Explanation on the investment of the raised funds in the field of scientific and technological innovation (revised draft)

VeriSilicon Microelectronics (Shanghai) Co., Ltd. (hereinafter referred to as "VeriSilicon" or the "Company") has conducted research on whether the investment of funds raised from the issuance of shares to specific targets in 2023 belongs to the field of scientific and technological innovation in accordance with the Administrative Measures for the Registration of Securities Issuance of Listed Companies and other relevant regulations, combined with the actual situation of the Company, and formulated the "Statement of VeriSilicon Microelectronics (Shanghai) Co., Ltd. on the Investment of the Raised Funds in the Field of Scientific and Technological Innovation", which is as follows:

First, the company's main business

VeriSilicon is a company that relies on its own semiconductor IP to provide customers with platform-based, all-round, one-stop chip customization services and semiconductor IP licensing services. The company has independent and controllable graphics processing unit IP (GPUIP), neural network processor IP (NPU IP), video processor IP (VPU IP), and digital signal processor

IP (DSP IP), image signal processor IP (ISP IP) and display processor IP are six types of processor IP (Display

Processor IP), more than 1,600 digital-to-analog hybrid IPs, and RF IPs. The main business has a wide range of application areas, including:

Consumer electronics, automotive electronics, computers and peripherals, industry, data processing, Internet of Things, etc., the main customers include chip design companies, IDMs, system manufacturers, large Internet companies, cloud service providers, etc.

VeriSilicon is on the world's mainstream semiconductor process nodes such as traditional CMOS, advanced FinFET and FD-SOI

All have excellent design capabilities. In terms of advanced semiconductor process nodes, the company already has:

Successful flow of 14nm/10nm/7nm/6nm/5nm FinFET and 28nm/22nm FD-SOI process node chips

Piece experience. In addition, according to IPnest's statistics in May 2024, in 2023, VeriSilicon IP will be licensed

The market share of the property business ranks first in China and eighth in the world; In 2023, VeriSilicon's intellectual property rights will be licensed

Fee income ranks sixth in the world. According to IPnest's IP classification and the public information of each enterprise, VeriSilicon's IP type

Ranked in the top 2 of the top 10 IP companies in the world.

Second, the raised funds are invested in the plan

(1) The plan for the use of the raised funds

The total amount of funds raised by this issuance to specific objects shall not exceed 180,685.69 million yuan (including this number), and the net amount of the total funds raised after deducting the issuance expenses will be used in the following directions:

Unit: 10,000 yuan

Serial No. Project Total Investment The amount of funds to be raised

1 Chiplet solutions in the field of AIGC and smart mobility 108,889.30 108,759.30

Platform R&D projects

2 Next-generation IP 71,926.38 71,926.38 for AIGC, graphics processing, and other scenarios

R&D and industrialization projects

Total 180,815.69 180,685.69

Within the scope of the above-mentioned raised funds investment projects, the company can make appropriate adjustments to the investment sequence and specific amount of the corresponding raised funds investment projects according to the actual situation such as the progress and capital needs of the projects. Before the raised funds are in place, the company can invest in advance with self-raised funds according to the actual situation of the investment project with the raised funds, and replace them after the raised funds are in place.

The company held the 19th meeting of the second board of directors on December 16, 2024, and deliberated and passed the "Proposal on the Company's 2023 Issuance of A Shares to Specific Objects (Revised Draft)" and other proposals, in view of the company's new investment and proposed investment of 1.3 million yuan in the recent period, based on the principle of prudence from the total amount of funds raised 1.3 million yuan, so the issuance plan of this issuance has been adjusted, from the original proposed funds to raise no more than 180,815.69 million yuan (including 180, 8,156,900 yuan) to no more than 1,806,856,900 yuan (including 1,806,856,900 yuan). The actual net amount of funds raised is less than the total amount of funds to be raised, and the shortfall will be solved by the company with self-raised funds.

