Hu Weiwu, Chairman of Loongson Zhongke (Source: Loongson Zhongke)
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After nearly a year of IPO review, the "first share of domestic CPU chips" was finally listed.
On June 24, 2022, Loongson Zhongke Technology Co., Ltd. (hereinafter referred to as "Loongson Zhongke", N Loongson code: 688047) successfully landed on the Science and Technology Innovation Board of the Shanghai Stock Exchange this morning, with an opening price of 96.28 yuan per share, up 60% from the issue price of 60.06 yuan, and then the stock price fluctuated sharply. As of press time, Loongson Zhongke's market value reached 37 billion yuan.
Loongson Zhongke is not only the "first domestic CPU share", but also the only company in the A-share design chip based on the independent instruction set architecture, and is also the successor of lenovo Group (00992. HK), Sugon (603109. SH), Cambrian (688256. SH) after the fourth public company.
Previously, Hu Weiwu, chairman and general manager of Loongson Zhongke, put forward the slogan of "insisting on making Loongson for the people", and also put forward the talent selection and training standards of "red and specialized, red is more important than specialized", and the feelings are full. Just past June 6, Loongson Zhongke also released a new CPU chip based on the independent instruction set architecture and related software platform, Hu Weiwu also bluntly said that domestic CPUs should get rid of the dependence on foreign instruction set architecture.
Today, the domestic CPU manufacturer has ushered in the "identification" of the capital market, but the revenue in the first quarter of this year has decreased by 37%. So, can Loongson Zhongke support the market value of 37 billion yuan?
Autonomous instruction set architecture authorization is in constant dispute
Loongson Zhongke was established in March 2008, formerly known as "Loongson" service, a transfer center under the supervision of the Science and Technology Committee of Haidian District, Beijing, and co-funded by Zhongke Suanyuan, a wholly-owned subsidiary of the Institute of Computer Science.
The "Loongson" series is one of the earliest general-purpose processor (CPU) chips developed in China, starting from the "Godson CPU Design and Verification System" scientific research project within the Institute of Computing of the Chinese Academy of Sciences, and has been supported by projects and institutions such as the Chinese Academy of Sciences and nuclear high-tech (core electronic devices, high-end general-purpose chips and basic software products).
In November 2000, the design work of Loongson was officially launched; On August 19, 2001, the design and verification system successfully launched the Linux operating system, and this day was also the birthday of "Loongson"; On August 10, 2002, based on the 0.18 micron CMOS process, integrated 4 million transistors, and the first single-core 32-bit general-purpose CPU", the "XIA50" tape-out was successfully released, ending the history of "coreless" in China's computer industry and opening the way for domestic CPUs to exert power.
Since 2010, "Loongson" has begun market-oriented operation through Loongson Zhongke, industrialization of Loongson CPU research and development results, and has accumulated a number of core technologies through the unremitting efforts of academician Li Guojie, researcher Tang Zhimin and chairman Hu Weiwu for three generations.
In recent years, the domestic CPU chip market has risen, and a large number of Chinese enterprises such as Loongson Zhongke, Huawei HiSilicon, Feiteng Information, Haiguang Information, Shanghai Zhaoxin, and Dianke Shentai have emerged.
Among them, Loongson Zhongke took the lead in rushing to the Shanghai Science and Technology Innovation Board to issue and list on the IPO - officially submitted the prospectus on June 28, 2021, and announced the prospectus on June 7 this year, and opened the subscription on the 15th; At the same time, the IPO registration of Haiguang Information has also been approved by the CSRC, and the valuation is expected to exceed 90 billion yuan.
At present, Loongson Zhongke's main products are CPU and related solutions for embedded, industrial control/terminal, desktop/server three major scenarios, and it is the only company in A-share that designs chips based on its own instruction set architecture.
In fact, the instruction set architecture builds a bridge between software and hardware, and is the "root technology" of chip design.
At present, the world's mainstream electronic products are based on two instruction set architecture systems, namely the American Wintel (Microsoft-Intel) system based on the x86 instruction set architecture, and the British AA (Android-Arm) system based on the ARM instruction set architecture.
