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"Core" original——NO.54

After all the ups and downs, where is the way forward?

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Before one wave subsides, another wave rises.

On the one hand, Intel, which is struggling in the fiercely competitive chip market, was reported to have laid off 15,000 employees and suspended dividends, causing its stock price to fall by more than 20% that day, the biggest drop since 1982.

On the other hand, Infineon, the global automotive semiconductor giant, announced that the company will lay off 1,400 employees worldwide and relocate another 1,400 jobs to countries and regions with lower labor costs.

The actions taken by industry giants are a reflection of the overall trend of the semiconductor industry.

If this is the case for the big companies, it is natural that domestic chip startups cannot escape the pain - financing difficulties, IPO failures, bankruptcy liquidation, and difficult mergers and acquisitions... The global semiconductor industry is constantly changing, and the strong are being washed away by the waves.

In the predicament of "running out of ammunition and food" and the ingenious strategy of "surviving in desperate situations",How domestic chip companies that are stuck in the quagmire can break out has become a key issue.

Domestic chip startups are stuck in a quagmire

01

In recent years, the global semiconductor market has experienced several twists and turns. The track that was highly sought after by capital in the past few years and was "full of gold" has suddenly ushered in a capital winter.

In the cold winter, "can't see clearly, dare not invest, no money" once became the tone throughout the industry, and the era of "making money even by blind investment" in the semiconductor industry came to an end.

This may be a "doom" for domestic chip start-ups, especially those that rely on financing transfusions and lack self-generating capabilities.

01

Businesses are closing down one after another

Bankruptcy may be the most direct evidence of capital shift.

As we all know, semiconductor is an industry with huge initial investment and long capital recovery period, so capital is extremely important for its development. For companies with insufficient self-sustaining ability, the result of long-term deficit is a sharp decline in performance and profit loss.

In the past, when the capital market was hot, these were not a problem. Because as long as the story was well told and there was a certain level of technology and product landing capabilities, there would always be a lot of money willing to pay for it. But now, as the capital heat has cooled down, everyone has tightened their pockets, and companies that lack vitality are gradually unable to raise the next round of financing.

Under this environment and situation, some poorly managed start-ups may face being eliminated.

Atomic Managing Partner and CEO Jack Abraham warned:Two-thirds of semiconductor startups survive less than a year at best. We are about to enter an era of mass startup extinction.。”

In 2023, the sudden dissolution of Zheku shocked the industry. Since 2024, the bankruptcy and liquidation of chip companies have occurred frequently.

On April 15 this year, Huaxiaxin's application for bankruptcy liquidation was accepted;

On April 24, Chongqing Xinmu Semiconductor stated that there was no bankruptcy property available for distribution and requested the court to rule to terminate the bankruptcy liquidation procedure of Chongqing Xinmu Semiconductor;

On May 17, the Shanghai Pudong New District People's Court ruled to accept the case of Shanghai Wusheng Semiconductor Co., Ltd.'s compulsory liquidation dispute. On June 6, the court issued an announcement of the Shanghai Wusheng Semiconductor liquidation group;

On May 26, the relevant departments have ruled to accept the bankruptcy liquidation case of Jiangsu Gelit Electronics Co., Ltd.;

On June 7, Suzhou Loongxin Microelectronics went bankrupt and liquidated.

In addition, there are also companies notifying that the company has decided to suspend work and production from now on for X months. It is also pointed out that if the company's operating conditions do not improve during the suspension period, or if there are enough orders, it will be notified separately to extend or end the period early.

AboveThese bankruptcy cases and corporate survival crises may be just the tip of the iceberg of the current situation of the semiconductor industry, reflecting the difficulties and pains faced by the development of the domestic semiconductor industry.

02

IPOs frequently fail

On the other hand, since June 2023, the phased tightening of my country's IPO policies and the cyclical downturn in the global semiconductor industry have brought the heat accumulated over the years in the local chip industry to a freezing point, and the tide of equity investment that carried countless dreams of getting rich has receded.

This year, the CSRC has released four policy documents on "improving the quality of listed companies", "strengthening the supervision of listed companies", "strengthening the supervision of securities companies and public funds" and "strengthening the construction of the CSRC system itself", strictly controlling the IPO entrance. With the tightening of regulatory review and the increase in listing thresholds, the road to listing and financing for semiconductor companies has become difficult.

