In the field of the third generation of semiconductor substrate materials, Tianyue Advanced has ranked among the forefront of the industry, and in the face of blockades and breakthroughs, the company's future development is obstructed and long.
On the last day of 2021, Guo Ping, Huawei's rotating chairman, released a New Year's speech and disclosed Huawei's slightly helpless business situation in 2021. For the full year of 2021, Huawei's revenue was 634 billion yuan, down 28.9% year-on-year.
In 2020, the U.S. order to upgrade huawei chip control came into effect, and TSMC stopped producing Kirin chips for Huawei. The move hit Huawei's mobile phone business hard.
Nowadays, the top five mobile phone manufacturers have no Longer have Huawei's figure, and huawei mobile phones that once dominated the world have been classified as "Others" in statistics, which is lamentable.
All this stems from the fact that the domestic high-end semiconductor industry cannot achieve independent control. Without relevant technology, it is inevitable to be "stuck neck" by foreign countries.
As the leader of the third generation of semiconductor silicon carbide substrates in China, Tianyue Advanced (688234) will soon land on the Science and Technology Innovation Board to enrich the territory of the domestic semiconductor industry.
Huawei's Hubble Investment in 2019, bound to the domestic technology leader, Tianyue's listing has attracted more market attention.
Tianyue's main business belongs to the third generation of semiconductors, which is regarded as the "hope of the whole village". Under the background of the technical blockade and product embargo imposed on China by some developed countries abroad, Tianyue's future road is destined to be not smooth.
The third generation of semiconductors, the place where soldiers must compete
Semiconductors have penetrated into all aspects of life, it is the core of electronic products, is the cornerstone of the information industry, and is also known as the "food" of modern industry. So what is a semiconductor?
Common semiconductor materials include silicon (Si), germanium (Ge) and other elemental semiconductor materials, as well as compound semiconductor materials such as gallium arsenide (GaAs), silicon carbide (SiC), and gallium nitride (GaN).
Broadly speaking, semiconductor refers to a chip or device made on a semiconductor material. Among them, silicon-based integrated circuits are the most common, and the CPU and GPU chips we are familiar with belong to this category. In layman's terms, this chip prints circuits on silicon wafers and becomes a miniaturized high-speed calculator.
At present, more than 90% of semiconductor products are made of silicon-based materials, which are collectively referred to as the first generation of semiconductors in the industry.
The first generation of semiconductors started late in the Chinese mainland, and the gap with international giants is very large.
For a simple example, TSMC and Samsung will already be able to mass-produce chips with a 5nm process in 2021; while SMIC, the leading domestic company, has a mature process of only 14 nanometers.
You know, in 2016, high-end mobile phone chips have reached a 14-nanometer process. The seemingly small 10-nanometer gap is actually a huge intergenerational gap.
Although the state has vigorously supported the development of the semiconductor industry in recent years, and related industries have also developed rapidly, technological breakthroughs are not achieved overnight, and the experience of the industry needs time to accumulate.
The backwardness of the first-generation semiconductor process has caused domestic chip design manufacturers to be subject to people, and the above-mentioned Huawei sanctions are one of the typical cases.
Still, there is always hope.
With the popularization of intelligence, the third generation of semiconductors has gradually found a commercial positioning suitable for itself.
The third generation of semiconductor materials refers to silicon carbide, gallium nitride as representatives, with many more advantageous physical properties, more suitable for high temperature, high voltage, high frequency scenarios, such as the major mobile phone manufacturers of fast charging charging head is based on gallium nitride devices to achieve.
(The first and third generations of semiconductor materials have their own advantages and disadvantages, and there is no absolute substitution relationship, but there are their own comparative advantages in specific application scenarios.) ）
Generally speaking, the third generation of semiconductors is divided into two application branches of silicon carbide and gallium nitride. Both require a silicon carbide substrate, which is then epitaxical (a single layer of crystals is deposited on the substrate). The difference is that the silicon carbide substrates of the two are different, and the final application direction is also different.
Gallium nitride needs to be obtained by depositing gallium nitride on a semi-insulated silicon carbide substrate. Silicon carbide needs to be obtained by depositing the silicon carbide on the conductive silicon carbide substrate.
Source: Company Prospectus
The third-generation semiconductor industry is still in the early stages of development on a global scale. Although the international giants are still ahead of domestic manufacturers in terms of technology and experience, the overall technology gap between domestic and international giants is relatively small compared to the gap between the first generation of semiconductors.
In addition, due to the higher inclusiveness and tolerance of the downstream process of the third generation of semiconductors, the downstream manufacturing process has relatively low requirements for equipment and a relatively small amount of investment, and the key to restricting the development of the industry is in the upstream material end (substrate).
In the future, silicon carbide semiconductors will play an important role in new infrastructure fields such as 5G base station construction, UHV, and new energy vehicle charging piles. If a breakthrough can be achieved in the upstream substrate material industry in China, it is expected to achieve lane change overtaking in the semiconductor industry.
The development of the industry is highly certain and the scientific and technological content is large, but the development of domestic semi-insulated silicon carbide substrates is very tortuous.