(2) The basic situation and feasibility analysis of the investment project of the raised funds

1. Project overview

(1) R&D project of Chiplet solution platform in the field of AIGC and smart mobility

Chiplets are one of the new technologies that can balance computing performance and cost, improve design flexibility, and improve the economics and reusability of IP modules. The chiplet implementation principle is like building blocks, taking some die chips that have been produced in advance on the process line to achieve specific functions through advanced integration technologies (such as

3D integration, etc.) are integrated and packaged together to form a system-on-chip. The company's Chiplet R&D project is enclosed

The main R&D achievements of the AIGC Chiplet solution platform and the smart travel Chiplet solution platform

SoCs for AIGC and autonomous driving, and developed a complete set of software platforms and solutions for related fields.

Through the development of chiplet technology, the company can maximize the value of its advanced chip design capabilities and semiconductor IP research and development capabilities

At the same time, it can also be upgraded to a chiplet supplier to improve the company's IP reusability.

Effectively reduce the design cost and risk of chip customers, shorten the iterative cycle of chip research and development, help chip manufacturers, system manufacturers, Internet manufacturers and other enterprises to rapidly develop high-performance computing chip products, lower the threshold for large-scale chip design, improve customer stickiness, and further improve the company's profitability.

(2) R&D and industrialization projects of a new generation of IP for AIGC, graphics processing and other scenarios

This project will build on existing IP to develop high-performance graphs for AIGC and data center applications

Shape Processor (GPU) IP, AI IP, and a new generation of image signal processor AI-ISP with integrated neural network accelerator, iterate IP technology, enrich IP reserves, and meet the needs of downstream markets. The implementation of the project is conducive to giving full play to the company's existing technical advantages and product advantages, consolidating the company's market position in the industry, expanding market share, and laying a solid foundation for the company's sustainable development and becoming bigger and stronger.

2. The necessity of project implementation

(1) The construction of the project is conducive to solving the bottleneck of the high-end chip industry process and strengthening the independent supply capacity of China's chips

The integrated circuit industry is the cornerstone of the information industry, and China's integrated circuit industry has a long-term trade deficit, a high degree of dependence on foreign countries, and a low actual self-sufficiency rate, especially in the field of high-end chips. According to data from the research institute IBS, China's semiconductor self-sufficiency rate will be 25.6% in 2022. In addition, the current development of China's semiconductor industry in the field of advanced computing, supercomputing and semiconductor equipment is limited by overseas supply, which is difficult to meet the needs of the downstream market for chip design, manufacturing and process technology.

At present, Chiplet technology is in its infancy, and the technology gap between countries is not large, so develop Chiplet technology

It will help narrow the gap between China's chip enterprises and overseas leading manufacturers in the development of high-performance chip products. In order to solve the process bottleneck of the high-performance chip industry and relieve the problem of China's chip design industry in the field of advanced computing,

The limitations in the field of supercomputing and semiconductor equipment have strengthened the independent supply capacity of chips in China, and the company urgently needs to plan and layout in chiplet technology. Through this fundraising project, the company will vigorously develop chiplet technology by enriching the integrated circuit-related technologies and IPs required for R&D, selecting and hiring senior R&D personnel, and strive to solve important issues such as high-performance chip design, R&D and iteration, as well as breaking through process limitations, further strengthening the independent supply capacity of chips, and reducing the dependence of China's high-end chip design industry on foreign countries.

(2) The implementation of the project is conducive to enriching the technical matrix and creating profit growth points

The deep IP reserve generates huge profits and is one of the main sources of profit for the company. With the increasingly fierce competition in the chip design industry and the continuous upgrading and innovation of chip technology, companies must keep up with the pace of the market, meet the changing market demand, and broaden the market space. Based on the company's existing advanced chip design capabilities and semiconductor IP design capabilities, combined with the company's rich experience in mass production services and industrialization, the chiplet technology will improve the company's IP reusability, enhance inter-business collaboration and increase the added value of design services, and further expand the company's coverage in new segments and markets such as artificial intelligence and autonomous driving.

