Inventory 10 domestic IC giants, how to create a golden decade
Time:2023-05-27
Views:1012
What is the Chinese Dream of the IC Industry? Let‘s have a bold idea:
Firstly, Spreadtrum/RDA/Lianxin Technology designed baseband and AP chips, and then used SMIC‘s advanced process for wafer manufacturing. After completing packaging testing at Changdian Technology, it immediately arrived at terminal manufacturers such as China Kulian Samsung LG and finally sold to consumers worldwide.
This is the Chinese dream of the IC industry, and the "flagship combination" created by these leading enterprises in the industry chain will become our dream ladder. Today, we will take stock of 10 domestic IC giants and analyze the current market situation, comparative advantages, technological progress, market barriers, and government support together.
Spreadtrum/RDA
Spreadtrum and RDA are the two largest chip design companies in mainland China, apart from Hisense. Spreadtrum is stronger than baseband, and RDA is stronger than RF. From this perspective, the two businesses have complementarity; However, at the same time, both companies provide integrated RF and BB chips to customers, resulting in fierce market competition. If both companies are acquired by Purple Light Group, the possibility of business integration cannot be ruled out in the future.
In December 2013, Chen Datong of Spreadtrum stated that after the completion of the acquisition by Ziguang, Spreadtrum may be listed on the A-share market.
The merger and acquisition of Ziguang Group is provided by the Export Import Bank of China and the China Development Bank with a total transaction amount of approximately 11 billion yuan. Assuming that 8 billion yuan is a loan with an interest rate of 5%, the annual interest rate is 400 million yuan. In addition, after the implementation of the registration system, the large-scale listing of new shares may lead to a gradual downward shift in the valuation center. Due to these two factors, we believe that if Purple Light Group chooses a faster way to list Spreadtrum on the A-share market, it will help alleviate its financial pressure and improve investment returns.
Ziguang‘s acquisition of Spreadtrum has been completed, and there have been rumors recently that Ziguang plans to introduce PE investors to Spreadtrum. On the one hand, Ziguang Group needs to improve its corporate governance structure, and on the other hand, Ziguang Group also needs to recover some cash to alleviate the pressure of two consecutive cash expenditures totaling $2.7 billion. If it is true, we suggest that primary market investors with channels actively engage and participate.
In the medium to long term, Spreadtrum/RDA is a company that has emerged from fierce international market competition and will become a new force in the rise of China‘s integrated circuit industry in the future. We suggest that investors continue to pay attention.
Datang Telecom
We suggest investors pay attention to Datang Telecom, because its Lianxin Technology and Datang Microelectronics are very excellent integrated circuit design enterprises in China. Then we also conducted research on the company as a whole and several major business segments, and believe that Datang Telecom as a whole is also highly worthy of investors‘ attention.
Datang Telecom was established in 1998 and was once known as the "Great China" along with Huawei, ZTE, and others around 2000. However, due to institutional issues and continuous innovation in communication technology, the gap between Datang Telecom and private enterprises such as Huawei and ZTE has widened. The parent company Datang Telecom Technology Industry Group and Telecommunications Science and Technology Research Institute is currently a state-owned enterprise directly under the State owned Assets Supervision and Administration Commission. Its current position in China‘s technology industry mainly comes from TD. Datang Group is the proposer of TD-SCDMA international standards, the owner of core intellectual property rights, the developer of key technologies, and the promoter of industrialization.
Lianxin Technology
Lianxin Technology is an important reason why we suggest investors pay attention to Datang Telecom. Lianxin Technology is the largest mobile baseband chip company in mainland China, following Hisense, Spreadtrum, and RDA, with a 20% share of the TD chip market in 2012. Its predecessor was Datang Mobile Shanghai Company, with nearly a decade of research and development and industrialization history in the TD baseband chip field. It has gone through a path from cooperation with ADI and MediaTek to fully independent research and development and industrialization.
In the medium to long term, market-oriented reform of state-owned enterprises and potential government support will greatly help enhance Lianxin‘s long-term competitiveness. Datang Telecom has established a subsidiary in Beijing to integrate Lianxin and Datang Microelectronics. We anticipate that this may be related to the industrial fund support policies introduced in Beijing, and it is worth continuing to pay attention to in the future.
Datang Microelectronics
Datang Microelectronics is engaged in the design of smart card chips, and together with Tongfang Microelectronics, Fudan Microelectronics, and National Technology, it forms the first tier of smart IC card chips in China. The domestic IC card chip market is a semi market-oriented and semi policy market, and technological progress is not as rapid as that of mobile terminal chips. Datang Microelectronics‘ state-owned enterprise background is very suitable for operating the IC card chip market. We are optimistic that the revenue and profit of this business will steadily increase.
SMIC International
As a leading integrated circuit manufacturing enterprise in mainland China, SMIC International had a revenue of 1.68 billion US dollars in 2012, less than 1/4 of the world‘s tenth largest semiconductor manufacturer, Micron, and only 1/10 of TSMC‘s. Currently, the 28nm process technology is not yet mature, and China‘s second largest wafer foundry, Huahong Hongli, only has process technology above 90nm.
