Image source @ Visual China
Text | Magnesium.com
"In the real world, our evaluation of things swings between two extremes, 'very good' and 'not so good.'" But in the investment world, the two extremes of the emotional pendulum swing are 'too good to be perfect' and 'too bad to be hopeless'. Oak Capital founder Howard Marx concluded in The Cycle.
In just a few years, the mood of Chinese investment institutions toward chips has undergone a back-and-forth shift between the two extremes.
Globally, chips are being watched along with the ai-power boom. Zhang Fei, a partner at Wuyuan Capital who invested in Horizon Robotics in 2016, said in an interview that he expected artificial intelligence to be a huge paradigm shift that could create more than a trillion dollars of opportunities, possibly 3 to 5 times the market value of the IT industry.
At that time, the chip industry also underwent tremendous changes. According to IC Insight data, the global semiconductor mergers and acquisitions amounted to $103.3 billion in 2015, and the total transaction value in 2016 exceeded $98.5 billion, almost the sum of 2010-2014.
Nowadays, the investment style of the secondary market is changing. Investors are becoming more cautious and no longer pay for pure concepts, even if the "semiconductor concept" of the country's heavy equipment, as long as the valuation is too high, the secondary market is still ruthless.
On January 14, 2022, as the "first stock of baseband chips on the Science and Technology Innovation Board", Aojie Technology (688220. SH) pre-listing valuation of 68.8 billion, which can be said to have earned enough attention from the capital market. However, the listing was broken, and the stock price directly opened the frenzied mode since the opening of the market.
The collective auction stage once fell by more than 50%, and as of the close of trading on January 17, it closed at 105.72 yuan, down 35.75% from the issue price of 164.54 yuan, and the market value evaporated by 24.6 billion yuan. For the investors who subscribed for the winning lottery, it was simply miserable, with a net loss of 29,400 yuan.
As of press time (January 21), Aojie Technology fell more than 60% to 99 yuan / share, with a total market value of 41.3 billion.
01 Chip Veteran made a second IPO
Born in 1956, Dai Baojia graduated with a master's degree from the Georgia Institute of Technology, which is one of the top polytechnic universities in the United States and is listed as one of the "three major polytechnics" alongside MIT and Caltech. The Dai Bao family is studying electrical engineering, the representative discipline of the school. After that, the Dai family continued his studies and obtained an MBA from the University of Chicago.
After completing his studies, Dai Baojia founded Excel Associate Sales Company and Silicon Valley Linear Power Amplifier Developer USI Company. In 2004, after returning to China, Dai Bao's family founded The Company in Shanghai. With excellent technology, Rui Di Ke won the business of doing "SCDMA" RF chips for Datang Group in the first year of its establishment, and in 2006, it took advantage of the victory and launched the "PHS" RF chipset with independent intellectual property rights, and by 2007, the Chip's Chinese market share reached 60%. In 2008, Redico's annual revenue increased by 405% year-on-year to $55.5 million. In 2010, Rydico officially landed on the NASDAQ in the United States.
In just a few years, Rui di Ke has become the most eye-catching rookie in the Chinese and even global communication chip market, and at the same time, it has become a fragrant feast in the capital market, and rumors about Rui Di Ke will be acquired by capital appear from time to time.
In 2013, Tsinghua Unigroup made a tender offer to Redico, which was completed a year later for $907 million.
It is worth noting that tsinghua unigroup just completed the acquisition of Spreadtrum Communications(founded in 2001, the business includes communication chips and multimedia terminal chips), the number one chip design company in China at about the same time as issuing the acquisition offer.
The business of Spreadtrum and Reedico itself overlaps, and Dai Baojia believes that if it is acquired by Tsinghua Unigroup at this time, it will face integration with its Spreadtrum Communications, and the right to speak of Therondeco management is bound to be weakened.
In addition, in addition to Tsinghua Unigroup, pudong kechuang also participated in the bidding. According to the latter's acquisition plan, Pudong Kechuang will not interfere with the independent development of Ruidike after the acquisition, which is a more desirable choice for the Dai Bao family. However, the offer of Pudong Kechuang is lower than that of Tsinghua Unigroup.
Under the principle of price first, Warburg Pincus Investment, the largest shareholder of Ruidike, which holds about 37.43% of the shares, is more inclined to hold hands with Tsinghua Unigroup.
In the tug-of-war of capital, the founder Dai Baojia was eventually eclipsed, but his pace of exploration did not stop, but led some of the original Ruidike employees to establish Aojie Technology, dedicated to cellular baseband chips.
Interestingly, the Pudong Kechuang, which failed to acquire Rui dike, supported a new round of entrepreneurship for the Dai Bao family. Aojie Technology was established in April 2015, and in November of that year, Pudong Kechuang entered as an angel investor.