According to statistics from Daxiangjun, as of July 29, 43 semiconductor companies' IPOs have been terminated in 2024, of which 42 have voluntarily withdrawn their IPOs, and only one was terminated because its financial information had expired and had not been updated for three months. The number of terminations exceeded the total number of last year, showing the severe challenges faced by semiconductor companies in the IPO process.

According to the Shenzhen Stock Exchange's recent disclosure, because Shanghai Yingfeng Electronic Technology Co., Ltd. and its sponsor withdrew their application for issuance and listing, the Shenzhen Stock Exchange decided to terminate its issuance and listing review in accordance with the rules.

In contrast, only 11 semiconductor companies terminated their IPO reviews in 2020, which further increased to 19 companies in 2021 and 22 companies in 2022. In 2023, 40 IPO companies pressed the "pause button". So far this year, the number of IPO terminations has exceeded the entire year of 2023.

It is not difficult to see that"Termination" and "withdrawal" have become the most frequent keywords for chip companies in the IPO market., the number of applications accepted and the scale of funds raised both declined significantly.

Looking back at these companies that terminated their IPOs, the reasons varied: some companies withdrew their IPO applications because inquiries revealed some violations in many key indicators such as business revenue, sustainable profitability, and R&D investment rate; equity-related and sector positioning issues; some terminated companies were reported, subject to inspections and on-site supervision, and major adverse changes occurred in the industry.

Xinpai Capital pointed out that currentlyThe semiconductor industry is experiencing a serious internal circulation phenomenon, the performance of most companies was under pressure, the operating pressure of companies increased dramatically, and the performance indicators and revenue growth could not meet the regulatory standards, so they "backed down".

As more companies voluntarily withdraw their listings, exchanges have also issued policies to continuously consolidate the responsibilities of companies, sponsors, and regulators, emphasizing the need to improve professional quality and continuously strengthen the whole chain of supervision. Supervision of IPO projects has become more detailed, and the "zero tolerance" regulatory stance has continued to increase.

The above-mentioned factors have led to difficulties for many companies to go public, exit, and inverted valuations and market capitalizations, which has led to a gradual increase in the threshold for IPOs. Investment in the primary market faces greater uncertainty and has entered a "capital winter."

Capital Winter

Is Chip Mergers Entering a “Golden Age”?

02

Against the backdrop of a phased tightening of IPOs and stricter regulatory reviews, a number of companies planning to go public are seeking to realize capitalization through mergers and acquisitions, and some shareholders also have the need to exit by selling their equity. At the same time, there is a strong demand for potential mergers and acquisitions from listed companies and state-owned enterprises on the demand side.Mergers and acquisitions may become a new trend in the semiconductor industry.

At the same time, policy support for mergers and acquisitions is increasing. In June this year, the China Securities Regulatory Commission issued the "Eight Measures on Deepening the Reform of the Science and Technology Innovation Board to Serve Technological Innovation and the Development of New Productivity", proposing to support mergers and acquisitions with greater strength; the General Office of the State Council issued the "Several Policy Measures to Promote the High-Quality Development of Venture Capital", both of which clearly expressed support for mergers and acquisitions in the field of hard technology.

Judging from the development history of foreign giants, the semiconductor industry itself has the attributes of integration and mergers and acquisitions. Many semiconductor companies have undergone a large number of mergers and acquisitions before becoming leading companies.

With the tightening of IPO channels and the introduction of relevant measures, Zhao Xiaoguang, vice president and director of the research institute of Tianfeng Securities, said,China's semiconductor industry is entering a critical juncture and will enter an era of mergers and acquisitions where the fittest survive.. For both parties of the merger and acquisition, it may be a relatively good opportunity. "At the same time, the gradual integration of the domestic semiconductor industry chain will help increase the localization rate of chips and form a benign ecological system.

According to incomplete statistics, there have been more than 20 acquisitions in the semiconductor industry in the first half of this year.Hidiwei, and Fuchuang Precision have disclosed their M&A plans.