With the rapid popularization of AIGC applications and the rapid development of applications such as short video, cloud gaming, cloud office, metaverse, assisted driving/autonomous driving, etc., related devices have put forward higher requirements for artificial intelligence, image processing and other technologies, as well as the corresponding semiconductor IP. In order to continuously consolidate and develop the competitive advantage of technological advancement, the company needs to keep up with the development trend of technology and constantly update and iterate IP technology. Through this fundraising project, the company will develop high-performance graphics processing unit (GPU) IP, AI IP, and a new generation of image signal processor AI-ISP integrated with neural network accelerators for AIGC and data center applications, which will be widely used in downstream fields such as artificial intelligence, intelligent driving, and image processing, and is committed to building a complete application software ecosystem, further enhancing the product competitiveness in market applications, enriching the technology matrix, and creating profit growth points.

(3) The construction of the project is conducive to promoting the company's advanced technology layout and meeting the requirements of the AIGC market

The demand for force chips

In recent years, with the development of technology in the field of artificial intelligence, various types of AIGC represented by ChatGPT

Applications are on the rise. Finance, medical care, the Internet and other industries are actively carrying out large-scale model research, which gives all walks of life the ability to solve the problem of scenario efficiency optimization, promote industrial transformation, so as to improve quality, reduce costs and increase efficiency, and promote industrial transformation and upgrading. The development of large models requires massive data and powerful computing power to support the process of training and inference, and computing power directly determines the quality and efficiency of AI training and inference

The demand is growing exponentially. Under the wave of artificial intelligence, there is a huge gap in computing power, and the growth rate of the amount of data that needs to be processed far exceeds the growth rate of artificial intelligence hardware computing power. Based on this background, the AI industry has put forward higher computing power requirements for GPGPUs, AI chips, and related IPs.

The chiplet solutions for high-performance computing chips and various high-performance IPs developed by the company are in the future

In the context of the former overseas supply restrictions, it is conducive to promoting China's independent research and development and design of chips with high computing power to meet the growing demand for high computing power technology in related markets.

(4) The implementation of the project is conducive to the company to maintain long-term R&D investment and strengthen the company's market leading edge

VeriSilicon's integrated circuit design industry is the upstream link of the integrated circuit industry, and compared with other links in the industrial chain, it needs to carry out targeted layout and research and development earlier. Therefore, the integrated circuit design industry presents an industry pattern with a long investment cycle and large R&D investment. In recent years, most of the world's top 10 chip design companies have maintained a ratio of R&D expenses to operating income of 20%-30%.

As a leading one-stop chip design service provider in Chinese mainland, VeriSilicon needs to continue to ensure high R&D investment and continuously launch advanced chip design technologies and various high-performance IPs with higher market competitiveness in order to continuously improve its technological advancement and market competitiveness in the field of chip customization services and semiconductor IP licensing services, so as to maintain the leading edge of the company's products and services in terms of function, performance, energy efficiency and other indicators, win long-term competitiveness, and continue to increase market share. In turn, the company's market leading position is strengthened.

3. Feasibility of project implementation

(1) The national industrial policy provides a solid policy foundation for the implementation of this project

The semiconductor IP licensing and one-stop chip customization services provided by the company belong to the core link of the integrated circuit design industry and are one of the key components of the upstream of the integrated circuit industry. In recent years, the state has continued to promulgate relevant policies to promote the development of China's integrated circuit industry.

In December 2022, the Central Committee of the Communist Party of China and the State Council issued the Outline of the Strategic Plan for Expanding Domestic Demand (2022-2035).

It is proposed to expand strategic emerging industries, comprehensively enhance the core competitiveness of the information technology industry, and promote technological innovation and application of artificial intelligence, advanced communications, integrated circuits, new displays, and advanced computing. In July 2022, the Shanghai Municipal Government issued the "14th Five-Year Plan for the Development of Strategic Emerging Industries and Leading Industries in Shanghai", pointing out that by 2025, Shanghai needs to basically build an innovation highland for the integrated circuit industry with global influence. The advanced manufacturing process has been further improved, and the chip design capability is internationally leading. Focus on the development of integrated circuit design, mention

Enhance the R&D capabilities of core chips such as 5G communication, desktop CPU, artificial intelligence, Internet of Things, and automotive electronics.