"Now China's information industry is mainly built on two foreign technology platforms, and Loongson Zhongke wants to build a third system, from the instruction set to the CPU, operating system are independently developed." During the roadshow, Hu Weiwu said that the original intention of the Loongson team is to establish its own ecosystem and become the third pole of the IT industry system.
Therefore, for Loongson Zhongke, the biggest controversy is, why do you want to do the instruction set architecture independently? Is Loongson really an autonomous instruction set IP?
In July 2021, LOONGArch, the first processor chip based on 12/14nm fully autonomous IP design and using autonomous command system LoongArch, was officially released. In order to commemorate the 70th anniversary of the War to Resist US Aggression and Aid Korea, Loongson 3A5000 chip codenamed "KMYC70".
For the reasons for doing the autonomous instruction set architecture, the industry believes that there are three main points: First, there is no authorization problem, and the risk of supply interruption is low, for example, Huawei has not been authorized by ARMv9; The second is to save on licensing fees, such as Haiguang obtained the Zen architecture license of X86 from AMD in 2016, costing up to $293 million; the third is to obtain a higher industrial status and have more "autonomous" publicity capital.
But problems such as compatibility, lack of autonomous programming frameworks and languages are obvious, and loongArch's loongArch autonomous instruction set architecture is at a disadvantage.
Hu Weiwu believes that the current independent CPU and operating system of the whole machine products, the internal existing domestic operating system lacks independent programming framework and language, is not the real sense of the independent operating system. Loongson Zhongke is currently working on the development of its own programming framework and language, and Hu Weiwu expects to succeed in 2023 or 2024.
The talent selection and training standards of "red and specialized, red is more important than specialized" is an important expression of Hu Weiwu's long-term development of Longxin Zhongke during the roadshow.
Hu Weiwu pointed out that during the "14th Five-Year Plan" period, Loongson Zhongke will complete the transition from general processor and operating system technology "make-up lessons" to comprehensive software ecology and industrial chain construction, from e-government and key industry markets to open markets, from the "inevitable kingdom" of follow-up development to the "free kingdom" of independent development.
He stressed that loongson Zhongke's goal is that, based on the loongson zhongke independent command system, the performance of the general processor has reached the world's advanced level, the basic software and hardware ecology is basically perfect, the independent information technology system and industrial ecology have been initially completed, and the sales revenue has risen to a higher level.
However, at present, Loongson Zhongke is still facing disputes such as MIPS technology authorized by Loongson and Loongson, and the company said it is properly resolving them.
In March this year, the announcement issued by The Core pointed out that Loongson Zhongke was not audited for its breach of contract, the intellectual property rights were suspected of infringement, and there were still arbitration and litigation disputes with the core, and these disputes would continue.
On the latest June 17, Xin LianXin posted on its official website that due to Loongson Zhongke's breach of contract and evasion of its obligations, Xin Lian Xin has filed arbitration and litigation against Loongson Zhongke in the Hong Kong International Arbitration Center and the Beijing Intellectual Property Court respectively, and according to the provisional order of the Hong Kong International Arbitration Center, Loongson Zhongke has now submitted tens of millions of yuan in royalties to the Hong Kong Arbitration Center, and the case is awaiting final ruling.
According to the prospectus, from 2018 to 2021, more than 80% of Loongson's revenue will come from products licensed by MIPS architecture. In the Chinese market, the total number of chips licensed by Xinlianxin using MIPS architecture has exceeded 500 million, and Loongson Zhongke has contributed nearly 0.55% of the shipments.
(Source: Longxin Zhongke official website WeChat)
As for the trademark dispute of "Shenzhou Dragon Core", Loongson Zhongke replied in the second round of audit inquiries that as of now, there are no litigation, arbitration and other disputes between it and Shenzhou Loongson.
Hu Weiwu said when asked by the Titanium Media App roadshow that from 2020, LoongArch's newly developed CPUs will adopt the self-developed dragon architecture LoongArch, no longer use the MIPS architecture, and do not use foreign ARM architecture technology authorization. Loongson CPUs based on MIPS architecture are exiting the market in an orderly manner.
