The long-term and complex nature of the game between China and the United States has profoundly changed the future direction of China’s semiconductor industry. The government's consideration of supply chain security and the iterative upgrading of Chinese manufacturing technology through domestic substitution will further promote economic transformation and guide domestic capital from top to bottom to reshape the competitive landscape of the semiconductor industry.
In this era, how to choose high-quality corporate targets in this segment? I first compiled information on some major power semiconductor companies at home and abroad, and then obtained some qualitative judgments through horizontal comparison and observation.
1.1.1 Background of the Controlling Shareholder
The company’s major shareholder, China Resources Group, is a diversified central enterprise asset management platform. The company’s predecessor dates back to 1983, with the original Fourth Machinery Department, Seventh Machinery Department, and Foreign Affairs Department The Ministry of Economic Affairs and Trade and China Resources Group jointly established Hong Kong Huake Electronics Co., Ltd. in Hong Kong and established the country's first 4-inch wafer line. After years of development and a series of integrations, it has now become a comprehensive IDM semiconductor with important influence in China. enterprise.
Judging from the company's development history, China Resources Micro's today's leading position in power semiconductors is the result of capital operations continued investment by major shareholders. In the future, China Resources Micro will continue to achieve rapid expansion with the support of major shareholders.
1.1.2 China Resources Micro’s products and technologies:
1) The company has 5 wafer production lines. In Wuxi, it has three 6-inch production lines with an annual production capacity of approximately 2.47 million pieces; and one 8-inch production line with an annual production capacity of 730,000 pieces. In Chongqing, it has an 8-inch production line with an annual production capacity of approximately 600,000 pieces. The 8-inch in Chongqing mainly serves the company's own products. Both 8-inch lines were built in 2011 and have been depreciated.
2) The company's power semiconductors can be divided into power devices and power ICs. Among them, power device products mainly include MOSFET, IGBT, SBD and FRD; power IC products mainly include various series of power management chips. Among them, MOSFET's revenue in 2018 was 1.6 billion, lagging behind Infineon's 5.2 billion and ON Semiconductor's 3.1 billion, with a market share of 9.
3) China Resources micro IGBT products are mainly used in induction heating, UPS, inverters, frequency converters, motor drives, industrial power supplies, etc. Referring to Infineon's standards, the company's current mass-produced IGBT product technology is similar to Infineon's fourth-generation IGBT products. The company's fifth-generation IGBT products are under development and are expected to have results in the second half of 2020. On this basis, products with different application frequencies will be developed one after another. In addition, the company's IGBT product planning route is to develop module products while developing single-tube serial products.
4) Third-generation semiconductor materials
The company has reserved silicon-based GaN power device design, processing and packaging testing technology, and SiC power device design, processing and packaging testing technology. At present, the company is on the eve of industrialization of silicon carbide diodes. It has established a pilot production line and completed the first phase of construction goals. 1200V and 650V silicon carbide diodes are under assessment and are expected to achieve sales revenue in 2020. Target application fields Silicon carbide MOSFETs are actively being developed for solar inverters, communication power supplies, servers, energy storage equipment, etc. In addition, the company's gallium nitride is currently in the research and development stage, and the dynamic and static parameters of the 600V silicon-based gallium nitride HEMT device basically meet the standards.
Note 1: MOSFET and IGBT are the two most commonly used power semiconductor devices at present.
In order to improve the voltage tolerance of MOSFET, the insulated gate bipolar transistor (IGBT) adds a P layer to the MOSFET, forming a pn diode with the n base layer. In the off state, the formed pn junction withstands most of the voltage, and the MOSFET in the structure does not need to withstand high voltage, thus improving the component's withstand voltage performance.
Therefore, IGBT is generally used in high-voltage power products, with a voltage range of generally 600V-6500V; MOSFET application voltage is relatively low, from a dozen volts to 1000V. However, the delay time of IGBT is larger than that of MOSFET, so IGBT is used in scenarios where the switching frequency is lower than 25kHz, while MOSFET can be used in scenarios where the switching frequency is greater than 100kHz.
