This article is from WeChat official account: late LatePost (ID: postlate) , Author: Gongxiao Zhen, editor: Huang Chun-chieh, cartography: intern Hu Di , The head picture comes from: Visual China
In September 2020, Li Ping, the former investment manager of the National Large Fund, appeared again in the office of an external foundry of SMIC. This factory has an 8-inch wafer production line, which is mainly engaged in sensor foundry. The major shareholder is the local government, “equivalent to local government funding, SMIC provides technology.”
Three months after Li Ping’s last visit, the company’s valuation has risen by 50%. The financial director of the foundry who also takes care of financing affairs is too busy to check the accounts, and sometimes meets with four groups of investors a day. This is completely different from his previous pace in a livestock breeding company.
Maybe I have seen too many investors, and the chief financial officer can talk about company valuation and production scale more professionally. There are no longer dozens of business cards scattered on his desk. The four stacks of business cards are neatly sized and about 15 cm thick. It is estimated that there are thousands of them for visiting investors.
Chip manufacturing is an extremely difficult business. In the past five years, Samsung and TSMC have invested more than US$10 billion in manufacturing capacity each year, and SMIC, which has suffered losses for 20 years, is still far away from them. At present, SMIC’s 14-nanometer chip has not yet begun mass production. TSMC has installed 5-nanometer chips into the iPhone 12 and began to test the waters of 2 nanometer technology.
However, when it went public in July, SMIC still became the largest A-share IPO in the past 9 years, and suffered 566 times oversubscription. Its affiliates have also attracted much attention.
A chip listed company trading fund (ETF) managed by China Asset Management went public in February this year. For more than half a year, its market value has ranked 15th in the country (excluding currency funds), only lagging behind some historically huge indexes or bonds fund.
In 2015, more than 100 listed companies sold houses across borders, and now there are also jokes about real estate bosses making chips. According to the data from Tianyan Check, in the third quarter of 2020 alone, there will be 13,000 companies in the industrial and commercial registration information, expanding their businessTo the integrated circuit.
Even, companies no longer need to hype the concept of chips. An investor question received by Arowana recently listed is “Does your company have a semiconductor business?”
The enthusiasm for chip investment is transmitted from the secondary market back to the primary market, which in turn promotes the accelerated listing of startup companies.
investors filled with a football field
At a chip investment forum in 2019, some investors sighed, 10 years ago, people who voted for chips could sit at two tables, 5 years ago there was only one table left, “Now we can install the next football field , There must be thousands of people.”
In the past, funds that invested in consumer Internet and other fields basically had the opportunity for investors to look exclusively at chips. According to data from Zero2IPO Private Equity, from January to October 2020, China’s VC/PE invested in 345 semiconductor projects, 10% less than the same period last year. However, the scale of financing increased sharply, reaching 71.13 billion yuan in the first October, 2.5 times the same period last year.
With hot money, entrepreneurs in the chip industry have increased significantly. Chen Datong, the founder of the chip design company Spreadtrum, mentioned that when Spreadtrum was first established in the early 2000s, there were only single-digit chip design companies in China. After 2005, it became five or six hundred, and now there are more than 2,000 , And Silicon Valley has never exceeded 100.
The original chip was not considered a good business. Chips are too expensive, and compared with the trillion-dollar consumer industry, the ceiling of chip companies for enterprise sales is also lower. Bai Zongyi, a partner of Yaotu Capital, believes that there is a bubble on the science and technology innovation board, and it is very challenging to make a chip listed company with a value of more than 10 billion US dollars in China.
But the chip has been pushed to the front stage step by step, and China Chip’s responsibility is growing. Chips are China’s largest import expenditure product, far exceeding crude oil. In 2019, China’s chip imports were 305.5 billion US dollars and crude oil imports were 238.7 billion US dollars. Only Huawei, Lenovo, BBK, and Xiaomi have purchased more than 20% of the chips. According to Guosen Securities, if all semiconductor imports are localized, China’s total GDP will increase by 3.2%.
Under the trend of domestic substitution and independent control, the investment fever caused by a chip is also spreading.
“Dream” Sci-tech Innovation Board
The turning point of the chip investment boom occurred on May 16, 2019. Huawei was included in the list of entities by the US Department of Commerce and was unable to sign new orders with US chip companies. Turning to domestic chip suppliers has become a top priority for companies such as Huawei.
“This is a choice without choice”, commented by Cheng Miaoqi, a partner of Qingsong Fund. According to Gartner data, Huawei spent more than US$21 billion on chip procurement in 2018, making it the third largest chip buyer in the world.