On June 21 and 23, Xinlian Integrated Circuit and Nanochip announced plans to acquire 72.33% of Xinlian Yuezhou’s equity and 79.31% of Magtron’s shares respectively. By acquiring industry-leading companies, the two companies will undoubtedly create more profits and expand valuations in their respective segments.

On July 14, semiconductor component company Fuchuang Precision announced that it plans to acquire 100% of Yisheng Precision's equity for no more than 800 million yuan, thereby filling the listed company's non-metallic component technology gap and extending its customer base to terminal wafer manufacturing plants.

On the same day, power management chip and signal chain chip manufacturer Xidiwei announced that in order to further advance the company's strategic layout and enhance its market competitiveness, its second-level wholly-owned subsidiary HMI plans to acquire a total of 30.93% of the shares of Korean chip design company Zinitix for approximately RMB 109 million.

At the same time, in the industry and market, there is growing attention and discussion about listed companies accelerating resource integration. A person in charge of a listed company told the author that they have been keeping an eye on M&A targets, and some semiconductor startups are willing to be acquired, and there are already some signs.

In general, the impact of mergers and acquisitions is obvious.

For small companies or companies that have failed in IPO, being acquired can avoid bankruptcy and closure, and can also achieve a roundabout listing through mergers and acquisitions. For listed companies, as the A-share valve slowly closes to chip startups, these listed companies will have a greater first-mover advantage and hope to further increase research and development, expand the market, and enhance competitiveness. External acquisitions are a "fast track". At the same time, many start-ups are facing survival issues and have begun to accept financing at a significant discount. It can be said that now is a good time for first-mover listed companies to "buy at the bottom" as the market bubble fades.

Over the past period of time, the domestic semiconductor industry has experienced a serious "involution" phenomenon, especially in the mid- and low-end links and products. The industry has developed "quantity but not quality", innovation is insufficient, and the product supply structure is unbalanced. Taking the chip design field as an example, a large number of companies lack differentiation on the product side, desperately engage in price wars, and at the same time compete for people and resources, causing great internal friction.

Therefore, integrating resources through mergers and acquisitions and restructuring will help break the "involution" in the middle and low ends of the industry, concentrate resources on key research, and enhance the competitiveness and voice of my country's semiconductor industry.

Driven by the current policy environment, capital market and corporate ecology, the integration of the domestic semiconductor industry is expected to usher in a "golden period". However, due to the lengthy semiconductor industry chain, companies in different segments may have very different attitudes towards mergers and acquisitions.

Zhu Jing, deputy secretary-general of the Beijing Semiconductor Industry Association, once pointed out that the domestic chip design mergers and acquisitions will be more likely to appear in the fields of analog chips, RF front-end, MCU, display driver IC, EDA and IP. These tracks have several characteristics: first, there are many existing start-ups; second, there are many listed companies and they have a gap advantage; third, price wars and involution are very serious; fourth, these were once areas where capital surged, and capital parties are under pressure to promote integration; fifth, the valuation level is relatively reasonable and meets the prerequisite for M&A negotiations.

In the past few years, the industry bubble has spawned thousands of domestic chip companies, while making the valuations of most companies inflated. Many of these companies have no business logic and value.

andEffective acquisition target companies can be divided into two categories:The first category is semiconductor companies whose overall revenue tends to be stable, and which have generated positive indicators such as positive cash flow, but whose profit performance is poor. Such targets often no longer need a large amount of investment to replenish their blood, and can quickly achieve profitability through structural optimization and resource integration after the merger and acquisition.

The second category is semiconductor companies that have failed in their IPO journey. Although these companies have certain compliance flaws, most of them have M&A value because their operations have undergone several rounds of scrutiny.

To sum up, the future development of the semiconductor industry will rely more on mergers and acquisitions. Companies and investors need to pay close attention to market trends to adapt to the challenges and opportunities brought about by industry changes.

Why is the merger and acquisition wave so late?

03

Although the M&A phenomenon is heating up, in theory, there are strong demands for M&A exits, but in practice, there are not many M&A cases that have been completed, and the industry has not seen the expected M&A boom.

As mentioned above, there were more than 20 industry acquisitions in the first half of 2024, but this is only the tip of the iceberg of potential M&A attempts in the industry, and successful cases are still only occasional events.At the same time, there are countless cases of failure in invisible places.

