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Yangtze Business Daily News●Changjiang Business Daily reporter Pan Ruidong

As the global semiconductor storage market becomes more prosperous, Cai Huabo, founder and chairman of Longsys (301308.SZ), can finally breathe a sigh of relief.

On the evening of July 19, Jiangbolong released its performance forecast, expecting to achieve a net profit attributable to shareholders of 520 million to 610 million yuan in the first half of the year. The company suffered a loss of 596 million yuan in the same period last year.

As the founder of a technology-intensive company, Cai Huabo only has a high school education. From trade to OEM to self-research, over the past 25 years, he has led Longsys to a path of counterattack and gained a personal fortune of 13.5 billion yuan.

Jiangbolong is also facing the industry challenge of revenue "ceiling", and the integration of R&D and packaging and testing is the solution given by Cai Huabo.

The market is looking forward to what kind of blueprint Jiangbolong will draw up after emerging from the cyclical trough.

From selling chips to making chips

In the semiconductor industry where graduates from prestigious universities gather, Cai Huabo, who only has a high school education, stands out. He went south to Shenzhen to work hard in his early 20s.

In the 1990s, electronics factories were everywhere in Shenzhen, and the electronic component trade was booming. Cai Huabo started as an ordinary salesman and began to get in touch with discrete components such as resistors, capacitors, diodes, and transistors. During one of his jobs, Cai Huabo learned that a customer wanted to buy MASK ROM (mask read-only memory), so he keenly seized this business opportunity and started his storage business.

Cai Huabo initially purchased products from Samsung and burned the customer's system (system software and data, etc.) into MASK ROM. As the business grew, in 1999, the 23-year-old Cai Huabo brought his sister Cai Lijiang to start a business, and Jiangbolong was established.

After the company was established, Cai Huabo continued to trade memory chips. A mistake became his opportunity to shine.

In 2002, Cai Huabo bought the wrong batch of goods (Hitachi's AG-AND flash memory) because of the low price. After buying it, he found that it was not the commonly used general-purpose NAND flash memory. The seller refused to return the goods, and it was difficult to sell them in the market, so the handling of this batch of goods became a problem.

After many twists and turns, Cai Huabo found a Hong Kong company that customized USB controller chips and developed the world's first USB flash drive product based on AND-NAND flash memory. That year, Apple iPod began to use NAND flash memory to replace micro hard drives, resulting in a shortage of flash memory used in USB flash drives. Since Jiangbolong already had a cheap USB flash drive alternative, it attracted many customers.

A "blessing in disguise" made Cai Huabo realize the importance of technology and made him decide to transform Longsys' business from trade to OEM of memory chips and eventually create his own brand.

In 2011, domestic smart phones emerged. Cai Huabo seized the opportunity to independently develop technological products, thus establishing the Foresee brand and completing the transformation from "selling memory chips" to "making memory chips."

In 2017, Cai Huabo acquired Lexar, an internationally renowned consumer storage brand under Micron Technology, which shocked the domestic storage industry and became one of the few companies in China with high-end consumer storage brands. After completing the share reform in 2019, Longsys conducted a round of financing, introducing strategic investment institutions such as the National Integrated Circuit Fund, Yuanhe Puhua, Shangkai Venture Capital, Lihe Venture Capital, and Shenzhen Zhanxiang, with a total financing amount of approximately RMB 900 million.

In August 2022, with the promotion of Cai Huabo, Jiangbolong was successfully listed on the Shenzhen Stock Exchange.

In the secondary market, after listing, Longsys' stock price hit a record high of 126.69 yuan per share at the end of May 2023. That year, Cai Huabo ranked 194th on the Hurun Rich List with a personal wealth of 13.5 billion yuan. Currently, Longsys' market value is about 38.8 billion yuan.

Get out of the cycle trough and turn losses into profits

In the past two years, demand for consumer electronics has been weak and the storage market has entered a downward cycle. Jiangbolong is facing operational pressure.

Data shows that in 2022 and 2023, Longsys' operating income will be 8.33 billion yuan and 10.125 billion yuan respectively, and will exceed 10 billion yuan for the first time in 2023. However, the company's net profit attributable to its parent company was 0.73 billion yuan and -8.28 billion yuan respectively during the same period.

At the China Flash Market Summit held in March 2024, Cai Huabo publicly stated that currently, one of the major operational pain points of memory manufacturers is facing a revenue "ceiling". After analyzing the pain points faced by memory module manufacturers, Cai Huabo believes that the integration of R&D, packaging and testing can enhance the company's competitiveness.

In fact, before this public speech, Cai Huabo had already pushed the company to move into upstream chip design and supplement the packaging and testing links of memory chips. He launched two mergers and acquisitions, which is rare in the history of Longsys.

On June 27, 2023, Longsys announced a merger and acquisition announcement, stating that it plans to purchase 70% of the equity of Powertech Technology (Suzhou) Co., Ltd. for US$132 million. Powertech Technology's main business is packaging and testing of memory chips. In October of that year, the transaction was completed.

In June 2023, Longsys also announced that it would purchase 81% of the equity of Brazilian storage giant SMART Brazil and its wholly-owned subsidiary SMART Modular in cash through its subsidiary. It is reported that SMART's Brazilian factory is an important packaging and testing factory in South America and a springboard for Longsys to enter the South American market.

In addition to industrial mergers and acquisitions, Cai Huabo also did not forget technological innovation. The Yangtze Business Daily reporter noticed that despite the decline in performance, Longsys did not reduce its R&D investment, but increased it year by year. From 2018 to 2023, the company's R&D expenses were 79 million yuan, 90 million yuan, 219 million yuan, 322 million yuan, 356 million yuan, and 594 million yuan, respectively. In the first quarter of 2024, the company's R&D expenses increased by 136.37% year-on-year to 222 million yuan.

After overcoming the cyclical lows, the company's performance rebounded in the first half of 2024. On the evening of July 19, Jiangbolong released its performance forecast, expecting to achieve a net profit attributable to shareholders of 520 million to 610 million yuan in the first half of the year, compared with a loss of 596 million yuan in the same period last year.

Jiang Bolong said that the company predicted the macro trends of the industry in advance, gave full play to its comprehensive advantages in scale, technology, packaging and testing, supply chain, products and market brands, and took multiple measures to vigorously expand the company's various businesses, and achieved significant results. In the first half of the year, the scale of the company's enterprise storage business grew significantly.

It is worth mentioning that Jiangbolong stated in its performance forecast that the aforementioned two mergers and acquisitions also contributed positive revenue and profits to the first half of 2024.

From storage trade to storage foundry, and then to independent brand development, Cai Huabo led Longsys to advance in depth in the chip industry, continuously consolidating the vertical integration strength of semiconductor storage technology.