Note 2: Gallium Nitride GaN is suitable for high frequency, high power and voltage less than 600V scenarios.
Due to its excellent performance in the fields of high efficiency and miniaturization, gallium nitride has obvious advantages in radio frequency, charging and other aspects. The GaN market has a high growth rate and has extensive potential demand in the fields of radio frequency and power electronics. From the perspective of the current accelerated construction of 5G base stations, GaN is expected to achieve rapid penetration due to its superior performance and the explosive growth of 5G base stations' demand for frequency radio. And with the scale effect, the cost is expected to further decline, once again helping the world Increased penetration in the downstream sector.
Note 3: Silicon carbide and SiC have advantages in high-power fields with voltages of 600V and above. It has been used in new energy, automobile, wind power and other industries. According to Yole, the SiC power electronics device market size was approximately US$400 million in 2018 and will grow to US$1.4 billion in 2023. SiC is currently mainly used in charging piles in new energy vehicles, and it is expected that it will have broader potential uses in automotive devices in the future.
1.1.3 Comparing the market share and technology gap of leading international companies
The predecessor of Silan Micro was founded in 1997 by seven natural persons including Chen Xiangdong, Hangzhou Silan Electronics Co., Ltd. The company was listed in 2003 and has gradually developed into an IDM model comprehensive semiconductor product company. The company's business strategy is to focus on unique craftsmanship, enter the multimedia industry, and use its own technology accumulation to enter high-threshold industries such as white goods and automobiles.
Silan’s micro-layout is mainly focused on four areas:
1) LED lighting driver field: Utilize the technology and cost advantages in control chips and power devices to accelerate intelligent lighting systems Chip and application solution development.
2) MEMS field: Currently, three-axis accelerometers, three-axis geomagnetic sensors, and six-axis inertial units have been launched. In the future, MEMS sensor products such as air pressure sensors and infrared proximity sensors will be launched one after another. The main application scenarios are: Mobile smart terminals, smart wearables and cars.
Note 2: MEMS, Micro-Electro-MechanicalSystems, is a system that integrates microstructures, microsensors, microactuators, signal processing and control circuits, interfaces, communications and power supplies. Micro devices or systems. Compared with ordinary sensors, MEMS has the cost advantage brought by IC silicon wafer processing and mass production that ordinary sensors cannot match. At the same time, it also has the advantages of miniaturization and high integration that ordinary sensors cannot have.
Note 3: The application scenarios of pressure MEMS in automobiles are automotive and industrial pressure sensors such as after-mounted intake manifold pressure sensors, automotive after-mounted oil pressure sensor modules and automotive fuel pump sensor modules.
Note 4: The application scenario of inertial sensors in the automotive field is to help GPS system navigation measure blind spots. In the automotive field, the rapid response of inertial sensors can improve the safety performance of automotive airbags, anti-lock braking systems, and traction control systems.
3) IGBT field: Improve the high-voltage and high-power product line: increase investment in the technical research and development of high-voltage BCD technology, high-voltage semiconductor power devices and modules, expand and enrich power device products represented by IGBTs and Intelligent power module products expand applications in new energy, efficient motor drives, industrial control and other fields.
4) 8-inch chip project: With the support of the National Integrated Circuit Industry Fund and local governments, the 8-inch integrated circuit chip production line was completed and put into production. Silan Micro has expanded its production capacity and adhered to the IDM model in the field of special processes.
Wingtech Technology acquired Nexperia, which was independent from NXP Standards Division in 2019.
Nexperia Group is a manufacturer specializing in the manufacturing and sales of discrete devices, logic devices and MOSFETs. It has more than 50 years of industry accumulation and 11,000 professional employees. Nexperia's manufacturing model is IDM. It currently has 2 manufacturing production lines (Manchester, UK and Hamburg, Germany) and 3 packaging and testing production lines (Dongguan, Philippines and Malaysia) around the world, with a wafer production capacity of approximately 60,000 pieces (equivalent to 8 inches). ), with 100 billion pieces sealed and tested. 39% of the company's revenue comes from bipolar transistors and diodes, ranking first in the world; MOSFETs account for 25% of total revenue, ranking 2nd and 3rd respectively in the automotive-grade small signal field; the remainder is logic devices and ESD protection devices.