The strong support of the national industrial policy has created a good industrial policy environment for the rapid development of the integrated circuit industry, and also provided a practical guarantee for the implementation of this project.

(2) The growing market demand provides a market guarantee for the digestion of project products

In recent years, with the continuous development of technology in the field of artificial intelligence and the empowerment of all walks of life, the downstream application scenarios of integrated circuit design are constantly expanding, among which cloud computing, edge computing, consumer electronics, Internet of Things, smart cars and other fields are currently the mainstream downstream application directions. At this stage, AIGC-related applications are rapidly emerging, which directly drives the high computing power demand for AI chips in multiple application industries. According to data from the China Academy of Information and Communications Technology, the scale of global computing power is expected to grow at a rate of more than 50% in the next five years. Various terminal applications are also being upgraded with the empowerment of AI technology, such as camera devices, wearable devices, smart homes, automobiles, etc., which are equipped with artificial intelligence technology, and the rich and diverse terminal applications will also promote the growing demand for various customized chips.

The expansion of the downstream market and the increase in demand for chips will promote the continued development of the integrated circuit design industry, and the market size of semiconductor IP, which is one of the core elements of the integrated circuit industry, will also increase year by year. occupy

According to the Design IP Report released by IPnest, global design IP revenue reached $6.67 billion in 2022.

Year-over-year growth of 20.2%, revenue growth of 19.4% and 16.7% year-over-year in 2021 and 2020, respectively

Seeing that the growth rate of market scale is accelerating, the future market potential is huge.

The company's existing business has accumulated a certain customer base, with the continuous expansion of downstream application scenarios and the continuous growth of the IP market, the company will have a larger market base, providing a market guarantee for the digestion of project products.

(3) The company's core technology accumulation provides a technical foundation for the smooth realization of the R&D goals of this project

A number of core technologies owned by the company provide technical support for the smooth implementation of this project. With excellent chip and semiconductor IP design capabilities, rich experience in related technology design and its own continuous R&D investment, the company has accumulated a large number of core technologies such as chip customization technology and semiconductor IP technology, and has formed a series of advanced platform solutions and IP subsystems/platforms for specific application fields, and has achieved rich application experience and good market position in vertical application fields such as the Internet of Things, wearables, automobiles, and data centers.

In terms of one-stop chip customization services, VeriSilicon has advanced 5nm FinFET and 22nm FD-SOI

From the design capabilities of the traditional 250nm CMOS process, the mastered processes can cover the mainstream processes and special processes of the world's major fabs, and have successful tape-out experience in 14nm/10nm/7nm/6nm/5nm FinFET and 28nm/22nm FD-SOI process node chips. VeriSilicon's chip design process has been certified to ISO 26262 for automotive functional safety management systems. Based on the company's advanced chip design capabilities, VeriSilicon has also launched a series of platform-based solutions for fast-growing markets.

Up to now, the company has GPU IP, NPU IP, VPU IP, DSP for integrated circuit design

IP, ISP IP, Display Processor IP, six types of processor IP, and more than 1,600 mixed-digital-to-analog IP and radios

IP。 According to IPnest's statistics in May 2024, VeriSilicon's IP licensing business will account for a market share in 2023

The rate ranks first in Chinese mainland and eighth in the world; In 2023, VeriSilicon's intellectual property licensing fee income

Ranked 6th in the world. According to IPnest's IP classification and the public information of each enterprise, VeriSilicon's IP types are ranked in the world

Ranked in the top 2 of the top 10 IP companies. Among them, VeriSilicon's NPU IP has been used by 72 customers for 128

artificial intelligence chips; VeriSilicon's GPU IP has been cultivating the embedded market for nearly 20 years, leading the way in automotive electronics