In 2008, the Wassenaar Agreement imposed clear restrictions on semi-insulated silicon carbide substrate materials, and some Western developed countries as members of the agreement imposed strict embargoes on China, restricting the development of the domestic semiconductor industry.
Especially on the impact of recent trade frictions, the exports of US representative enterprises to China have a clear downward trend.
In the case of cree, a third-generation semiconductor leader, sales to China in fiscal 2019 were $11.63 billion, falling to $6.5 billion in fiscal year 2020.
From this side, we can see the ban on foreign semiconductor giants on China, blocking high-end semiconductor-related raw materials, and trying to curb the development of China's semiconductor industry.
Source: Cree official website
The "14th Five-Year Plan" has included silicon carbide semiconductors in key support areas and risen to a national strategy, which is enough to highlight the importance of third-generation semiconductors. In today's age when technology is king, this field has naturally become a global battleground.
Lack of market cross-validation
Tianyue was established in 2010, the main business is the third generation of semiconductor silicon carbide substrate materials, belongs to the upstream of the third generation of semiconductors, for the terminal RADIO frequency or power devices to provide raw materials, the company's main products include semi-insulated and conductive silicon carbide substrates.
Before the listing, the capital market placed great expectations on it. However, looking closely at Tianyue's business structure, there are many worrying points.
According to the prospectus, the semi-insulated substrate business has the highest proportion of revenue, reaching 81.62% in 2020. Followed by other revenues, the conductive substrate business accounts for a relatively low proportion.
Source: Company prospectus, collated by Alpha Workshop Research Institute
According to Yole's statistics, the market share of Tianyue's semi-insulated silicon carbide substrates increased from 18% in 2019 to 30% in 2020, ranking among the top three in the world in this market.
Source: Company Prospectus Yole
Usually a significant increase in market share represents the affirmation of the market and symbolizes that the company's products are recognized by more customers. However, Tianyue's customer concentration is much higher than that of its peers, which greatly reduces the gold content of its market share.
From 2018 to 2020, the total revenue contributed by the company's top five customers exceeded 80%, and in the first half of 2021, it reached a staggering 91.68%, with a trend of increasing concentration.
In particular, the top two customers, together contributing about 60% of the revenue, the company did not directly disclose its name, but only referred to as customer A and customer B. According to other information in the prospectus, anonymous customers A and B still have traces to follow.
Customer A mainly serves the aerospace, positioning and navigation and other markets, the field is relatively sensitive, more carrying the national large project, the goal is relatively clear.
Customer B belongs to the communication industry, mainly applies information and communication RF devices, and is a related party of the company.
Seemingly high market share, in fact, most of the business is undertaken by the top two customers, the company's semi-insulated silicon carbide substrate market competitiveness has not been fully verified.
Can't help but ask us: has Tianyue's silicon carbide substrate products been widely recognized by the market? Some media even described it as "two customers carry Tianyue into the IPO".
Domestic semiconductor companies are developing hard under the blockade of foreign countries, and localization is the only solution, otherwise "independent and controllable" cannot be talked about. However, Tianyue's dependence on the import of raw materials and equipment is also a problem that cannot be ignored.
Some of Tianyue's raw materials and production equipment need to be purchased from foreign suppliers, and the proportion of which exceeds 70%. As of June 30, 2021, the original value of imported equipment without domestic substitution in the company's existing processing and testing equipment was 63.22 million, and the original value of imported equipment that has been replaced by domestic production was 9.03 million.
It is true that due to the high technical requirements of the production process of silicon carbide substrates, the dependence on imports of raw materials and production equipment is inevitable in the short term, and it takes time to expect the localization process.
However, customer A and customer B are also restricted by foreign upstream in similar environments, and they successfully solve the problem through Tianyue's localization substitution; if the upstream of Tianyue is restricted by foreign countries in the future, how should Tianyue break the situation?
Therefore, in today's unstable international environment, the risk of relying on foreign suppliers should not be underestimated.
The proportion of other businesses is too high
According to the company's prospectus, other business refers to the sale of crystal rods and unqualified substrates that cannot meet the requirements of semiconductor grade in the sales and production process.
These substandard products are not useless "defective products", non-semiconductor grade semi-insulated silicon carbide crystal rods can be used as gem rods for processing jewelry into the consumer goods market, and unqualified substrates can also be used for equipment research and development testing or scientific research.
This kind of situation of "drought and flood protection and harvest protection" is undoubtedly beneficial to the initial development of Tianyue. Bring stable gross profit to the company, improve the fault tolerance rate of the main business research and development, and help the company's main business to continue to develop in trial and error.
However, the gross profit margin of other businesses even sometimes exceeds the gross profit margin of the main semi-insulated substrate, and the low yield shows that Tianyue's scientific and technological content still has a lot of room for improvement.
The silicon carbide substrate industry is a technology-intensive industry and is an application of multidisciplinary interdisciplinary knowledge.
The general process flow is: high-purity toner, high-purity silicon powder as raw materials to synthesize silicon carbide powder, under a special temperature field, the mature physical vapor transmission method (PVT method) is used to grow silicon carbide crystal ingots, processed into silicon carbide crystal rods, and then processed silicon carbide substrates.