In addition to the significant funding provided by the government, the second key barrier to the wafer manufacturing industry is technology, process control, and experienced talent teams, which are valuable resources that SMIC can provide. This is the core reason why we believe SMIC will play an important role in government support.
We are optimistic about the resources of SMIC International. If the government wants to support and expand the wafer manufacturing industry, both government funds and SMIC International‘s industrial resources are indispensable. In fact, the newly built wafer factories in Wuhan, Chengdu, and Beijing in recent years have all cooperated with SMIC International. The cooperation mode is essentially government funded, and SMIC International exports technology and management.
Changdian Technology
Changdian Technology is an important part of our focus on the "flagship combination" of integrated circuits, and is a key company in the packaging and testing process. The company has strong testing capabilities and is an important testing service provider for chip design companies such as Spreadtrum, RDA, Lianxin Technology, and Hisense Semiconductor in the "flagship combination". The company is expected to grow with the rise of the integrated circuit industry in mainland China, and will significantly benefit from the improvement of packaging technology and profitability.
Jiangsu Xinchao Group, the parent company of Changdian Technology, had a revenue of 6.65 billion yuan in 2012 (including 4.4 billion yuan from Changdian Technology), second only to Intel Chengdu Company and ranking second among the top ten semiconductor packaging and testing enterprises in China. It is the largest local packaging and testing enterprise and also one of the top ten global professional packaging and testing manufacturers.
China Electronics
China Electronics Group Holding Co., Ltd. is an IC design enterprise controlled by China Electronics Information Industry Corporation (CEC). The core asset of CEC is the subsidiary "Beijing Zhongdian Huada Electronic Design Co., Ltd.", which is the leader of smart card chips in China and the core supplier of second-generation ID card chips. In 2012, CEC ranked among the top ten integrated circuit design enterprises in China.
From the perspective of revenue scale, China Electronics is currently the largest; From a growth perspective, Tongfang Guoxin currently has the fastest revenue growth rate, reaching 53%, while China Electronics has 35%; From the perspective of shareholder background, behind Tongfang Guoxin is Tsinghua University, and behind China Electronics is CEC, both have strong shareholder backgrounds, which greatly contribute to the development of semi market-oriented product fields such as smart cards and obtaining national policy and financial support. However, due to the significantly lower valuation of IC companies in Hong Kong stocks compared to A-shares, and the low attention of the Chinese electronics market, the current PE is only 14 times, with a market value of 1/6 that of the same party Guoxin.
Shanghai Xinyang
The company is a manufacturer of electrochemical materials and an upstream company in the wafer manufacturing process. Currently, the products used in the wafer manufacturing process mainly include chip copper interconnect electroplating solution and additives, photoresist stripping solution, photoresist cleaning solution, etc. In addition to being used in wafer foundries, these materials can also be used in packaging and testing plants with intermediate process capabilities, such as Jingfang Technology, which specializes in WLCSP. This is an industry with very high technological and market barriers, and the certification cycle for electrochemical materials by wafer factories often takes several years, with multiple steps and stages going through in the middle before they can finally supply in large quantities.
After years of product research and development and customer adaptation, Shanghai Xinyang has already certified some of its products to major customers such as SMIC International and Wuxi Hailixi, and some products have been supplied in small quantities. In the future, existing certified products are expected to gradually increase in volume. In the medium to long term, the company will significantly benefit from the expansion of mainland wafer manufacturing capacity and the rise of the industry. It is recommended that investors continue to pay attention.
Shanghai Beiling CEC
We believe that Huada and Huahong, two integrated circuit design enterprises, have good profitability, abundant cash flow and are not short of money. Compared to Spreadtrum‘s mobile phone processors and baseband chips, the design of smart card chips is relatively simple, and the initial investment required is limited, and the company does not have a significant financial demand. From the perspective of market development, smart card chips are mainly in the domestic market, with orderly market growth, and there is no need for companies to engage in large-scale fundraising and expansion. Therefore, in the current market environment, we believe that these two companies are making comfortable money and there is not much need to go public from a business perspective. However, we do not rule out the possibility of CEC injecting high-quality assets into listed companies for the purpose of asset integration.
In contrast, the listing of Huahong Hongli, a wafer manufacturing company under Huahong Group, has greater significance. Huahong Hongli is currently the second largest wafer manufacturing enterprise in China, second only to SMIC International. As we have analyzed earlier, the wafer manufacturing process requires continuous and huge capital investment. Without the help of the capital market, ordinary shareholders cannot afford it. A-share listed companies are a very good platform, and with the encouragement of national policies, the capital market will provide good valuations and can achieve continuous financing, continuously helping the company grow.
But currently, Huahong Group no longer holds the shares of Shanghai Beiling. Although the actual controller of Shanghai Beiling, CEC, still holds the shares of Huahong Group, the current actual controller of Huahong Group has become the Shanghai State owned Assets Supervision and Administration Commission. Therefore, the difficulty of integrating Huahong Hongli into Shanghai Beiling may be greater.