On the same day a year later, the US Department of Commerce banned Huawei from using US technology and software to design chips, and the chip fever reached its peak.
On the other side, market sentiment is high, and the market value ceiling of chip companies has risen sharply. After the first generation of relatively large chip companies, such as Spreadtrum and Zhaoyi Innovation, went public, their market value remained at RMB 30 billion for a long time. Today, the market value of chip companies on the Sci-tech Innovation Board is much higher. Even if the discount is 50%, most of them are more than 30 billion yuan.
Zheng Weihe, chairman of the RMB fund Tongchuangweiye, also cited the term “dream” to describe the science and technology innovation board. For example, the price of SMIC’s Hong Kong stocks is less than 20 Hong Kong dollars for most of this year, while A-shares are as high as RMB 95.
“How big is the responsibility, how high is the market value” , a former semiconductor investor said. According to incomplete statistics, as of the end of the third quarter of this year, among the 28 semiconductor companies listed on the Science and Technology Innovation Board, 2 companies that lost money (no P/E ratio) were excluded , The average price-earnings ratio is 145 times. Cheng Miaoqi, a partner of Qingsong Fund, believes that the normal value should be about 40 times. The high price-earnings ratio prematurely overdrafts the company’s growth space.
A former China Asset Management Fund manager also said that “absolute valuation is no longer applicable in the secondary market.” They use relative valuation methods and combine their relative positions in the industry chain to compare, for example, they are among the leading chip manufacturers. Comparing Chips International and packaging and testing leader Changjiang Electronics Technology, estimate the value.
Investors and entrepreneurs have also sensed the opportunity of China Chip. Once chip companies enter the supply chain of Chinese consumer electronics companies, especially Huawei, they will not be far from being listed on the Science and Technology Innovation Board.
A typical representative of domestically produced alternatives is the analog chip supplier Si Ruipu invested by Walden International in 2014.
Si Ruipu was established in 2008, and its main business annual revenue was only 113 million yuan in 2018, and its valuation after fundraising the following year was only 900 million yuan.
But in 2019, a large customer with an undisclosed name brought in 170 million yuan in revenue for Siripul, raising the entire company’s revenue to 300 million yuan. This soon met the listing criteria of the Science and Technology Innovation Board. Analysts believe that the major customer is Huawei: Seripu was certified by Huawei as a qualified supplier at the end of 2017 and received investment from Huawei Hubble in 2019.
In September of this year, Si Ruipu landed on the Science and Technology Innovation Board, and its share price rose 77% on the first day, and its current market value is 27.7 billion yuan.
From artificial intelligence to autonomous driving, 5G, there is no shortage of new concepts in chips
Even without a domestic alternative, chips began to rekindle investor interest five years ago.
On a global scale, chips are getting attention along with the artificial intelligence fever. Zhang Fei, a partner of Wuyuan Capital, who invested in Horizon Robotics in 2016, told “LatePost” that he expected artificial intelligence to be a huge paradigm change that could create opportunities of more than trillion US dollars, which may be created by the market value of the IT industry. 3 times ~ 5 times.
2015 is the first year of AI investment. Companies such as Google, Amazon, and Facebook have also entered the field of artificial intelligence chips. Alibaba, Tencent, and Baidu also followed this field.
In the same period, a number of chip companies such as Horizon Robot, Xiaoma Zhixing, Cambrian, Bitmain, and Shenjian Technology also emerged. Since 2017, artificial intelligence algorithm companies such as Yunzhisheng and Yitu Technology have also begun to design chips to build a moat.
At that time, the chip industry also experienced tremendous changes. According to IC Insight data, the global semiconductor M&A amount in 2015 was as high as 103.3 billion U.S. dollars, and the total transaction value in 2016 exceeded 98.5 billion U.S. dollars, almost the sum of 2010-2014. An investor said, This is a way to expand categories and scale. Chip companies have high technical barriers and extremely segmented scenarios. Even if they have technical strength, it is difficult to grow on their own.
China’s chip companies that landed on Nasdaq in the 3G era have also experienced a wave of privatization and mergers and acquisitions. 201In 3 years, Ziguang Group acquired Spreadtrum Communications for a total price of US$1.8 billion; in 2014, Ziguang completed the acquisition of RDA Microelectronics for a price of US$907 million.
