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Semiconductors, this industry is more unique. In the industrial chain, the most difficult technical is not the design of mental labor in the upstream, but the production and manufacturing of manual labor in the middle reaches.
The reason why it is difficult to manufacture is that it is difficult in the production equipment.
Generally speaking, semiconductor production goes through the following steps (). Among them, the most demanding equipment are lithography, etching, and thin film deposition. The proportion of equipment investment was as high as 21%, 23.8% and 26.9% respectively. That is to say, after building these three, the chip factory is basically 70% complete.
Image source: CDB Securities
And these high-tech equipment are basically in the hands of Europe, The United States and Japan. However, in recent years, domestic substitution under subsidies has also taken a big step forward. Among them, there are many leaders, such as Zhongwei Company (688012) and North Huachuang (002371).
From the perspective of business composition, North Huachuang is large and extensive, not only has etching machines, thin film deposition equipment, but also oxidation diffusion equipment and cleaning equipment. Its coverage basically runs through the entire process of semiconductor production. In the field of semiconductor production equipment, there are only etching machines.
As a result, the revenue, net profit, and even market value of Northern Huachuang are much larger than those of Zhongwei. However, a careful study of the financial report will find that the small and specialized micro is actually larger and broader than the northern Huachuang, and the development is more relaxed.
First, large and wide, input-output efficiency is low
Wide coverage, the performance of Northern Huachuang is extremely serious. It even far exceeds the data presented on the financial report.
1. Heavy assets in the manufacturing industry
Manufacturing requires heavy asset investment. North Huachuang has a wide range of business and high investment in fixed assets. But not every production line can create stable revenue. However, for each fixed asset, a stable provision for depreciation losses is required.
From the data point of view, as of the end of September 2021:
1. North Huachuang fixed assets of 2.422 billion yuan, the first three quarters to achieve revenue of 6.173 billion yuan;
2. The fixed assets of Zhongwei Company were 176 million yuan, and the revenue in the first three quarters was 2.073 billion yuan.
Comparing the fixed asset cost of the unit revenue burden, The Northern Huachuang is 4-5 times that of the medium micro! The result is bound to be (assuming all other conditions are equal) that The gross/net profit margin of Northern Huachuang will be much lower than that of The Medium Micro.
In the first three quarters of 2021, the gross profit margins of North Huachuang and Zhongwei were 40.94% and 42.68%, respectively; the net profit margin was 12.35% and 26.13%, respectively. The gap is already quite obvious. However, this data probably does not reflect the true profit quality of these two companies. Because Northern Huachuang and Zhongwei do not have the same proportion of depreciation.
According to the 2021 interim report, the fixed assets of Northern Huachuang are 2.099 billion yuan, and the depreciation is 89.45 million, with accrual ratio of 4%. In the middle and micro, the fixed assets are 180 million, and the depreciation is 24.39 million, with accrual ratio of 13%.
Of course, different types of fixed assets have different accrual standards, which cannot be directly compared strictly speaking. However, comparing these two data, it can be clear that the rules for the provision of the northern Huachuang on the depreciation of fixed assets are more relaxed. The depreciation that it currently understates will inevitably affect future profits.
2. High-end manufacturing industry heavy research and development
In addition to heavy asset investment in manufacturing, high-end manufacturing also needs heavy research and development.
Q3 2021:
1. North Huachuang's R&D expenditure is 869 million yuan, accounting for 14% of revenue;
2. The R&D expenditure of Zhongwei Company was 259 million yuan, accounting for 12.5% of revenue.
Judging from this set of data, the proportion of R&D expenditure between Northern Huachuang and Zhongwei is not much different. But fee-based is only one way to invest in R&D. Another practice that is often used to embellish reporting is to capitalize R&D investment.
To understand simply, expenseization means that the company calculates the money invested in research and development as research and development expenses, which directly affects the profit of the current period. Capitalization is that the company believes that this R&D investment will have results in the future, so it is counted as an asset and will not affect the profit or loss of the current period.
Both North Huachuang and Zhongwei have capitalized part of their R&D investment. After the restoration, in the first half of 2021, the total R&D investment of Zhongwei was 217 million, accounting for 16% of revenue. The Northern Huachuang is 1.584 billion, accounting for 44% of revenue.