"Loongson does not need foreign technology authorization, and can remain open in the market. For example, Loongson can perform IP licensing, while THE CPU that introduced ARM cannot do IP licensing. For another example, arm's V9 does not authorize the domestic enterprise architecture, and the domestic enterprise is not qualified to develop the V9 processor core. Hu Weiwu said that the LoongArch architecture is becoming a command system architecture alongside X86 and ARM, and Tencent's WeChat, Ali's Dragon Lizard Community, and Huawei's Euler Community all support LoongArch. Under the Linux system ecology, Loongson can do better through independent research and development.
Titanium Media App understands that the next generation Loongson 3A6000 uses a 12nm process, the main frequency will exceed 2.5GHz, including 4 processor cores, each processor core uses a 64-bit superscalar LA464 autonomous microstructure, mainly used for desktops and laptops. It is expected to be released as soon as around 2023.
Hu Weiwu said that the company plans to use more advanced processes to develop general-purpose processors for desktops and servers during the "Fourteenth Five-Year Plan" period from 2021 to 2025, and strive to achieve the mainstream product level of the market as soon as possible, and at the same time to carry out research and development of GPGPU (general graphics processor) chips and memory chips supporting Loongson processors.
In addition, at the first roadshow on the Internet on June 15, Hu Weiwu also revealed that Loongson Zhongke will enter the automotive chip market, "mainly to do the control of the MCU (micro-control unit) chip, the first one has been streamed, the company is currently in contact with the whole machine enterprises." ”
In Q1 2022, revenue fell by 37.08%, and the "Loongson" business stalled
At present, loongson Zhongke's main business, including processors and supporting chip products, basic software and hardware solutions development, sales and service, based on the information system, industrial control system two main lines, Loongson products in e-government, energy, transportation, finance, telecommunications, education and other industries widely used.
According to the prospectus, from 2018 to 2020, the company's operating income was 193 million yuan, 485 million yuan and 1.082 billion yuan, respectively, totaling 1.761 billion yuan, with a compound growth rate of 57.28%; The net profit attributable to the shareholders of the parent company was 7.9033 million yuan, 193 million yuan and 71.7985 million yuan, respectively, totaling 273 million yuan, of which government subsidies reached 127 million yuan and the gross profit margin reached more than 48%. In 2021, the revenue increased by only 10.99% to 1.201 billion yuan.
According to the company's March 2022 prospectus, it is expected that in 2022, 2023 and 2024, Loongson Zhongke's estimated revenue will not be less than 1.5 billion yuan.
But it turns out that Loongson's prediction is a bit overly optimistic.
Due to the new crown epidemic and the reduction of procurement, from January to March 2022, the company's operating income and net profit fell year-on-year, of which revenue was only 181 million yuan, down 37.08% year-on-year; Net profit attributable to the mother was 0.36 billion yuan, down 41.74%.
The stall of Loongson Zhongke shows that under the economic changes of the new crown epidemic and interest rate hikes, China's CPU chips are under pressure.
Loongson Zhongke said that the decline in revenue is mainly due to the fact that the company's information customers are in the stage of centralized delivery acceptance to end users, the procurement of new batches has lagged behind, and the delivery of products has been affected by the epidemic. In addition, its main customers are generally in the budget preparation and approval stage in the first half of the year, and the new procurement demand is less, usually concentrated in the second half of the year, especially in the fourth quarter to complete product acceptance.
"Affected by this, Loongson Zhongke's sales revenue usually has the characteristics of low in the first half of the year and higher in the second half of the year, especially in the fourth quarter, which is mainly related to the market demand for downstream terminal products." Cao Yancai, financial director of Loongson Zhongke, said.
At the same time, the direct sales model led to a high sales expense ratio of Loongson Zhongke, with 8.17%, 4.99% and 7.58% in 2019, 2020 and 2021, respectively, while the median value of the industry in the same period was 4.09%, 4.4% and 4.17%, respectively.
In the prospectus, the company admitted that the market ecology of competitors x86 and Arm instruction sets is "mature", while "the software ecology completeness and overall maturity of Loongson processors are low", so loongson Zhongke still has a certain gap compared with intel, AMD and other international CPU leading enterprises.