For the third generation of semiconductors, the overall yield is a threshold for testing the company, which has two iconic nodes: the crystal rod in the middle link and the substrate of the final product. The yield of these two nodes is also the core technology embodiment of measuring silicon carbide production enterprises.
From 2018 to the first half of 2021, Tianyue's yield rate has steadily improved, indicating that the company's experience and technology are progressing.
The yield of the final qualified substrate is the product of the sub-yield of each stage, that is to say, the final yield of the main business is only less than 40%, and Tianyue still has a long way to go in terms of yield improvement.
As a high-tech enterprise, the proportion of other businesses is too high (significantly more than the conductive substrate), and it is still slightly embarrassing after all.
There are two jewelry customers that rank among the top five customers of the company, namely Shenzhen Xihui Tiancheng Jewelry Co., Ltd. and Guangxi Wuzhou Xingyue Jewelry Co., Ltd.
Where it is known that Customer A and Customer B are the main sales targets of semi-insulated silicon carbide substrates, the two jewelry companies have taken over the company's other businesses.
If customer A and customer B are excluded, will Tianyue be classified as a jewelry concept stock?
Semi-insulated substrates and other businesses account for the vast majority of revenue and gross profit, and the marketization of conductive silicon carbide substrates is still far away.
Conductive silicon carbide substrate may miss the "new energy feast"
On January 4, 2022, Tianyue announced the results of the placement, and Tianyue signed a strategic placement agreement with well-known companies such as SAIC, GAC, Xiaopeng Motors, and CATL.
Strategic investors have a common feature - they are all participants in new energy vehicles. In the future, the development of silicon carbide in the field of new energy has basically reached a consensus.
In particular, the strategic placement agreement with Xiaopeng Automobile mentions the direction of future development, mainly the 800V high-voltage platform of silicon carbide-based chips and 480KW ultra-fast charging piles.
With the popularity of new energy vehicles, the demand for fast charging is self-evident, and high-speed charging means high voltage and high frequency, so the performance advantages of silicon carbide (conductive silicon carbide substrate) have brought a lot of imagination to the development of the industry.
According to Yole, the market size for SIC power devices (powered by conductive SIC substrates) was $541 million in 2019.
Driven by market demand such as electric vehicles/charging piles and photovoltaic new energy, it is expected to grow to US$2.562 billion in 2025, with a compound annual growth rate of about 30%.
It can be seen from the prosperity of downstream new energy vehicles and photovoltaics that the future development of conductive silicon carbide substrates is greater.
However, in Tianyue's revenue component, the proportion of conductive silicon carbide substrates is very small, only 0.25% in the first half of 2021. The explanation given by the company is to meet the national strategic needs, and the production capacity is mainly used for the production of semi-insulated silicon carbide substrates.
Although the country's strategic needs exist objectively, it also shows from the side that there are still problems in the mass production capacity of conductive silicon carbide substrates.
At the same time, the verification cycle of automotive-grade semiconductor devices is very long, and in order to ensure safety, the suppliers of terminal manufacturers are relatively stable. According to the company, the 6-inch conductive substrate has been sold in small batches and sent samples to a number of domestic and foreign customers.
However, the terminal new energy and photovoltaic markets have exploded rapidly, international leaders have seized the market, and Tianyue, which has lagged behind, is still waiting for verification.
The so-called time is not waiting, the industry boom cycle is not easy to come by, and the expansion of the conductive silicon carbide substrate that has not yet been mass-produced is doubtful, and I am afraid that I will miss the feast of this industry outbreak.
Although the company said that there is no obvious gap in technical parameters with the same size products of the global industry leading enterprises, the ability to mass-produce at a large size is far behind that of international giants.
In the mass production time of 4-inch to 6-inch substrates, the world's leading enterprises in the industry are 7-10 years ahead of Tianyue.
The world's first two-land company can mass-produce 8 inches in 2019, and the world's second-largest Cree company has 8-inch mass production capacity in 2015. As of now, Tianyue does not have the mass production capacity of 8-inch substrates.
For the silicon carbide substrate industry, a larger size corresponds to a larger area, which means that in the same amount of time, the output of the substrate area is larger, and the downstream line represents more chips.
Therefore, the large size is not only the embodiment of technology and experience, but also the guarantee for further reducing costs and enhancing market competitiveness in the future.
Tianyue's 8-inch conductive silicon carbide substrate only started research and development in 2020 and has not yet reached the level of mass production.
At present, the mainstream commercial PVT crystal growth rate is slow and the defect control is difficult, so the semiconductor industry needs the accumulation of experience, and it is not possible to achieve qualitative change overnight.
Relatively mature semi-insulated substrates, the yield still has sufficient room for improvement; as for the conductive silicon carbide substrates that have not yet been mass-produced, the future process is not smooth, and there is still great uncertainty.
Not only that, international giants have increased their investment in the implementation of expansion plans. Among them, Cree announced an investment of $1 billion in 2019 to expand production by 30 times; 2lu Company and Japan's Rohm Company have also announced corresponding expansion plans. In the fierce competition in the future, Tianyue's road ahead has added some fog.