This also drives a group of veterans to start a business again. In 2015, Dai Baojia, the founder of RDA, founded Aojie Technology, and Zhang Liang, an old employee, founded Hengxuan Technology, both of which received investment from Alibaba.
In 2018, I used to do chip design and R&D at AMD, and founded Suiyuan Technology in Zhao Lidong, the vice president of China Unigroup. Since May 2018, Tencent Investment has increased its weight three times in a row. This is also the one with the fastest growing valuation among chip projects currently invested by Zhenge. “After seeing you that day, I signed it the same day,” Zhen Fund Yin Le said. The valuation of 200 million ~ 300 million entered, and now the valuation has reached 5 billion.
The artificial intelligence craze has passed, and asset targets have undergone a round of shuffling. Cheng Miaoqi, a partner of Qingsong Fund, mentioned that since 2019, the number of investments has dropped significantly.
But a new wave has arrived. In the eyes of investors, the future is the era of 5G, Internet of Things, cloud computing, and autonomous driving.
In 2017, Intel acquired Moblieye, an Israeli autopilot chip company, for $15.3 billion. In the same period, the market value of Tesla, Mobileye’s largest customer, was only $40 billion. Two years later, Mobileye became Intel’s fastest-growing business line, with a year-on-year growth of 26% and revenue exceeding US$1 billion.
In China, car chip companies such as Xin Chi Technology are invested by Sequoia, Jingwei and other institutions.
There are benchmarks in each segment. Founded by Zhang Wen, the former president of Shangtang Technology, in 2019, Biren Technology has become the “next NVIDIA” in the eyes of investors. Within two months, Biren Technology announced that a round of financing of 1 billion was completed. On August 18, the round of financing of 2 billion was completed.
Biren Technology “neither did the initial PPT”, an investor familiar with the situation recalled “LatePost”. But this does not prevent it from receiving the attention of hundreds of investment institutions. Not long ago, Nvidia’s market value surpassed Intel for the first time.
Time is not necessarily a friend
Silicon Valley, which started with military orders in the 1950s, most of the established venture capital institutions have chipsInvestment experience. But in China, after the lessons of wrong investment, only a few investors have reached the harvest period.
The first group of players to invest in chips are represented by IDG, the first venture capitalist to enter China, Walden International, a semiconductor investment institution, and Legend Capital. The second batch is mainly based on the established US dollar funds that Silicon Valley entered China in 2005, such as Northern Light Venture Capital. After the opening of the ChiNext in 2009, RMB funds are also more active in the chip field. But overall, fewer people voted.
Early winners basically have accumulation in related industries. IDG partner Li Xiaojun is a semiconductor professional. He has worked in chip design companies such as Meiman Technology, and has captured chip design projects such as RDA and VeriSilicon. Dai Weili, founder of Meiman Technology, and Dai Weimin, founder of VeriSilicon Microelectronics, are siblings. Chen Liwu, founder of Walden International, is still the global CEO of EDA company Cadence. In 1998, he invested in chip design company Xintao Technology. Deng Feng, the founder of Northern Light Venture Capital, served as a 1985-level instructor of Tsinghua Radio Department, and Ziguang Group Chairman Zhao Weiguo and others were his students.
But accumulation does not guarantee success. After the ZTE incident in 2018, Sands River Ventures partner Zhu Xiaohu once said at an investment forum, “In fact, we are not not investing in chips. Before, we invested in several companies that made chips. Contributed to China’s technological innovation.” Wu Shenjun, a former partner of Sands River Ventures and formerly working at Bell Labs, once led investment in projects such as Jingneng Optoelectronics and Jingbaoli, but failed to go public or was acquired. .
Similarly, with a background in semiconductors, Zhou Zhixiong, a former SoftBank SAIF partner and current founder of Triumph Ventures, also mentioned, “My return in this industry is not the worst, it is also the second to last.” He invested in chip design company Worldchip Electronics in two rounds from 2004 to 2006. There will be no follow-up fundraising or IPO after Worldchip.
The chip investment cycle is long and the uncertainty is high. Sequoia invested in Geke Microelectronics in 2006, and Geke Microelectronics applied for sci-tech innovation board this year, and it has gone through a long period of 14 years. In 2004, Lightspeed Capital invested in the chip equipment company Micro and Micro, which was listed on the Science and Technology Innovation Board 15 years later. The US dollar fund generally takes ten years as an investment cycle.