According to the disclosure, as of December 31, 2021, LoongArch's products based on loongArch command system have orders in hand of about 138 million yuan, and shipments will gradually increase. As of March 20, 2021, there are no chargebacks on the above-mentioned orders in hand.
In the first half of 2022, Loongson Zhongke is expected to have revenue of about 400-500 million yuan, a year-on-year decrease of about 28%-11%; It is expected to achieve a net profit attributable to the mother of about 115-167 million yuan, an increase of 28% to 85% year-on-year, and a year-on-year decrease of 38 million yuan after deducting non-profit.
IPO fundraising has shrunk by nearly 1/3, and there is still a risk of competition in the domestic CPU market in the future
When submitting the prospectus in June 2021, Loongson Zhongke said that the IPO company plans to raise 3.512 billion yuan, of which 35% of the total amount raised will be used for the research and development and industrialization of advanced process chips; 30% (30%) is used for the construction investment of high-performance general-purpose graphics processor chips and system research and development projects; The rest is supplementary liquidity.
However, according to the issue price of 60.06 yuan per share, the expected raised funds are 2.462 billion yuan, which is nearly 1 billion yuan less than the fundraising plan in the prospectus. At the same time, based on the issue price, the total market value reached 24 billion yuan. Whether it is the issue price, or fundraising, the market value is lower than the market expectation.
Regarding the company's pricing considerations for this offering and the gap between fundraising expectations, Hu Weiwu said at the first roadshow on the Internet that there are no listed enterprises in the A-share market that are completely comparable to the company, and the company's pricing comprehensively considers the current market situation and the company's capital needs in the future period.
Among the objects of the strategic placement of Loongson Zhongke's listing and issuance, in addition to the two employee asset management plans and the sponsoring companies involved in the follow-up investment, there are also three industrial enterprises with strategic cooperative relations or long-term cooperation intentions with Loongson Zhongke business (each contributing 30 million yuan), the second phase of the National Big Fund (200 million yuan), the China Net Investment Fund (investing 120.6 million yuan), the National Industrial Investment Fund (investing 100.5 million yuan) and other "national teams" The Fund participates in the strategic placement of the initial offering.
As a result, the second phase of the big fund was allocated 1.435 million shares, accounting for 3.50% of the number of shares issued; China Net Investment And Industrial Investment Fund were allocated 546,700 shares and 273,300 shares respectively; The three industrial strategic investors were each allocated 205,000 shares.
According to the announcement, the initial strategic placement number of Loongson Zhongke's offering was 3 million shares, accounting for 15% of the total scale of the offering; The final number of strategic placements was 835,100 shares, accounting for 27.84% of the initial strategic placements. During this period, the difference of 2.1649 million shares will be called back to the offline issuance.
For the future positioning of Loongson Zhongke, some media believe that at present, a large number of Chinese software companies are using Loongson Zhongke's programming framework and language to write code, this probability is still very small, and with the cost advantage of independent instruction set architecture, the domestic chip market share using X86 and ARM instruction set architecture is gradually encroaching on the domestic chip market share using X86 and ARM instruction set architecture, and the opportunity is very large.
But the problem is that in the future, with the rapid development of RISC-V, ARM and other instruction set architectures, Loongson Zhongke may fall into the entanglement of other domestic CPUs and Xinchuang markets, which is probably the company's biggest risk.
When the IPO roadshow was asked by the Titanium Media App, Hu Weiwu replied that in the global computer field, the CPU commercial market is basically occupied by Intel (the market share remains 80% all year round) and AMD. After a long period of accumulation, Loongson Zhongke basically completed the technical "make-up lesson", the performance of the general processor has approached the mainstream product level of the commercial field market, the operating system has become mature and stable, and will open the market in the commercial field after further iterative optimization.
He stressed that as the earliest company to develop a general-purpose processor, Loongson Zhongke has a series of independent patents and intellectual property rights, with outstanding technical advantages and strong product competitiveness. Compared with domestic CPU companies, Loongson Zhongke is at the forefront of the market in the market of industrial control system autonomy and information system autonomy.
(This article was first published on titanium media App, author | Lin Zhijia)