The "expelled" founder and the outgoing capital side are in the same camp, and with the name of "ASR", it is joked that Aojie Technology is the "Avengers".
After its establishment, in order to catch up with the pace of world-class enterprises, Aojie Technology completed four business acquisitions from 2015 to 2019, quickly collecting a number of key technologies such as baseband chips, and accelerating the accumulation of original technology. In the primary market, Aojie Technology is also quite popular, and it has been joined by Ali Network and Xiaomi Yangtze River Production and Investment in 2017 and 2020 respectively.
After the listing, its list of shareholders and strategic investors is still "shining brightly". According to the prospectus, Alibaba, Shenzhen Venture Capital, Xiaomi, TCL and other popular investors have successively invested shares; in the strategic placement stage, in addition to the subsidiary of the sponsoring institution Haitong Securities, there are also many well-known institutional investors such as the second phase of the National Integrated Circuit Industry Investment Fund, China Insurance Investment Fund, Midea, Gigabit Innovation, Wingtech Technology and OPPO.
However, judging from the performance on the first day of listing, these star investors have not been able to "escort" Aojie Technology. In the online new payment stage, Aojie Technology was abandoned by investors for 175 million yuan. Some netizens in the stock bar said, "After winning the lottery, I was very happy, and I sold a deep set of shares to pay, thinking that I could get the loss back." Some investors said: "The money to buy New Year goods has been lost." ”
02 Forward industry, backward soaring
Industrial capital and the recognition and expectations of the industry in the industry were originally a huge advantage of Aojie, but why it was "abandoned" by the market on the first day of listing had to start from its fundamentals.
Domestic semiconductors in the last year can be described as "popular fried chicken". As far as listed companies are concerned, according to the third quarter report of last year, the average operating income of domestic semiconductor listed companies increased by 59.67% year-on-year, and the net profit increased by 305.48% year-on-year. The stock prices of listed companies have also risen all the way, and the Jiwei Semiconductor Index reached its highest value in July 2021, an increase of 199.12% compared with the beginning of 2021 and an increase of 383.39% compared with the beginning of 2020.
The same is true for the primary market, according to Aijiwei's "2021 China Semiconductor Investment White Paper", in 2021, both the total amount of investment and the number of investments have shown explosive growth.
Surrounded by hot money, the number of entrepreneurs in the chip industry has increased significantly. Chen Datong, founder of chip design company Spreadtrum, once mentioned that when Spreadtrum was founded in the early 2000s, China's single-digit chip design companies became five or six hundred after 2005, and now there are more than 2,000, while Silicon Valley has never exceeded 100.
The baseband is the most core module in the communication equipment, which is responsible for completing the demodulation, descrambling, depopulation and decoding of the wireless signal in the mobile network, and transmitting the digital signal of the final decoding to the upper-level processing system for processing.
For a long time, mobile phones have been the first battlefield of baseband chips, from 2G to 5G, every communication technology replacement will cause a shuffle of baseband chip manufacturers.
Judging from the data disclosed in the prospectus of Aojie Technology, communication baseband chips have always been the business with the highest proportion of the company's revenue. In the early days of the acquisition of Marvell's Communications business unit, this business accounted for even 98% of total revenue.
Later, as the company began to lay out the Internet of Things chip, the proportion of the company's revenue began to gradually enrich, but even so, the communication baseband business has always been the most important piece of business of Aojie Technology.
However, it is such an important business, but in fact, it has almost no industry competitiveness.
In the prospectus, Aojie Technology regards Qualcomm, MediaTek and other leading baseband companies as comparable objects, but in fact, at this stage, Aojie Technology is not qualified to compare with their baseband business.
From the perspective of the number of patents, the main domestic chip manufacturer HiSilicon Semiconductor has more than 8,000 patents, Tsinghua Unigroup Zhanrui has more than 5,000 patents, and as of December 31, 2020, Aojie Technology has only obtained 86 authorized patents.
From the perspective of market share, according to Strategy Analytics, the total global baseband chip market in 2020 is about $26.6 billion, according to this market data, the company's cellular baseband communication chip products in 2020 will account for 0.51% of the global baseband chip market.
However, according to Statista data, Qualcomm, HiSilicon, and MediaTek, which rank among the top three in the global baseband chip market in 2020, will occupy 43%, 18% and 18% of the global baseband chip market share in 2020, respectively, accounting for 79% of the market share.
It is not difficult to see that China's mobile phone baseband market is mainly divided by Qualcomm, MediaTek, HiSilicon Semiconductor, and Tsinghua Unigroup.
