Author: Pan Yan
Listing: Insight IPO
With the continuous development of the economy and technology level, China has become the global manufacturing base for electronic products, and the demand for semiconductor memory as an indispensable component of electronic products has also increased accordingly. Public data shows that in 2020, China's semiconductor memory sales reached 69.26 billion yuan, an increase of 14.6% year-on-year.
In this context, domestic semiconductor storage industry chain companies ushered in their own "highlight moment".
First, memory module provider Dongguan Memory Storage added a number of shareholders, including Lenovo, in December 2021. Subsequently, Hongxinyu Electronics, a provider of memory control chips and solutions, completed a strategic financing of RMB 150 million in January 2022. Memory chip manufacturer Changxin Storage also received investment from Alibaba, Yunfeng Fund and other parties in February 2022.
Not only that, a number of domestic semiconductor storage manufacturers have also started the listing process.
Recently, the application of semiconductor memory manufacturer Shenzhen Baiwei Storage Technology Co., Ltd. (hereinafter simplified: Baiwei Storage) for the IPO of the Science and Technology Innovation Board was officially accepted, and the sponsor was CITIC Securities.
Industry fluctuations affect revenue
Mystery customer to come to the first aid?
Founded in 2010, The company is deeply engaged in the field of semiconductor memory, mainly laying out four major product lines of intelligent terminal memory chips, consumer-grade storage modules, industrial-grade storage modules, and featured advanced packaging and testing services, which are used in the Internet of Things, Internet of Vehicles, Industrial Internet, mobile intelligent terminals and other information technology fields.
Image source: Baiwei Storage Prospectus
During the reporting period, more than 90% of The revenue of Baiwei Storage consisted of two businesses: intelligent terminal memory chips and consumer-grade storage modules. Among them, in the first three quarters of 2021, only intelligent terminal memory chips contributed nearly 70% of revenue.
Image source: Baiwei Storage Prospectus
It can be seen that during the period from 2018 to 2020, the revenue share of the smart terminal memory chip business showed a downward trend year by year, from 62.56% to 50.32%.
Especially in 2019, or affected by fluctuations in the semiconductor industry, slowdown in demand growth in the smartphone industry, and the company's customer structure adjustment, the revenue of The memory chip business of Baiwei Storage Intelligent Terminal has decreased compared with the previous year.
The growth of core business is under pressure, and the total revenue of Baiwei Storage in 2019 is also declining. From 2018 to 2020, Baiwei Storage achieved operating income of 1.275 billion yuan, 1.174 billion yuan and 1.642 billion yuan.
However, by the first three quarters of 2021, The intelligent terminal memory chip business of Baiwei Storage has increased significantly, and the proportion of revenue has increased to 67.61%.
Insight IPO found that this may be related to the two new customers of Baiwei Storage during 2021.
According to the prospectus, in the first three quarters of 2021, in the list of the top five customers of Baiwei Storage, the top two customers "Weizhan Co., Ltd." and "Company A" are slightly strangers, and they have not appeared in the list of the top five customers of Baiwei Storage before.
Coincidentally, the products sold by these two companies are "smart terminal memory chips". In the first three quarters of 2021, the two companies contributed a total of 529 million yuan in sales, accounting for 41% of the total sales of "smart terminal memory chips" in the current period.
Image source: Baiwei Storage Prospectus
It can be seen that the impact of large customers on Baiwei Storage is great, and this phenomenon has become more and more obvious with the passage of time.
During the reporting period, the proportion of revenue of the top five customers of Baiwei Storage increased year by year, from 26.36% in 2020 to 43.39% in the first three quarters of 2021, with a high degree of dependence.
Holding hands with Huawei "briefly"
Brand licensing is unstable
According to the prospectus, since 2016, Baiwei Storage has successively obtained the exclusive global conditional authorization of HP 's trademarks for SSD products, SDRAM products in the aftermarket and memory card products in the aftermarket. The license is valid until December 31, 2024.
In July 2020, Byway Storage obtained the exclusive global authorization of Acer and Predator trademarks for products such as DRAM, built-in SSDs, USB flash drives, portable SSDs, portable HDDs, SD cards, MicroSD cards and CF cards. The license is valid until December 31, 2026.
From 2018 to 2020, the sales revenue of authorized brands of Baiwei Storage in each period accounted for 14.24%, 29.74% and 26.99%, and the gross profit accounted for -1.07%, 27.29% and 12.96% respectively.
However, although cooperation with big brands can bring great benefits to Baiwei Storage, it also comes with the cost of sales.
During the reporting period, the royalties in the sales expenses of Baiwei Storage were 5.9732 million yuan, 10.9996 million yuan, 13.146 million yuan and 14.6345 million yuan, accounting for 21.76%, 24.11%, 23.93% and 21.74% of the sales expenses of the current period, respectively.