Tongchuang Weiye Chairman Zheng Weihe mentioned in a speech reviewing the 20 years of China’s venture capital industry that the most profitable case in the investment industry is SIG( Hainer Asia)Investing in Toutiao today, the scale of return should be 100 billion yuan without surprise. The number of RMB fund IPOs is large, and it is very difficult for a project to return 1 billion yuan.
However, many RMB funds have achieved a single return of more than 1 billion yuan in the chip field that was not optimistic in the past.
On April 28, 2018, Cornerstone Capital, Yuanhe Puhua, Wuyuefeng Capital and others invested in Huawei’s camera supplier Howe Technology. In 2019, Howe Technology successfully installed Weir shares, a listed company, and Weir shares rose sharply. On July 10, Weir shares exceeded 200 billion, and in 2019 it was 20 billion.
This transaction created high returns for two local RMB funds. He invested in Weir Semiconductor in 2011 and 2014, and invested a total of 40 million yuan in Tongchuang Weiye. In 2019, he exited with a return of 900 million yuan. Investing in the cornerstone capital of Haowei Technology more than 100 million yuan, two years later, the floating profit reached 1.5 billion yuan.
An investor told “LatePost” that an organization invested in a chip equipment company, China Microelectronics, in 2018, and now it has earned more than ten times. On July 22, 2019, the day when the Sci-tech Innovation Board was listed, the market value of China Micro and Microelectronics broke 60 billion yuan, and then broke 100 billion yuan.
According to the latest market value, HKUST’s investment in the Cambrian angel round in 2016 may make a profit of one year’s net profit. At the beginning of November, the Cambrian market value exceeded 75 billion yuan at one time, and iFlytek held 1.19% of the shares, valued at nearly 900 million yuan. In 2019, HKUST’s annual net profit was only RMB 788 million.
Money is not enough
The U.S. Department of Defense stated in a 2019 report that the concentration of chip production in East Asia is a “single point of weakness for the U.S. technology industry(single point-of-failure)“, if there is a problem with the chip supply there, it will endanger the entire US technology industry, including the military industry.
Looking at it the other way round, this single point of weakness is the same for China, and even more urgent. The problem of insufficient coverage of Chinese companies in the chip industry chain has been brought to the fore.
In the field of chip design, Huawei HiSilicon squeezed into the top ten in the world.However, as the United States stopped authorizing EDA chip design software and required TSMC to cut off the supply, Huawei mobile phones could not get 7nm and 5nm process chips, and it was difficult to achieve the same performance as Apple and Samsung.
At present, materials in the upstream of the chip industry chain, equipment from design to midstream, manufacturing and downstream packaging and testing are very popular. But most of the capital is still invested in asset-light chip design companies like HiSilicon.
According to Yunxiu Capital’s statistics, as of August 12, 2020, nearly 71% of chip-related investments went to chip design companies, and only 15.3% were companies in the field of chip materials and equipment-1.3% higher than the entire year of 2019 Percentage points.
At the same time, the investment targets selected by investment institutions are becoming more and more secure. In the first half of this year, the proportion of investment after the C round increased significantly, from 8% in 2017 to 21.9%.
Another change is that it is increasingly difficult for financial investors to compete with industrial capital for investment targets. Industrial capital has great advantages, not only can bring capital to the invested companies, but also orders.
In 2011, Walden International established China Semiconductor Industry Fund Shanghai Huaxin with a scale of 500 million.
Industrial funds led by consumer electronics companies are also more advantageous than pure financial investments.
Lingming Photon originally tried lidar chips, which was not favored by most investors at the beginning. This year, Lingming Photonics launched the 3D Sensing rangefinder sensor on mobile phones, which attracted more attention from institutions, but at this time the founders are not so happy to make appointments, a PE investor involved said. In October, Lingming Photonics accepted the share of Xiaomi Industry Fund.
The bigger one is Huawei. In April 2019, Huawei established Hubble Investment with a registered capital of 700 million yuan. In January 2020, its registered capital has reached 1.7 billion yuan.
“In the real world, our evaluation of things will swing between two extremes,’very good’ and’not so good.’ But in the investment world, the two extremes of the emotional pendulum swing are’good To perfection’ and’too bad to be cured’.” Oaktree Capital founder Howard Marx concluded in The Cycle.
In just a few years, the sentiment of Chinese investment institutions towards chips has undergone a transition between two extremes.
(Li Ping in the text is a pseudonym)
This article is from WeChat official account: < span class = "text-remarks"> late LatePost (ID: postlate) , author: Gongxiao Zhen, editor: Huang Chun-chieh, cartography: intern Hu Wendi