Speed Seventy Mai: The Domestic Alternative Context Behind A

Domestic chip foundry leader SMIC is rapidly returning to A shares.

On the evening of June 1st, the stock exchange of SMIC opened the IPO prospectus. The Shanghai Stock Exchange has accepted the listing application. According to the prospectus, the SMIC plan raised 20 billion yuan, and the funds raised were planned for three aspects.

8 billion of that is for the 12 inch chip SN1 project in Shanghai, specifically to build a 12 inch production line of 35 thousand units in 1 months. The key of this project is that it is the main carrying platform for SMIC's 14 nm and below advanced process R & D and mass production, and 14 nm is currently the most advanced process of SMIC. Another $8 billion is used to supplement liquidity, and another $4 billion is spent on advanced and mature R & D projects.

In 2019, SMIC received 22 billion 18 million yuan, of which the main revenue came from integrated circuit wafer foundry. In 2019, the total revenue of the SMIC amounted to 19 billion 994 million yuan. As of June 2nd, the total market value of SMIC in Hong Kong stock was HK $101 billion 900 million.

As we all know, the production lines of semiconductor and integrated circuits often need billions of billions of dollars to support, so the help of the capital market is very critical. This return to the A share market moves can expand financing channels for SMIC, but the significance behind it is much more than that.

IC Insights statistics show that the top ten pure wafer foundries in 2018 accounted for 97% of the global market share. - Gan Jun photo

Domestic alternative speed increase

At present, the semiconductor industry is mainly the integrated circuit industry, and the IC industry chain is very complicated, including the core links such as material and equipment, design, foundry manufacturing, sealing and testing. Among them, the foundry of SMIC is the most difficult part of the industry chain.

According to IC Insights data, in 2018, the semiconductor output value was about US $470 billion, of which the global wafer foundry industry's market size was US $57 billion 600 million, which estimated that the foundry industry accounted for about 12% of the semiconductor industry. Although the volume is not big in the industry, the foundry is a key position. Unlike the electronic products, the chip manufacturing process is complex, technology intensive, industry barriers are very high, and the oligopoly effect is also very obvious.

IC Insights statistics show that the top ten pure wafer manufacturers accounted for 97% of the global market share in 2018. The top five manufacturers (TSMC, grove fonde, Lianhua electronics, SMIC, Lijing Technology) account for 88% of the global market share. Among them, TSMC occupies half of the total market. SMIC accounts for 6% of the global pure foundry market share, ranking fourth in the world. SMIC accounted for 18% of China's pure wafer foundry market share in 2018. Samsung is also among the best if it is considered as an ultra pure wafer producer.

In the highly competitive industry, SMIC's development has gone through a series of twists and turns. According to the prospectus introduction, after many years of accumulation, SMIC began to develop rapidly in 2015. In 2015, it became the first enterprise in mainland China to achieve mass production of 28 nm, and achieved a breakthrough in high-end chip production in mainland China. SMIC has made significant progress in 2019 to achieve mass production of 14 nm FinFET, and the second generation FinFET technology has entered the stage of customer introduction.

In the trend of semiconductor industry chain moving to mainland China and Southeast Asia, SMC is facing new opportunities. China's mainland market demand is still increasing, and the capital market will provide assistance to SMIC. And because of the export control of the United States, HUAWEI has already made the order and order for SMIC. Although there are still two generations of gaps in the manufacturing process between TSMC and other international factories, SMIC has been catching up. In the 931 page prospectus, the patent annex has occupied 531 pages.

Fang Jing, chief analyst of XinDa electronics, said that in the first quarter of this year, SMIC's 14 nm made RF Transceiver (RF transceiver) with relatively small volume, so the utilization rate of capacity was not high. Recently, Qilin 710A (HUAWEI Hass's mobile phone chip) has begun to bulk up, and running in the future will stimulate the growth rate. But 710 is the processor introduced in 2018, and the total life cycle is limited. We can more look forward to the upgrading version of the 7 series processor and the low cost version of Kirin 820 that is currently being tested and verified.

