Integrated Circuit Accelerates Development at Inflection Point

In recent years, led by the National Integrated Circuit Industrial Investment Fund, the semiconductor integrated circuit industry has attracted a wave of investment boom. According to industry analysis, under the impetus of strong support from the country, import substitution of domestic chips, and demand growth caused by emerging industries such as artificial intelligence, driverless, and wearable devices, China's integrated circuit industry will usher in an inflection point for growth.

At present, China's electronics industry with semiconductor as its core is entering a period of great development. China Semiconductor Industry Association statistics, the semiconductor industry sales reached 220.13 billion yuan in the first half of this year, an increase of 19.1%.

It is understood that China has become one of the most dynamic regions in the IC industry in the world, gradually forming the Beijing-Tianjin-Bohai-Rim area with Beijing as the center, the Yangtze River Delta region with Shanghai as the center, the Pearl River Delta region with Shenzhen as the center, etc. In the industrial area, sales revenue from the three major industrial clusters accounted for more than 90% of the total industry scale. Among them, the Shanghai integrated circuit industry achieved double-digit growth in 2016, with sales revenue surpassing the 100 billion mark for the first time, reaching 105.3 billion yuan.

The three major industrial clusters also have their own focuses: The Bohai Rim region focuses on chip R&D, the Yangtze River Delta region focuses on chip manufacturing and packaging, and the Pearl River Delta region focuses on chip design. Today, a group of integrated circuit companies with certain international competitiveness, such as Hass, ZTE Microelectronics, Huada Semiconductor, Silan Microelectronics, Datang Semiconductor, and Beijing Zhongxing Microelectronics, have emerged in the three major industrial clusters.

At the same time, the semiconductor industry has also become an area of ​​concern for the capital market. In the past three years, driven by IC investment funds, IC industry has attracted a wave of long-lost investment boom.

The data shows that there are currently more than 20 integrated circuit design companies that have been listed, and there are 70 A-share listed companies in the semiconductor and component industries. Many listed companies use the A-share market to implement overseas mergers and acquisitions. Institutional investors account for more than 35% of semiconductor companies' equity, and some are even higher.

It is worth noting that large funds that invest in the entire industrial chain of ICs have played an important role in this round of investment boom. On September 24, 2014, the Grand Fund (National Integrated Circuit Industry Investment Fund) was jointly initiated and established by China Development Bank, China Tobacco, Yizhuang SDIC, China Mobile, Shanghai Guosheng, China Electronics, Ziguang Communications, and Huaxin Investment. After the establishment, the large fund has successively signed investment agreements with China Microelectronics, SMIC, Ziguang Group, Sanan Optoelectronics, Beidou Xingtong, and Silan Micro.

While increasing investment at the national level, the support of local governments has accelerated the full-scale outbreak of production capacity in the semiconductor industry. It is reported that Beijing, Shanghai, Shenzhen, Nanjing, Hefei, Xiamen, Wuxi, Shijiazhuang, and Kunshan, as well as Fujian, Hubei, Anhui, Shaanxi, Guangdong, Sichuan, and Liaoning, have all set up billions of IC industry investment. The total size of funds and large funds reached 138.72 billion yuan, and the scale of corporate and local industry funds exceeded 500 billion yuan.

With the help of multiple factors, the semiconductor industry has entered a period of rapid development. According to Wang Yanhui, founder of Micronet, if the past five years are the five-year growth of China's mobile phone concept stocks, then IC (integrated circuit) concept stocks will usher in a huge burst cycle in the next five to ten years.

However, in view of the surging industrial investment boom, Chen Datong, chairman of China Venture Capital Investment Committee, urged the industry to remain calm. He said that the problems in the semiconductor industry are not simple acquisition issues, but how to digest production capacity and localization issues, but the lack of experience in the capital market is even less motivating. Therefore, the power of capital is still far from enough.

For example, Chen Datong said that Huachuang Investment has acquired a company that can completely market it and make money. However, if there is a shortage of localized “this leg” and the local market and supply chain are not doing well, the market will certainly not be able to come.

“The only way is to cooperate with the leading companies in China. Our integration is not for cashing out in the capital market but for finding a suitable company to integrate with it and promote the integration.” Chen Datong said that the company’s Localization is what the real PE should do.

In addition, the industry is also worried that competing with each other in layout of the IC industry will lead to vicious competition.

In this regard, Zhang Junjing, founder of SMIC, said that the semiconductor industry is a highly-invested, high-risk, and slow-return industry. Local governments need to calmly and rationally develop the semiconductor industry. He suggested that various types of semiconductor industry investment funds should be effectively organized to promote collaboration among industry capital, resource integration, and information sharing through the establishment of an efficient cooperation platform to achieve resource optimization, complementary advantages, information exchange, rational regional layout, and avoiding vicious competition. Enhance the overall advantages of China's semiconductor industry capital and avoid resource fragmentation.

According to Wang Huilian, general manager of Xiamen Semiconductor Investment Group, there is also a serious shortage of R&D investment and capability in the semiconductor industry. He said that China's integrated circuit industry has become one of the most dynamic regions in the world. Semiconductors seem to stand in the air, but companies are seriously underinvested in R&D. In addition, in the case of limited scientific and technological resources, the chip industry is still supported by traditional means and methods, and there is a lack of structural breakthroughs and weak resource allocation capabilities.

Zhang Junjing agrees with this. He believes that the biggest problem in the semiconductor industry is not capital, nor is it lack of market and government support, but talent. "In the short term, China will have a large number of semiconductor chip factories to start, and where will the talent come from?" Zhang said that if one taps into corners from other chip factories in China, it will be an act of "digging the east wall to repair the Western Wall." This will cause personnel instability. It is impossible to accumulate experience and it is difficult to pass on the technology, resulting in the inability of product quality.

He suggested that companies use self-developed processes from the outset and protect themselves with sufficient patents and licensing IP.

In addition, although there are many domestic semiconductor companies, they are small and relatively fragile. Experts said that from the perspective of the entire industry chain, the earliest developed companies are light asset design companies. Therefore, we should strengthen the application and design with advantages, and at the same time fill in the shortcomings in materials and other aspects.