Nexperia’s market share in China is very small, mainly with low-end technologies. In 2018, Nexperia’s discrete device shipments totaled 90 billion units. According to the price calculation based on the revenue scale, the average unit price of Nexperia Semiconductor products is only 0.12 yuan, even lower than the 0.15 yuan of domestic peer China Resources Micro.
1.4.1 Infineon:
Infineon was originally the semiconductor department of Siemens Group. It was officially established in Munich, Germany on April 1, 1999. In 2000 Listed on the market, it was renamed Infineon Technologies after 2002.
Infineon is one of the top ten semiconductor solutions leaders in the world. Its main businesses include automotive, industrial power control, power supply and sensor systems, and digital security solutions. Its main products include power semiconductors, sensors, radio frequency, etc. . The company's IGBT products provide a comprehensive product portfolio at different voltage and current levels, including bare chips, discrete devices and modules, among which IGBT modules rank first in global market share.
Financial characteristics: 1) Revenue growth slows down; 2) Gross profit margin continues to increase (close to 35 in 2019), net profit margin continues to decline from 2018 (less than 5), R&D expenses/revenue (15 ).
In June 2019, Cypress was acquired for US$8.7 billion
In the third quarter of fiscal year 2020, we acquired real estate, plant and equipment, intangible assets and The investment in capitalized development costs is €266 million. That compares to €247 million in the previous quarter, which of course was without Cypress. Depreciation and amortization (including the impact of non-segment results) totaled €381 million, which also includes the previously mentioned €52 million related to fair value amortization in Cypress PPA, and Cypress Corporation Ongoing depreciation of residual assets of €78 million.
1.4.2 ON Semiconductor
Spun off from Motorola’s semiconductor division in 1999.
In the past 20 years, the company has vigorously expanded its product lineup from traditional standard semiconductors and discrete devices to analog semiconductors and signal products, sensors, and complete system on a chip (SoC). . ON Semiconductor mainly focuses on automotive, industrial and cloud power applications, such as data center servers, communication infrastructure and the Internet of Things. It has incomparable advantages in the IGBT field, providing best-in-class IGBT technology and the broadest IGBT product lineup.
Currently, ON Semiconductor’s total revenue is approximately US$5.5 billion. In the field of power semiconductors, ON Semiconductor ranks second in the world after Infineon.
Through mergers and acquisitions (a total of 17 times since its establishment), ON Semiconductor has grown rapidly.
Especially after the acquisition of Fairchild Semiconductor, it is the world's second largest semiconductor supplier of power discrete devices.
In 2020, the company will lay off 475 employees. The layoff plan is expected to be completed within the first half of the year, but ON Semiconductor has not disclosed the subsidy plan for laid off employees.
Observing the above-mentioned data collection on Infineon and ON Semiconductor, as well as the development history of the semiconductor industry in the European and American markets, we can find:
1. M&A on the growth of semiconductor companies It's a norm. The motivations for mergers and acquisitions in the semiconductor industry are significantly different from those in traditional industries. Mergers and acquisitions between traditional industries often occur in existing industries, and mergers and acquisitions can alleviate the pressure of price wars in the Red Sea market. Mergers and acquisitions in the semiconductor industry are carried out in an incremental market, and the motivation for mergers and acquisitions is often to plan ahead, plan ahead, and seize industry dominance in future competition. For example, Intel acquired the startup Nervana in 2016, and then Mobidius. After that, Intel continued to acquire AI chip companies. It acquired Mobileye in 2017, and in 2019 it acquired the Israeli rising star HabanaLabs. The battle between Nvidia and Intel for Mellanox, and the recent acquisition of Arm by Nvidia. These acquisitions are aimed at dominating the blue ocean markets of artificial intelligence and edge computing.
