The memory chip market in 2024 reveals two signals:
One is that due to the surge in AI computing power, traditional DRAM technology is increasingly unable to keep up with the needs of the times, and international memory chip manufacturers SK hynix, Samsung, and Micron are actively switching to HBM high-end products.
The other is that international manufacturers have insufficient supply of low-end memory chips, the supply gap of domestic niche DRAM chips has expanded, prices have risen, and domestic manufacturers have ushered in a wave of good.
It can be seen that in the first half of 2024, Montage Technology, a leading memory interface company, achieved revenue of 1.7 billion, a year-on-year increase of 80%, and net profit attributable to the parent company was 600 million, a year-on-year increase of 620%; Longsys, a leading storage module manufacturer, achieved operating income of 9 billion yuan, a year-on-year increase of 144%, and net profit attributable to the parent company was 600 million yuan, a year-on-year increase of 200%.
However, GigaDevice, a leading memory chip designer, does not seem to have seized this development opportunity!
2021 has become a watershed in the company's performance, and the company's revenue and net profit will decline sharply in 2022 and 2023, and the market value will also plummet from 130 billion in 2021 to 40 billion.
In the first half of 2024, the company will achieve revenue of 3.6 billion, a year-on-year increase of 21.69%; Net profit reached 517 million, an increase of 53.88% year-on-year, which seems to be a turnaround, but it is not.
GigaDevice's net cash flow from operating activities in 2023 is more than 1 billion yuan higher than net profit, and net profit = net cash flow from operating activities - depreciation and amortization - asset impairment loss - other non-cash costs.
The main reason for the serious decline in the company's net profit in 2023 is that the provision for asset impairment loss (mainly goodwill) is about 613 million yuan and the asset depreciation and amortization expense is about 357 million yuan during the reporting period.
If the impact of depreciation is not considered, the real net profit in 2023 should be about 1.7 billion, so that the company's net profit in the first half of 2024 will actually decline slightly.
Compared with comparable companies in the same industry such as Montage Technology and Longsys, GigaDevice's performance growth in the past three years seems to have encountered a bottleneck.
However, the trend of GigaDevice's lack of stamina has already emerged, and we analyze it from the following aspects:
First, profitability has risen sluggishly.
As a chip design company, GigaDevice's gross profit margin is far behind Montage Technology and NAURA Huachuang, especially in 2023, GigaDevice's gross profit margin will only be 34%, reaching the historical freezing point!
Some people may say that the memory chip market is in short supply now, the price increase trend has been set, GigaDevice is the leader in memory chip design, and the gross profit margin will not rise in the future?
From the perspective of the company's business structure, among the three main products memory chips, microcontrollers and sensors, the gross profit margin of sensors and microcontrollers has declined seriously, and the gross profit margin of memory chips has not increased, which has become the main reason for the decline in the company's gross profit margin.
What is the reason for the decrease in the gross profit margin of the company's main business?
First of all, there is no need to spend too much energy on research in terms of sensors, because the revenue of sensors in the past five years is only about 6%, which has little impact on the company's overall gross profit margin.
Secondly, MCU products (microcontrollers) are the core growth point of the company's performance in 2022, accounting for about 35% of the company's revenue and ranking first in the domestic market share.
However, the technical barriers of the MCU industry are too low, and there are only more than 30 companies that can make MCUs in the A-share market.
Finally, in terms of memory chips, there are three categories of mainstream products: DRAM, Nand and Nor Flash, with the former two accounting for about 97% of the entire market, and Nor Flash products accounting for only 3%.
The company's main business is Nor Flash products, the market growth space is small, more importantly, the recent price increase is larger products are DRAM, Nand, Nor Flash products have a small increase, which is also the main reason for the price increase of memory chips and the company's gross profit margin does not rise.
Through the analysis of the gross profit margin of the company's sub-business, we conclude that it is difficult for the company's profitability to grow in a short period of time.
Second, the research and development process of high-end chips is slow.
The most promising of GigaDevice's three core businesses is DRAM, because there are many types of DRAM, and it can be upgraded with the needs of the times and is widely used in the downstream consumer electronics market.
However, it should be noted that GigaDevice does not have its own DRAM technology, but invested in Changxin Storage in 2016, focusing on DRAM dynamic chips, and the relationship between the two is now like a "brother", and the actual controller is Zhu Yiming.
The development of Changxin storage is really good, but at present, there are only DDR4 and DDR3L two mass-produced products, which are mainly used in set-top boxes, TVs, and communication fields, and the high-end DDR5 series has not yet broken through.
In terms of accuracy, GigaDevice cannot be compared with international storage leaders, Samsung's 1X, 1Y, and 1Z series have reached 10nm accuracy, while the highest accuracy of GigaDevice mass production is only 18.5nm.
So, is the company's high-end product research and development expected to accelerate?
To be honest, it's hard in this "lack of food and clothing" situation!
There has been no major breakthrough in the key equipment lithography machine. Samsung now has more than 30 lithography machines, and SK hynix also has about 10, while the domestic lithography machine field is still in the exploration stage.
If you can't develop a lithography machine in a short period of time, you can only use backward processes to improve performance as much as possible, and many of Huawei's chips use this method.
So, the current situation is that the logic chip is stuck at 14nm; DRAM stuck at 18nm; NAND is stuck at the 128th layer, as for when it can enter the high-end chip, it depends on the research and development progress of domestic lithography machines.
Third, the cost of overseas business has increased.
As can be seen from the figure below, GigaDevice's dependence on overseas business is very high, and the proportion of overseas business is even as high as 83% in 2022, but the proportion of business has declined in the past two years.
According to the latest information, the export cost of semiconductors and photovoltaics in mainland China has been further increased, of which the export rate of semiconductors has been increased from 25% to 50%, which will undoubtedly affect GigaDevice, Shanghai Electric Co., Ltd., Beijing Junzheng and other famous export enterprises.
You must know that mainland semiconductors are mainly low-end products, and profits are not high, and export profits are expected to be further reduced in the future.
Finally, to sum up.
GigaDevice's development in the past two years seems to have encountered a bottleneck, with its performance "rising and falling", while high-end products are seriously "stuck" by equipment and have poor fundamental performance.
It can also be seen that Zhu Yiming, the actual controller of GigaDevice, and Hong Kong Clear, the original shareholder, have reduced their holdings by 20 million shares since 2022, and have cashed out a total of 1.3 billion, indicating that the company's future development is uncertain!
The above analysis does not constitute specific trading advice, the stock market is risky, and investment should be cautious.
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Source: Flying Whale Investment Research