But Fang Jing also pointed out: "SMIC" 14 nanometer revenue accounted for more than 10% until 2021, domestic substitution is a gradual process, or we must respect the laws of the industry.

At the same time, SMIC also needs to face the risks of us export control policy adjustment and Sino US trade friction uncertainty. The prospectus stated that since the establishment of the company, the company has operated in compliance with the law and has carried out production and operation activities in accordance with the law. For the latest revised export rules in May, "some semiconductor equipment and technologies imported from the United States may not be used for production of certain customers before obtaining the administrative permission of the US Department of Commerce." There are still many uncertain legal concepts in the revised rules, and the extent of their specific impacts is not yet accurately assessed.

Multiple meanings of regression

The strategic position of integrated circuits is not necessary. As the foundation and core of the global information industry, it is known as "the food of modern industry". It is widely used in electronic equipment and communication. It is an important symbol to measure the modernization level and comprehensive strength of a country or region. In recent years, the state has introduced industrial policies to promote the development of integrated circuit industry in a market-oriented way.

China's integrated circuit industry is in full swing, and the global industrial environment is very changeable. At this time, SMIC, as the domestic IC giant, is about to enter the science and technology board, releasing multiple signals behind it.

On the one hand, the semiconductor industry and capital market are closely related. Many semiconductor companies will set up a financial sector to cope with changes in external environment and periodic shocks. As a capital intensive industry, semiconductor needs financial support, and chips need capital market input.

On the other hand, a semiconductor industry insider told the twenty-first Century economic news reporter: "semiconductor has not been the main character of the domestic capital market for a long time. It belongs to the type of hype and long term holders. The return of giant SMIC can be regarded as a landmark event, which is equivalent to telling the whole world that China's capital market should invest heavily in semiconductors."

Another important point is that this will help SMIC continue to drive the domestic semiconductor industry chain upstream and downstream, and enhance the overall localization capability. Moreover, the domestic OEM market is huge. According to IC Insights, China's market was the main area of pure wafer foundry sales growth in 2019. The pure wafer foundry market in Europe and Japan had a two digit decline last year.

The foundry industry in China started relatively late, but its development speed was fast. According to the statistics of China Semiconductor Industry Association, China's IC manufacturing industry achieved sales of 181 billion 800 million yuan in 2018, an increase of 25.55% compared to the same period last year, compared with 60 billion 100 million yuan in 2013, the compound growth rate reached 24.78%. The gradual completion of the new Fab in mainland China has provided new support for the domestic IC industry in terms of cost reduction, capacity expansion and regional convenience.

But at the same time, there are still many industry problems to be solved, for example, there is still a certain gap with the top international technology level, lack of high-end professional and technical personnel, lack of capital strength and bottlenecks in capacity scale.

Now, how should China support the development of integrated circuits? Gu Wenjun, chief analyst of core research, told the twenty-first Century economic news reporter that the industry of integrated circuits is very long and numerous enterprises. China's integrated circuit enterprises are as many as thousands of enterprises. Only by holding the nose of the industry can we better play the transmission effect and multiplier effect of the policy. From the perspective of industrial law, whether it is technological innovation, industrial drive, risk prevention, or to solve employment and national mission, large volume, platform type, leading and manufacturing enterprises are the mainstay, so borrowing financial policies to promote the rapid development of such enterprises is particularly critical.

He also said that the integrated circuit foundries in manufacturing enterprises, such as SMIC, Huahong and Guangdong core, are the core of the industry. Such enterprises can not only promote the localization and industrialization of upstream equipment and materials industry, but also provide technical and production support for downstream design industries. "We suggest that we should support the big and strong enterprises, support the leading companies, and lean towards the integrated circuit manufacturing industry, especially the foundry industry, so that enterprises in the core industries of the industry will get more support. It is suggested that priority should be given to promoting the listing of similar enterprises, especially by supporting the leading enterprises of SMIC and Huahong to return to A shares and better support the domestic capital platform.

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