Image source: Baiwei Storage Prospectus
It is worth mentioning that Baiwei once had a "short" fate with the domestic mobile phone giant Huawei.
On December 31, 2019, Baiwei Storage and Huawei Technologies Co., Ltd. signed a Patent License Agreement, and the issuer and its holding subsidiary obtained patent licenses related to NM memory cards. It is worth noting, however, that the patent license was terminated on December 31, 2021.
Although Baiwei Storage later signed a contract with Zhilian Terminal Storage (Shenzhen) Co., Ltd., it obtained a patent license related to NM memory cards. However, it can also be seen that Baiwei is passive and unstable in the relationship between authorization and cooperation.
Image source: Baiwei Storage Prospectus
Baiwei Also said in the prospectus that in the future, if the company fails to reach an agreement with the brand to continue cooperation with the brand before the expiration of the brand authorization, it may have a certain adverse impact on the company's overall revenue scale and profitability.
Inventory is high and cash flow is under pressure
The bargaining power of procurement is a cause for concern
It is worth mentioning that Baiwei Storage achieved a turnaround during the reporting period.
From 2018 to 2020 and the first three quarters of 2021, Baiwei Storage achieved net profit of -136 million yuan, 18.6613 million yuan, 27.3841 million yuan and 115 million yuan, respectively.
Because the price of memory products fluctuates with market demand, this also brings great instability to Baiwei Storage. This can be seen in its volatile gross margin.
From 2018 to 2020 and the first three quarters of 2021, the comprehensive gross profit margin of Baiwei Storage was 6.62%, 15.62%, 11.21% and 18.02%, respectively, showing volatility and continuing to be lower than the average of comparable companies in the same industry.
Image source: Baiwei Storage Prospectus
What cannot be ignored is that Baiwei storage has increased its huge inventory year by year.
From 2018 to 2020 and the first three quarters of 2021, the book value of Baiwei Storage inventory was 406 million yuan, 601 yuan, 759 million yuan and 1.451 billion yuan respectively, accounting for 58.27%, 49.41%, 42.98% and 53.31% of the total assets of each period, respectively.
The inventory stored by Baiwei is mainly composed of two lines of raw materials and inventory commodities, and during the reporting period, the total balance of raw materials and inventory commodities accounted for 81.50%, 81.34%, 80.75% and 80.26% of the inventory balance, respectively.
It is worth mentioning that the core raw materials of Baiwei Storage include NAND Flash wafers and DRAM wafers, which are mainly purchased from international mainstream storage wafer manufacturers such as Samsung, Micron, Jiaoxia, and Western Digital.
From 2018 to 2020 and the first three quarters of 2021, the purchase amount of Baiwei Storage from the top five suppliers was 864 million yuan, 702 million yuan, 973 million yuan and 1.666 billion yuan respectively, accounting for 74.96%, 61.56%, 62.97% and 67.84% of the total procurement amount in the current period, respectively.
Over-reliance on major suppliers clearly gives Baiwei not much of an advantage in the exercise of bargaining power in procurement.
In this regard, Baiwei Storage said that in the future, if the company's product structure cannot be continuously optimized, the supply and demand situation of the memory market fluctuates sharply, and the market price of memory products falls sharply due to increasingly fierce market competition, the company may have a large fluctuation in performance and a decline in profitability, and if there is an extreme situation, there may be a risk that the operating profit of the year of listing will fall by more than 50% compared with the previous year.
In addition, the large scale of inventory occupies the company's working capital to a certain extent, resulting in certain operational risks. During the reporting period, the company's net operating cash flow was 24.6919 million yuan, -118 million yuan, -272 million yuan and -309 million yuan, respectively, and the cash flow gap showed an increasing trend.
Public information shows that Baiwei Storage has completed 6 rounds of financing before. Investors include The National Integrated Circuit Industry Investment Fund, China Net Investment, TEDA Science Investment, Guoke Investment, Oriental Fuhai, Guoxin Southern Intellectual Property, Beyond Moore Capital, Langmafeng Venture Capital, Huaqiang Venture Capital, Guangzhou Huaxin, etc.
The most recent Series C financing occurred in September 2021, when the second phase of the National Integrated Circuit Fund increased its capital to Baiwei Storage at a price of 21.69 yuan per share. After the capital increase, the company's equity capital increased to 194 million yuan, and the post-investment valuation was 4.2 billion yuan.
This impact on the science and technology innovation board IPO, Baiwei Storage plans to raise 800 million yuan, which will be used for the construction project of Huizhou Baiwei advanced packaging and testing and memory manufacturing base, the advanced memory research and development center project and supplementary working capital.