For example, a GPU startup in Jiangsu Province sought mergers and acquisitions for months without success after encountering a serious operational crisis; a southern wafer manufacturing plant, with no hope of going public, repeatedly ran into obstacles when it commissioned a third party to find a merger target.

Not long ago, an engineer from Nanjing Lisuan Technology confessed to the media, "The company's process of seeking M&A financing has been delayed again and again. After 16 months of abnormal operation and nearly half a year of unpaid wages, I have become moderately depressed."

Recently, Nanochip directly issued an announcement stating that after careful research and one year of negotiations, the company decided to terminate its intention to acquire Quantum Microelectronics.

Looking back over the past one or two years, there are alsoMany IC design companies have attempted to seek acquisitions due to poor management, but ultimately failed.

An industry insider told Xinchao that for chip design companies, how to evaluate value and whether team members stay or go are all difficult problems. Because the core asset of a design company is talent, some companies believe that their accumulated patents have great value. But the reality is that interested companies basically will not take over the whole thing, but prefer to wait until the company goes bankrupt or employees voluntarily leave, and then absorb the right team. As for the so-called patents and intellectual property rights, most of them are mainly for defense, and patents with real trading value are rare.

At the same time, the disagreement among shareholders will also have an impact on mergers and acquisitions. Some shareholders want to wait for the policy to improve and then continue with the IPO, while others feel that the merger and acquisition price is not ideal.

In any transaction,Price is always the primary factor that makes it difficult to reach a dealSince 2018, a huge amount of money has poured into the semiconductor industry, creating a lot of bubbles. While a large number of repetitive projects have emerged, valuations are generally inflated. Many investors enter at high valuations, which leads to overly high price expectations for the companies being sold, and failure to reach an agreement on prices with the acquirers.

In addition, for most entrepreneurs, as long as they can solve the problem of survival, they do not actually want to sell the company and lose control. This mentality will also create certain obstacles to mergers and acquisitions.

Overall, M&A in the semiconductor industry is full of opportunities but also faces challenges. The dual impetus of policy support and market demand will help companies to improve technology and expand markets by optimizing M&A strategies, thereby achieving overtaking in global competition.

However, how to manage risks during the M&A process, how to balance the interests of all parties, how to deal with the international environment, target selection, and regulatory aspects, as well as how to integrate the technical team after the M&A is completed, are all key issues that need to be focused on and resolved before the upcoming "industrial M&A wave".

Industry research and consulting firm Xinmou Research has expressed some views on this issue. I would like to quote them here: "China's semiconductor M&A is difficult, due to both institutional and mechanism reasons, as well as cultural and capital market reasons. The truly successful M&A in China are precisely Wingtech's acquisition of Anshi, Ingenic's acquisition of Siliconware, and Will's acquisition ofOmniVisionThis is a case of Chinese companies acquiring international companies.

For those projects with low level, insufficient funds, insufficient talents and no hope, there should be a set of M&A mechanisms with loose policies, innovative processes and legal protection. In addition, we should also start from the capital market and find ways to lower the M&A threshold for listed companies. We cannot get a free pass as soon as we go public. Regardless of whether the company is good or bad, the company valuation should be high to the sky, and no M&A can be made even if the company's performance is poor.

The cold winter is a good opportunity for self-purification. Long-standing problems often become so serious in a crisis that they cannot be avoided. I hope that all parties will seize the opportunity of industrial adjustment, promote mergers and acquisitions of semiconductor companies, and promote the expansion and strengthening of China's semiconductor industry."

Chip startups in a gloomy situation

Where is the way forward?

04

Amid the gloom and gloom, the first thing domestic chip startups need to think about is how to survive the cold winter and find a way to save themselves and break through in the future.

Try to live first:Overall, there is no way to significantly improve the competitiveness of local chip manufacturers in the short term, and domestic chips still need a relatively long market verification cycle.It is undoubtedly important to adhere to "long-termism", that is, under the trend of chip investment "ebb", it is recommended that current chip companiesEntrepreneurs should save money and save on things that should not be spent to ensure the company's cash flow.. Moreover, the technology and products must keep up with the times and be competitive, and the research and development efforts must be increased as much as possible.