The mobile phone field encountered obstacles, and the company turned its cellular baseband business to module manufacturers for low-cost sales and applied it to the Field of Internet of Things. This led to a sharp turn in the company's gross profit. According to the prospectus, the gross profit margins in 2018, 2019, 2020 and the first half of 2021 were 33.1%, 18.08%, 23.86% and 18.29%, respectively. The long-term loss of Aojie Technology also proves that the profit of this business is really too low.
Based on this, the performance of Aojie Technology is actually extremely risky. Semiconductor analyst Pan Huan said, "First of all, the functional machine is a product that is on the verge of elimination, and no one knows how long this product can contribute to profits; on the other hand, there is great volatility in overseas markets, whether it is the epidemic or local substitution, it may have an impact on the company's performance." ”
At the same time, Aojie Technology is also facing the embarrassment of backward 5G baseband technology.
According to the prospectus, from 2018 to September 30, 2021, Aojie Technology lost a total of about 4.3 billion yuan, almost a month to lose 100 million.
The reason is that the company's current 5G technology development is lagging behind, 5G baseband products are still in the stage of chip-back debugging, and theoretically it is necessary to carry out multiple trial production and testing with chip manufacturers to launch mature products to the market. According to its prospectus, "The first 5G chip is expected to be mass-produced in late 2021 or early 2022." ”
It should be pointed out that according to market practice, it also takes time to verify the chip from mass production to landing in customer products.
There is not much time left for Aojie Technology.
03 Be a friend of time
If investment is a race, then semiconductor investment is the "marathon" event that needs the most endurance.
Sequoia invested in Gerco Microelectronics in 2006, and Gerco Microelectronics declared for the Science and Technology Innovation Board this year, with a long 14 years in between. In 2004, Lightspeed Capital invested in chip equipment company Zhongwei, which was listed on the Science and Technology Innovation Board 15 years later. Dollar funds, on the other hand, generally have an investment cycle of ten years.
Zhou Zhixiong, a former partner of SoftBank Saifu Fund and now founder of Triumph Venture Capital, also mentioned that "my return in this industry is not the worst, but also the second-to-last." He invested in chip design firm Shixin Electronics in two rounds from 2004 to 2006. After that, there was no follow-up fundraising or IPO.
Some investors told the author that an institution invested in chip equipment companies in 2018 and now earns more than ten times. On July 22, 2019, the day of listing on the Science and Technology Innovation Board, the market value of Zhongwei exceeded 60 billion yuan, and then once broke through 100 billion.
According to the author's combing, for Aojie Technology, there are two types of opposing views in the market:
There is a category of investors who believe that it is a scarce target with high barriers, the technical content of cellular baseband chips is high, and Aojie Technology has scarcity in A shares. The current market capitalization of 45.6 billion, corresponding to 12 times PS in 2022, is worth participating in.
Another type of investor's view is that the company's competitiveness is general, not as good as HiSilicon and Tsinghua Unigroup, and the valuation is also relatively expensive and not worth participating in. Most of the investors who hold this view did not participate in the new attack of Aojie Technology initially, so they avoided the floating losses caused by the break. Stock price performance affects how people think about a stock, and this view seems to make more sense after the first day of listing.
Overall, chips are a slow business that needs to continue to burn money, and its ceiling is lower than that of the trillion-dollar consumer industry. Bai Zongyi, a partner at Yaotu Capital, believes that there is a bubble in the science and technology innovation board, and it is very challenging to make a chip listed company with more than $10 billion in China.
An investor said that chip companies have high technical barriers and extremely subdivided scenarios, and even if they have technical strength, it is difficult to grow on their own.
"(However) the valuation fluctuation range of individual stocks is very wide, and if the market environment is changed, it is entirely possible to rise on the first day." Therefore, I think that once the market sentiment is repaired in the future, the stock price of Aojie Technology will rise back. ”
Market sentiment will certainly have an inflection point. So the question is, how much will its share price fall at the lowest? When will it start to rise?
A former semiconductor investor said that according to incomplete statistics, as of the end of the third quarter of this year, among the 28 semiconductor companies listed on the science and technology innovation board, 2 companies with losses (no price-earnings ratio) were excluded, and the average price-earnings ratio was 145 times. Cheng Miaoqi, a partner of Qingsong Fund, believes that the normal should be about 40 times, and the high price-earnings ratio has prematurely overdrawn the growth space of the company.
The question seems insoluble. In fact, most people's thinking is static and linear, and it will further amplify the above doubts in the face of historical downward trends.
"Taking the rise and fall of the stock price as the anchor, the fall does not dare to buy, and the rise is afraid of stepping on the air, and it will always be in contradiction." Fundamentals and valuations are the outline, market sentiment is the goal, and the outline is the same. The investor added finally.