It can be seen that Northern Huachuang does attach importance to research and development. However, on the other hand, Northern Huachuang needs extremely high investment to cover the research and development of multiple product lines.
However, The northern Huachuang has a net profit of only 300 million yuan in half a year, and it cannot afford 1.5 billion yuan of research and development expenditure. As a result, 60% of Huachuang's R&D expenditure has been capitalized (23% of Zhongwei). That is, the money has been spent, but this part is still listed as an asset in the statement.
For such virtual assets, it may be directly transferred to the expense in the future to offset the profit of the current year. Intangible assets may also be included and amortized year by year. And this amount accumulates higher and higher, and sooner or later it will become a time bomb.
Second, small and specialized, high technical level
Putting aside the problem of short-term performance, in the long run, Northern Huachuang and Zhongwei, as the hope of domestic replacement of semiconductor production equipment, the future still depends on technology.
Although the amount of R&D investment of North Huachuang far exceeds that of Zhongwei, from the perspective of the etching machines produced by both, the technical level of Zhongwei is slightly better.
Before comparing, let's briefly introduce the key equipment in semiconductor production: lithography machine, etching machine, thin film deposition equipment What is it?
Boss Yin, the founder of Zhongwei, once gave a vivid analogy, he said that the process of chip production is like building a building, and the specific work of each floor is like cutting window flowers. First take a piece of red paper, then draw a pattern, and then take a pair of scissors to cut according to the pattern.
Founder of Zhongwei Yin Zhiyao
Among them, thin film deposition is like laying a red paper; lithography is equivalent to painting a pattern; etching is carving according to the pattern. All three are indispensable.
And these tens of floors, or even hundreds of floors, must be built on a scale of a few thousandths of a hair, or even a scale of tens of thousands. This leads to the fineness requirements of production equipment, which must be measured in nanometers. What concept? That's one millionth of a millimeter.
Therefore, the key to measuring the level of technology is mainly to see how fine the equipment can achieve.
At present, the most advanced etching machine of Zhongwei Company has been able to reach 7nm and 5nm, while the etching technology of Northern Huachuang is still stuck at 14nm.
In addition, from the perspective of downstream customers, ZHONGMIC has entered the supply chains of TSMC and SMIC. The side verifies that the production technology of its equipment has a certain maturity.
And North Huachuang, its R & D investment is scattered in various product lines. The only technical advantage is the layout of the thin film deposition equipment. Although it also stays at the 14nm level, the thin film deposition equipment is a larger track than the lithography machine and etching machine. Early layout, Northern Huachuang can also be regarded as a first-mover advantage. Just the cost of multi-line parallelism is really heavy.
Third, domestic substitution still has a long way to go
Northern Huachuang and Zhongwei Company have taken two different paths. But in the initial stage of high-end equipment manufacturing, it is doomed to be unsuitable for large and wide.
High-end equipment manufacturing requires heavy assets and heavy R&D investment. Multi-line simultaneously means doubling the investment. At the same time, it may not be able to produce the same output. In desperation, we can only make a fuss about the depreciation of fixed assets and the capitalization of research and development expenses. But even if the current performance can be seen, the future will become a hidden danger.
And taking into account both development, one of the consequences that can easily be caused is in-depth insufficiency. In the field of high-end equipment, the top ten in the world monopolized 76.6% of the market share. In the final analysis, it is still the market demand determined by the level of technology. If the technology is not up to standard, it is easy to fall into a vicious circle of small market demand and no money for research and development.
In contrast, Zhongwei seems to be more promising than the future of Northern Huachuang, but Zhongwei's financial report does not look very optimistic. Although a net profit of 542 million was achieved in the first three quarters of 2021, only 165 million was left after deducting non-recurring gains and losses. Because the main source of the current net profit of the micro is investment income and government subsidies.
It can be seen that whether it is a micro-company or a northern Huachuang, there is still a long way to go before the technology is mature and the business model is mature.
Note: This article does not constitute any investment advice. The stock market is risky, and you need to be cautious when entering the market. There is no harm in buying and selling.