The watershed of the deep-water area of domestic integrated circuit (IC) has entered a phase that is highly watched by the market for its development prospects and investment opportunities. On October 15th, at the "2024 Global Asset Management Center Shanghai International Week - International Financial Center and International Science and Innovation Center Joint Development Forum," Liu Linfa, the head of the Development Research Department of the Shanghai Integrated Circuit Industry Association, stated that over the next decade, industrial technology will continue to advance, device architectures will be renewed, and industrial applications will be realized, although challenges will arise, necessitating national policy promotion, major project leadership, international talent entrepreneurship, international company support, increased investment, and cluster development.
Han Kang, the head of the Party Working Group and Secretary-General of the Shanghai Asset Management Association, indicated that in the future, there will be greater emphasis on promoting the development of technology finance through the integration of five market-oriented technical forces, namely the association membership force, industrial park force, technical association force, investment group force, and digital finance force.
Regarding the future development trend of the integrated circuit industry, when discussing the current situation of investment and financing in China's semiconductor industry in 2024, Sun Yong, an investment manager of the Huanxin Phase I Fund at Shanghai Lingang New Area Private Equity Fund Management Co., Ltd., mentioned that the overall financing environment has declined, with a large number of homogeneous companies in the market, and enterprises are unable to conduct new rounds of financing due to irrational valuations in previous rounds.
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He specifically analyzed that, on one hand, the primary market is still in a down cycle, and the domestic investment and financing market remains sluggish. On the other hand, in the first half of 2024, the pace of A-share IPOs tightened, significantly reducing the possibility of exiting through IPOs.
This is also reflected in the data. In the first half of 2024, the number of semiconductor companies that terminated their IPOs surged, with 33 semiconductor companies canceling their IPO reviews in the first half of the year, almost double that of the same period last year. According to incomplete statistics, in the first half of 2024, a total of 9 semiconductor-related companies went public, raising a total of 7.0678 billion yuan, with the number of listed companies less than 1/3 of the whole year of 2023, and the amount of funds raised less than 1/10.
Compared to the current downturn, China's semiconductor industry has experienced a higher development wave in previous years due to "domestic substitution." The industry still holds expectations for the future.
In Sun Yong's view, since May 2019 to the present, semiconductor domestication has gone through four stages, with 2022 to the present being the 4.0 stage of domestication, that is, the watershed of domestication entering the deep-water area and deep domestication.
For the domestication path in the 4.0 era, Sun Yong believes that it will be promoted along four main lines: First, semiconductor equipment, which began to increase in volume in 2022, especially mature process domestication equipment; second, chip materials, which will follow the equipment to make a breakthrough from 0 to 1, especially photolithography materials and those with upstream material preparation capabilities; third, EDA/IP, which will enter the capital market and become a new category of underlying hard technology; and fourth, equipment components, where the vertical advancement of domestication highlights the industry's status and will usher in a historical development window.Considering incremental factors in the global market, Sun Yong stated, "Looking back at the 28 years of global technology, unlike the last round which was mainly driven by smartphones and mobile internet, the leading factors in this round of semiconductor development are artificial intelligence and the energy revolution.
"Semiconductors are a cyclical industry; if the expanded production capacity in this wave is fully utilized, there will be further development in the future," Sun Yong said.
In Sun Yong's view, China's semiconductor industry has undergone rapid development for more than 20 years, especially in the last decade, and has already solved the problem from 0 to 1. However, the issues from 1 to 10 and from 10 to n have not been resolved. China's semiconductor industry has entered a stage where excess and scarcity coexist structurally, with a surplus in low-end products, scarcity in high-end products, an excess of small enterprises, and scarcity of large enterprises.
He also stated that the development of semiconductors has entered a stage of tackling difficult challenges, where it is necessary to do difficult but correct things and to have the spirit of a marathon. The industry is currently entering a cycle of mergers and acquisitions, and it is hoped that during this cycle, some domestic enterprises will grow stronger through mergers and acquisitions. The seeds of world-class enterprises are among the companies that have already gone public, and it is necessary to support these enterprises to grow and become stronger.
Key points in building an integrated circuit ecosystem
"Without an ecosystem, there are no customers, and without customers, the ecosystem cannot be further cultivated," said Wang Qiang, Director of Investment Promotion and Science and Technology Innovation at Lingang Industrial Zone Company. If the ecosystem is a circle, then the center of the circle is the leading enterprise.
The development of the integrated circuit industry also cannot be separated from a good ecosystem. So, what elements are needed to build a healthy ecosystem for integrated circuits in the Lingang new area?
Ji Wanyi, Deputy General Manager of Minlian Lingang Park, said that the park has introduced some leading enterprises to create an industrial ecosystem. Currently, the construction of the industrial ecosystem is still in the early to middle stage, mainly focusing on extending and supplementing the chains around leading enterprises, attracting upstream and downstream enterprises of leading enterprises to settle in. The next direction for attracting investment will mainly be some small and medium-sized enterprises that are in the growth stage and cannot be separated from financial support, especially since integrated circuits are capital-intensive industries with a great demand for funds; secondly, policy support is also very important.
"We will also focus more on promoting the landing of small and medium-sized enterprises in the future," Wang Qiang believes that small and medium-sized enterprises pay more attention to policies and team building, whether they can recruit talents, and they also have a strong demand for equity financing.
From the perspective of enterprises, Zeng Jianhong, Chairman and General Manager of Peiyuan Electronics, believes that a good ecosystem is where enterprises can find upstream, that is, a better supply chain, and also find better downstream customers. The leading enterprises play a good role as the chain leader, which is a key to building the ecosystem.Zhang Lingxiang, the head of the Investment Department II of the Lingang New Area Fund and the person in charge of the Huanxin Phase I Fund, said that after deeply participating in equity investment, he directly entered the ecosystem. "Because as a government investment platform, we have advantages in resource docking, capital docking, and the introduction of technical talents. Once we dock the enterprise resources, we can drive the entire ecosystem to link up and down. Therefore, the industry fund plays an indispensable role in the ecosystem," he said.
So, what kind of financial services need to be provided for integrated circuit companies at different stages to promote their further development?
"Lingang has relatively more mature companies. In this case, we may focus more on the industrial chain around Lingang to look for some smaller or start-up companies at present, and accompany them to grow together through equity investment," Zhang Lingxiang said.
In Wang Qiang's view, attracting long-term capital and patient capital to invest in capital-intensive industries that can only return in the long term requires design in the system and mechanism. The core is to unswervingly promote the marketization route.
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