Zhong Lin, founder of Sanwu Microelectronics, once said that in this capital winter, if startups want to survive, they must go through the cycle, learn to generate their own blood, be self-reliant, seize every small opportunity in this harsh environment, and don't place too high expectations on capital. Even if you get the money, you must work towards the goal of quickly achieving self-profitability. Learning to make money is a compulsory course for enterprises.

There is an essential difference between financing thinking and profit thinkingThe former prefers rapid financing and listing, while the latter focuses on technological advantages, efficiency improvement and profit maximization. Which way of thinking to choose will depend on the company's own situation, industrial environment and the timing of the capital market. Under the current circumstances, domestic chip companies need to re-examine their strategies and stop taking financing and listing as the only signs of success. Achieving profitability and improving technology and product competitiveness will be the key to escaping the trap.

Cautious expansion:For chip startups, expanding their scale is the vision of every enterprise, but rushing to expand is like a dose of poison. Because the premise of expanding the scale is "burning money", most startups are unable to expand by their own profits and can only rely on continuous financing. If there is a lack of later financial support, the company will die.

On the other hand, if the team is too small and the product lines are too many, it will over-disperse the company's resources and energy. In addition, the trial-and-error cost of chip research and development is high and the iteration is slow. Once the strength is dispersed, it will be more difficult to ensure the progress of research and development.

therefore,In terms of business and investment, chip startups need to strike a balance between R&D and. Especially when profits are lower than expected, continued expansion and burning money is undoubtedly a huge test and challenge to the patience and judgment of enterprises. According to the current industry status and capital market sentiment, chip companies need to maintain financial sustainability and respond prudently to industry changes while constantly pursuing new businesses.It is not easy to walk this "balance beam".

Avoid homogenization and involution:At present, the "involution" in some low-end chip tracks in China has been upgraded, and the phenomenon of "fighting price with price, patent with patent, and replacing domestic with domestic" is prevalent, resulting in low- and mid-end chips being in a red ocean of vicious competition.

Therefore, under the competition of product homogeneity, most small and medium-sized chip companies are trapped in the dilemma of having products but no sales, or having sales but no profits, and a vicious cycle is very likely to occur. In this regard, low-end domestic substitution must be upgraded to high-end bottleneck areas.

The industry reshuffle period is often a golden period for low-end technologies, products, and production capacity to be eliminated and upgraded to high-value areas. For small and medium-sized chip companies, if they want to succeed in the end, they can only move towards high-end chips.Low- and mid-end chips are always a quagmire, and once you’re stuck in it, you can’t get out.

Be patient:The bankruptcy, reorganization and dissolution of chip companies is an important warning to the domestic semiconductor industry. Faced with the current industry situation, entrepreneurs and investors must adopt more prudent and forward-looking strategies.

As we all know,Semiconductor entrepreneurship requires long-term technical reserves and experience accumulation, requires deep industry background and resources,It is definitely not a "sports-style" entrepreneurshipIt is not that you can succeed in starting a business just by putting together a star team in a short period of time and getting a huge amount of financing. Problems in the team model, company strategy, product development, market implementation, etc., are fatal to semiconductor startups.

In short, in the current era, the future of domestic start-up chip companies is full of challenges, but also opportunities. Whether they can make the right choice and seize the opportunity is a matter of luck and fate.

Domestic semiconductors, the test of time

05

After undergoing a relatively thorough baptism in the capital market, the survival of the fittest in the semiconductor industry is entering an accelerated period.

In this context, whether it is a start-up or an industry giant, in order to survive the cycle and achieve long-term development, in addition to having excellent technology, products and services, it is also necessary to have accurate prediction and grasp of profitability and key nodes. Perhaps only in this way can enterprises survive the impact of the downturn and the capital winter.Escape the fate of being eliminated.

But from another perspective, bursting the bubble in the semiconductor capital market may not be a bad thing for the overall development of the domestic semiconductor industry. Because whether in the capital market or throughout the entire industry chain,Rather than having thousands of "fragile" semiconductor companies survive, it is better to have a few real semiconductor giants born in the "big waves wash away the sand, and when the sand is gone, the real gold will appear."

The Chinese semiconductor market, which appears to be flourishing but actually has undercurrents, needs such a transformation.