Montage Technology is not enough to catch the CPU, what waves can Intel set off after cashing out

Nearly four years after landing on the science and technology innovation board, Montage Technology, which once withstood many halos, has exposed various problems.

Following the "avalanche" of results in the first quarter of 2023, Montage Technology ushered in the listing of a total of 1,279,100 shares under the 2019 restricted stock incentive plan in the process of fully lifting the ban on competitive reduction and cashing out by the original shareholders of the initial offering. The company's shareholder, China Electronics Investment Holdings Co., Ltd. ("CLP Investment Holdings"), and its concerted actors have cashed out 5% of the total share capital, and the reduction of Intel Capital, which invested in 2018 with a capital increase of US$175 million and a book value of more than 6 billion yuan, is particularly eye-catching.

Industry insiders said that Montage Technology's heavy reliance on Intel CPU to develop the Jinchao server platform product line in the first quarter of 2023 sales revenue and gross margin have fallen sharply, and the company's first-generation AI chip only completed the tape-out and lighting of engineering samples, whether it can become a new profit growth point is still unknown.

Results plummeted, and key shareholders reduced their holdings

Looking back at the IPO reporting period of the company's science and technology innovation board, Montage Technology's operating income increased from 845 million yuan in 2016 to 1.758 billion yuan in 2018, with an average annual compound growth rate of 44.23%; After deducting non-recurring profits and losses, the net profit attributable to shareholders of the parent company increased from 3.154 million yuan in 2016 to 698 million yuan in 2018, with an average annual compound growth rate of 1388.11%.

However, the latest financial report data shows that due to the decline in demand in the server and computer industry and the impact of customer destocking, the company's operating income in the first quarter of 2023 was 420 million yuan, down 53.41% from the same period of the previous year; The net profit attributable to shareholders of the listed company was 19.7207 million yuan, down 93.56% from the same period of the previous year; The net profit attributable to shareholders of the listed company, net of non-recurring profits and losses, was 295,900 yuan, down 99.87% from the same period of the previous year.

It is worth noting that as one of the few integrated circuit design enterprises in China with both high-end general-purpose processor (CPU) and coprocessor (DCU) research and development capabilities, Haiguang Information's operating income, net profit and net profit after deducting non-recurring profits and losses in 2022 increased by 121.83%, 145.65% and 181.92% year-on-year, respectively, and the operating income in the first quarter of 2023, Net profit and net profit excluding non-recurring profit and loss increased by 20.04%, 66.87% and 41.95% year-on-year, respectively.

What disturbed investors was that not only the performance "avalanche", Montage Technology also successively issued a number of key shareholders to reduce their holdings. Among them, the total shareholding ratio of CLP Investment Holdings and Jiaxing Core Power Investment Partnership (Limited Partnership) decreased from 16.18% to 11.18%, and the total equity change reached 5%.

Prior to this, shareholders holding more than 5% of the company's shares, such as Jiaxing Hongyue and its concerted actors, Shanghai Linli and its concerted actors, and CLP Investment Holdings and its concerted actors, have all reduced their holdings through centralized bidding transactions, and the reduced shares account for 0.34% to 0.97% of the company's total share capital.

The market is more concerned that the reduction plan released at the beginning of this year shows that Intel Investment and its concerted actors plan to reduce their holdings of a total of no more than 22.6814 million shares of the company through centralized bidding, and the proportion of shares to be reduced to the company's total share capital does not exceed 2%.

According to the announcement on May 19, the reduction plan has been implemented more than halfway, and the total number of shares held by Intel Investment and its concerted actors in the total share capital has been reduced from 8.98% to 7.89%.

According to the prospectus, the cost of Intel Investment when it increased its capital in 2018 was $175 million, and according to the current total market value of more than 70 billion yuan, Intel's fund only needs to cash out less than 20 million shares to recover the initial investment cost.

Whether the AI chip can turn over

At present, Montage Technology mainly has two product lines, namely the interconnect chip product line and the Jinchao server platform product line. Among them, the Jinchao server platform product line is a Jinchao server platform built by the company since 2016 in cooperation with Intel and Tsinghua University to develop a series of Jinchao server CPUs, and based on Jintou CPU and the company's hybrid security memory module.

According to the 2022 annual report, the company released the first, second and third generations of Jinchao CPUs in May 2019, August 2020 and April 2021; In January 2023, the company released a new fourth-generation Jinchao CPU, which aims to provide computing power support for cloud computing, enterprise applications, artificial intelligence and high-performance computing with excellent performance.

From the performance point of view, in 2016, 2017 and 2018 during the IPO reporting period of the science and technology innovation board, the proportion of memory interface chip business to the company's operating income was as high as 66.08%, 76.14% and 99.49% respectively, while the related businesses such as Jinchao server CPU and hybrid security memory module did not generate revenue. Since the mass production of the company's first-generation Jinchao CPU in May 2019, after more than two years of marketing and customer cultivation, the related business has made breakthroughs. According to the annual report, the operating income of the Jinchao server platform product line in 2021 and 2022 was 845 million yuan and 937 million yuan, respectively, and the gross profit margin was 10.22% and 10.54%, respectively.

However, after only two years of volume, in the first quarter of this year, the sales revenue of the company's Jinchao server platform product line fell off a cliff to 05 million yuan, a decrease of 98.33% over the same period of the previous year, and the gross profit margin fell sharply to 6.29%.

As one of the important products of the company's strategic layout of data processing chips, Jinchao server CPU is jointly developed by the company with Tsinghua University and Intel. The company said that the product ownership and brand ownership Montage Technology, the company has applied for patents and integrated circuit layout design exclusive rights for the independent research and development core technology involved in the Jinchao server CPU, the algorithm of the reconfigurable computing processor (RCP) is provided by Tsinghua University, the company completes the overall module and other part of the chip design, and entrusts a third party to manufacture, package and test the chip. But the company has to admit that the CPU core chip of this product is provided by Intel, and the general CPU core chip provided by Intel accounts for about 90% of the CPU cost of the Jinchao server.

Montage's key layout of Jinchao server, CPU and AI chip fields have become the focus of market attention. The key question now is whether Montage, which has completed the first generation of AI chip engineering sample tape-out and successfully lit up, can Montage, which has completed the first generation of AI chip engineering and successfully lit up, turn over with the headwind of the incubated AI chip? At present, there are many doubts in the industry. What waves can Montage AI chips set off in this wave of artificial intelligence is particularly noteworthy.