyarecordedrevenueof$64.4millioninthefourthquarter,ayear-on-yearincreaseof42.2%,whichisthefifthconsecutivequarteronquarterimprovementinrevenue,anditenteredarelativelynormalseasonalbusinesscycle,emergingfromtheindustry'sharshdestockingandhighinflation.Meanwhile,thecompanyreportedcontinuousimprovementinoperationalefficiency,withanoverallgrossmarginincreased2.7percentagepointsyear-on-yeartoreach47.3%inQ4,andanoverallgrossmarginfortheentireyearof2023increased3.4percentagepointsyear-over-yearto46.4%.Thenon-GAAPnetprofitmarginforthewholeyearstoodat8.9%.markingthecompany’sfirstannualprofitturnaround.

Thecompany'shasalsosignificantlyimprovedoperatingcashflowcontinousely.InQ4,netcashgeneratedfromoperatingactivitiesreachedapproximately$31.8million.AsoftheendofQ4,thetotalnetcashofthecompanywasashighas$984.3million,whileitsrecenttotalmarketcaphoversaround$1.1billion–effectivelyprovidingafinancialsafetycushion.MorganStanleypointedoutthatTuya'scurrenttradingpriceisonly12%higherthanitsnetcash,indicatingalowsingle-digitP/Eratio(excludingcash)for2024.

Thisindicatesthatatpresent,Tuyahasbeensignificantlyundervalued,eitheringrowthpotentialormarketprice.

TuyaintheNextEra,CustomersFirst,BusinessFollows

Fromashort-termperspective,destockinghastendedtocometoanend.Startingfromthethirdquarteroflastyear,downstreaminventorybegantonormalize,andinventorylevelshavereturnedtohealthylevels.JessieLiu,BoardDirectorandCFOofTuyaSmart,notedthatthefourthquartermarksthetransitionofTuyafromrecoverytogrowth,efficiencyimprovement,andprofitexpansion.GiventhatTuyafocusesonoperationalefficiencyandinventorybackloghasbecomeathingofthepast,thereisanopportunityforthecompany'sfundamentalturningpointtoresonatewiththemacroenvironmentturningpoint,makingthenear-termprospectspromising.

Lookingatthelongercycle,theglobalprocessofpanintelligencehasembarkedonthesecondhalf,abetterandbroaderspacefordevelopment.AsAI,5G,andIoTintegrateintoeveryaspectoflifeasinfrastructure,anincreasingnumberofAItechnologieswillmigratetoormergewithsmartdevices,creatingunprecedentednewopportunities.MorganStanleyhighlightedthat,theglobalizationofTuyacustomersandthediversificationofproductdistribution,aswellastheenhancementofcompetitiveness,constitutethecornerstoneofitspositivefutureoutlook.

Lookingbackatthepreviousera,Tuya’sgrowthoutpacedotherplayers,securingaleadingmarketcompetitivepositionamonggiants,andmarkingitselfoneofthefirstplayerstopassthetestonthistrack.

Inthenewstage,withleadingABC(artificialintelligence,bigdata,cloud)technology,richsoftwareandhardwarecapabilitiessuchassmartdeviceproductmatrix,aswellasagloballyleadingplatformecosystem,Tuyaalsoembracesavastfieldbeyondconsumerelectronics,constantlybreakingthroughtheimaginativeboundariesofpanintelligence.

Forexample,inresponsetotheESGenergyfieldinrecentyears,TuyahasefficientlylaunchedHomeEnergyManagementSystem(HEMS)anddiversifiedsolutionsinEuropeandtheAsiaPacificregion,receivingfavourablemarketfeedback.Inthefourthquarter,Tuyafurtherenhanceditspresenceinsmartheatingandtemperaturecontrolventilationapplication,creatinginnovativeproductsandmakinggoodbusinessdevelopmentprogress;TuyaalsostrengtheneditsEnergy-SavingDashboardmini-programsandsmarttemperaturecontrolvalvesolutions,combiningenergy-savingalgorithmsinheatingapplicationswithTuya'sadvancedcloudalgorithmcapabilities,andpairingthemwithmoreintelligentandprecisetemperaturecontroldevices.

Asanintelligentplatform,Tuyawillcontinuetobackglobalcustomersandpartners,helpingthemachievetheirintelligentbusinessroadmapsinahighlyefficientandvaluableway.Ultimately,thecommercialsuccessofmoreglobalcustomersinthesmartfieldthroughTuyawillalsofeedbackintothesustainedgrowthofTuya'svalue.

Conclusion

Inanutshell,thereisarelativelyaccurateconclusiononthedirectionof2024.Smarttechnologyisacleardevelopmentpath,withtheboomoftechnologiessuchasAI,IoT,andcloudcomputing,aswellaspolicyguidancesuchasnewqualityproductiveforce.

Smarttechnologyhasgraduallyenteredamaturestage,andthemarketisstartingtolookattangibleresults.Tuya,whichhasstoodfirminthestormsofthepastfewyearsandisnowdemonstratingprofitabilityamidemergingoptimisticprospects,revealsthefuturepathofintellectualization-platform-basedenterpriseswillbecomethecornerstoneoftheintelligentindustry.

Meanwhile,thepathchosenbyTuyadeservesattention:becomingthegroundforcustomerinnovation,fullysupportingmorecustomerstoentertheeraofsmarttechnologyandachievecommercialsuccess,loweringthethresholdforsmarttechnology,makingentryandinnovationaccessibletoeveryone,andpromotingthepopularizationofintelligentapplicationscenariossuchasKillerApp.

TheprosperityofsmarttechnologyrequiresthecontinuouseffortofplatformslikeTuyatomakesmarttechnologyfrombuildingcomplexitytobecomingmoresimplifiedandmoreinclusive,providingmoreenterpriseswiththeentrancekeytotheAIsmartbusinessera.Inthesecondhalfofsmarttechnologydevelopment,everybodyhasthechancetoplay,sothepotentialfortheplatformvalue-addisreadilyapparent.