Based on the above understanding, we can find that with the future technological iteration process of local enterprises and the process of domestic substitution, it will inevitably be accompanied by a large number of corporate mergers and acquisitions. Therefore, whether the major shareholders have strong capital operation strength will It becomes the core genetic puzzle of whether this local company can have the potential to be an industry leader.
2. The continuous increase and high proportion of investment in R&D expenses by international leading companies is an important financial feature, while the main purpose of domestic enterprises’ expenses is production capacity expansion.
As technology chasers, Chinese companies have long-term competitive advantages through technology research and development capabilities. However, the main focus of our company is not technology research and development, but production capacity expansion. This means:
1) Our power semiconductor industry is still in a low-level primitive accumulation stage;
2) The iteration speed of R&D technology upgrades in this field lags behind, while production capacity is rapidly expanding. , which means that the risk of excessive competition in this field cannot be ignored.
Usually, when we analyze a company's core competitiveness and long-term competitive advantages, we will combine three financial statements to evaluate the company's value and management capabilities. But in the field of power semiconductors, this analysis model is not applicable. Because from the perspective of competitiveness, whether it is Silan Micro, China Resources Micro, or even the vast majority of domestic power semiconductor companies are still in the stage of technological catch-up. The market tail and asset-heavy characteristics doom their financial performance to not be particularly attractive. So, what is the underlying logic of investing in these companies? That is the rapid growth in the context of domestic substitution. Domestic substitution is the need for supply chain security in the current domestic cycle.
It is based on this underlying logic that the key points in building an analysis framework for semiconductor companies are:
1) Industry boom cycle characteristics;
2) Whether the company has rapid Growth endowment mainly includes: technology accumulation (endogenous growth), capital integration ability (extensional growth), production capacity scale (taking into account performance release and capital investment and depreciation pressure) and management capabilities.
Capital integration capabilities mainly depend on the background of major shareholders, while management capabilities can be observed through management resumes and the long-term performance of the company. Technology accumulation depends on the company's production line planning and major customers.
In my opinion, the most important thing is to determine the business cycle of this industry.
During the period of rising industry prosperity, domestic domestic enterprises are expected to usher in a stage of rapid growth with the support of various government policies. Therefore, cycle determination is the most important issue when investing in such a high-growth industry, and it is also in the context of domestic substitution. , whether there is a margin of safety for investing in high-growth technology companies with backward technologies in my country.
Referring to Figures 1-3 above, we can see the following important characteristic observations:
Observation 1: The growth boom of domestic semiconductor companies and the global industry boom are basically in sync
Observation 2: Silan Micro’s growth rate from 2015 to 2017 was significantly weaker than the boom cycle of the world’s semiconductor industry driven by cloud computing and automotive electronics.
It is worth discussing, what causes observation 2?
My own understanding is that between 2015 and 2018, Silan Micro’s technology upgrade iterations hit a ceiling, which prevented the company from keeping up with the global semiconductor industry boom like the previous two times. On the one hand, Silan Micro Since Micro's products are at the low end, gross profit margin and return on assets continue to rise (see Figure 4). On the other hand, Silan Micro is also actively increasing R&D expenditures on technology upgrades and expanding production capacity.
Figure 4: Cloud computing and big data promote the technological upgrading of semiconductors
Observation on R&D expense ratio
Observation on the correlation between capital price and market performance
By comparing the micro level (Silan Micro) and the macro level (historical valuations of Shenwan Semiconductor and Philadelphia Semiconductor Index), we have the following two important findings:
1 ) compound growth characteristics (see Table 1 below), domestic semiconductor IDM companies represented by Silan Micro are technology chasers at the middle and low end of the industry, with poor product bargaining power. Judging from Silan Micro's historical growth data, the value creation ability as a technology follower will be limited in the long term due to bargaining power and depreciation pressure.
2) Under the current domestic policy tilt and the domestic cycle attaching great importance to supply chain security, although domestic power semiconductor companies are catch-ups, they have huge room for growth, and the long-term investment value in this field mainly depends on The gradual realization of expectations for technological upgrades and iterations. In this context, the long-term improvement of technological upgrade iterations often lags behind the market’s optimistic expectations.
Source author Ketouyuan