Seven Star Electronics
Semiconductor equipment manufacturing is an industry with high technological and market barriers, but a very large market space, as evidenced by the huge investment in equipment in wafer factories. The company has currently completed the research and development of high-end semiconductor integrated circuit equipment and started industrialization. It is collaborating with wafer factories such as SMIC International through joint laboratories to promote industrialization. Although the difficulty is significant, we anticipate that the localization of semiconductor manufacturing equipment will be one of the supporting policies for China‘s integrated circuit industry. Against the backdrop of the rise of China‘s integrated circuit manufacturing industry, it is recommended that investors pay attention to the market development progress of the company‘s semiconductor equipment.
Yangjie Technology
The company is a very distinctive IDM company, starting from a trading business and expanding upstream, establishing its own factory to enter the packaging and testing phase. Afterwards, it continued to expand upstream into the field of chip design and manufacturing, ultimately becoming a successful discrete device IDM company. The prominent feature of the company is its excellent ability to grasp the demand of the terminal market, design and manufacture suitable products from the perspective of the demand of the terminal market. This model and ability can help support the company‘s long-term stable growth.
2014: The Starting Point of the Rise of the Integrated Circuit Industry in Mainland China
The integrated circuit industry requires a large number of technical and management talents in the three stages of design, wafer manufacturing, and packaging testing, and in its cost structure, labor costs have a significant impact on its profitability. The huge cost advantage brought by the dividend of mainland engineers is the comparative advantage of developing this industry in mainland China; The mobile terminal revolution has greatly narrowed the technological gap between China and the world‘s advanced level, and some domestic enterprises have preliminarily completed technological breakthroughs and scale accumulation; The new government provides great support for the development of the integrated circuit industry, and the market expects that a support policy worth hundreds of billions of yuan per year will soon be introduced. This makes us believe that the integrated circuit industry is likely to become the next industry on the mainland to rise globally.
Current situation: Integrated circuit chips are the last big piece of cake for the localization of mobile terminal components
The PC revolution has created Taiwan‘s electronics industry, while the mobile terminal revolution is shaping the mainland‘s industrial chain. In most of the component fields of mobile terminals, globally competitive enterprises have emerged in mainland China, either occupying important market shares or entering the top brand industry chains such as Apple and Samsung, making mainland China the most important terminal and component production base in the world.
Integrated circuit chips account for over 40% of the cost of smartphones, and their market size is almost equivalent to the sum of displays, touch screens, camera modules, batteries, and mechanical parts, making them a huge cake. According to Gartner data, the mobile chip market is expected to reach $66.7 billion in 2013, a year-on-year increase of 14%. With the continuous improvement of smartphone penetration rate and technological progress, this market will continue to grow rapidly.
The three core chip products of RF, BB, and AP have high technological and market barriers. Currently, Qualcomm and MediaTek dominate the high-end and mid to low end markets, respectively. Mainland companies Spreadtrum and RDA have entered the low-end market and expanded into the mid-range market, currently gaining single digit market share globally. Spreadtrum has achieved rapid growth in recent years due to its success in the TD field, and Lianxin Technology has also achieved a certain shipment volume of TD chips. But overall, the localization process in the field of mobile phone chips is just beginning, and there is a huge gap between domestic companies and overseas giants.
Comparative advantage: The integrated circuit industry fully benefits from the dividend of mainland engineers
From the perspective of the employee structure of companies such as MTK, the largest demand is for professionals with professional education rather than simple labor, which is the source of cost advantage for mainland companies. If technological barriers are gradually broken down, from IC design to wafer manufacturing to packaging testing, we will fully enjoy the cost advantage brought by the dividend of mainland engineers.
The R&D team of Botong Company is mainly located in the United States, so the cost is the highest; The employees of MediaTek are mainly distributed in Taiwan and mainland China, and the labor cost is less than 1/4 of that of Broadcom; National Technology (market, consultation) and other employees are mostly distributed in mainland China, further reducing labor costs.
Technological progress: ARM authorization mode greatly reduces technical barriers in mobile terminal chip design
Entering the era of mobile terminals, the success of ARM has fundamentally changed the business model of the entire chip design industry:
ARM has the most successful mobile chip architecture and IP core, but it does not produce or sell chips itself. Instead, it licenses the IP to other chip design companies, and charges a certain licensing fee. Companies authorized by ARM only need to perform simple secondary development on the basis of ARM‘s IP core and design peripheral circuits according to customized requirements to complete mobile chip design.
This greatly lowers the design threshold for mobile application processor chips compared to the PC era, and mainland enterprises can quickly participate. With the cost advantage of engineer dividends, it is expected to gradually gain a certain market share in the future. At present, more than ten companies in mainland China are working on mobile terminal processor chips, while the American giant TI officially withdrew from the smartphone and tablet AP chip market in November 2012.
Market barriers: TD standards have helped mainland chip manufacturers improve their technical capabilities, market capabilities, and company size
The rise of the IC design industry in mainland China requires not only facing the enormous technological advantages of American companies, but also competing with Taiwanese manufacturers who also have cost advantages and are positioned in the low-end market. In this environment, it is extremely difficult to obtain market share through natural competition. We believe that the successful commercialization of the TD standard is crucial for domestic chip manufacturers
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