In cooperation with world-renowned leading enterprises, it has been widely used in in-vehicle entertainment systems and reconfigurable instrument clusters.

and in ADAS products; VeriSilicon's VPU IP has been selected by the world's top 20 cloud platform solution providers

of 12 and was adopted by 3 of the top 5 internet providers in China; VeriSilicon's image signal

The Physiologist IP is certified to the ISO 26262 automotive functional safety standard and the IEC 61508 industrial functional safety standard

Associate Certification. VeriSilicon's other processor IPs are also in the process of being certified to automotive functional safety standards. Based on VeriSilicon's abundant processor IP resources, VeriSilicon has also launched an intelligent pixel processing platform from camera input to display output, which is organically composed of VeriSilicon's 6 major processor IPs, which is highly scalable and can meet different market segments from low power consumption (wearables) to high image quality (servers/data centers).

In summary, the company has deep core technology accumulation, rich R&D experience and solid R&D strength, which provides a solid technical guarantee for the smooth implementation of this fundraising project.

(4) Abundant talent pool provides talent guarantee for the project

Integrated circuits are talent-intensive industries, and insisting on introducing and cultivating outstanding talents is the key to the company's survival and development, and it is also the basis for the company to continuously improve its core competitiveness. According to the long-term technology development strategy and the existing talent pool, the company not only through internal recommendation, network recruitment and other parties in the introduction of external talents

We also recruit experienced talents, and jointly carry out technical lectures, "VeriSilicon Cup" circuit design competition, "VeriSilicon Cup" software programming competition, and special campus job fairs to build "Hainan University-VeriSilicon Smart Medical Care Innovation Laboratory", "School of Biomedical Engineering-VeriSilicon Medical Electronics Innovation Laboratory", and "Zhejiang University-VeriSilicon Intelligent Graphics Processor Joint Research Center". It has also become an off-campus internship base for the School of Information Science and Engineering of Southeast University and the School of Biomedical Engineering of Hainan University, so as to attract and recruit graduates from top universities at home and abroad, and provide talent reserves for the company's sustainable and stable development. From January to June 2024, the voluntary turnover rate of employees in Chinese mainland is 1.42%, which is much lower than the average voluntary turnover rate of about 6.9% in the semiconductor industry in Chinese mainland (Aon Hewitt Human Capital Survey data). As of June 30, 2024, the company had a total of 1,640 R&D personnel, accounting for 89.18%.

The company's strong talent reserve ensures the company's continuous innovation ability, can help the company efficiently complete the research and development and industrialization of new technologies, and provide a solid talent guarantee for the implementation of this fundraising project.

(5) High-quality customer resources and brand advantages provide favorable conditions for the implementation of this project

After years of development, the company continues to provide customers with high-performance and high-reliability products and services in the fields of consumer electronics, automotive electronics, computing and peripherals, industry, data processing, Internet of Things, etc., and has accumulated a certain brand reputation in the industry. Intel, Bosch, NXP, Amazon and many other well-known domestic and foreign enterprises with strong representative and advanced nature in their respective fields have become VeriSilicon's customers and formed service results with strong demonstration effect, and the company's competitiveness in terms of brand has been further enhanced. The end customer group of this project has a large overlap with the existing customer groups such as automotive electronics and data processing, and the company's brand awareness and service foundation will provide favorable conditions for the construction of this project.

With the continuous improvement of the company's product system, the company will comply with the development trend of emerging application fields such as artificial intelligence and automotive electronics, give full play to its R&D and design advantages in the field of chips, expand the coverage of application fields and downstream customers, and provide assistance for the smooth development and application of the project.

3. Description of the main business of the raised funds invested in the field of scientific and technological innovation

(1) The funds raised this time are mainly invested in the field of scientific and technological innovation

The integrated circuit design industry where the company is located belongs to high-tech industries and strategic emerging industries, and the construction of an independent and controllable integrated circuit industry system is one of the key tasks for China to promote the large-scale development of strategic emerging industries.

The fundraising project is closely related to the company's main business, including AIGC and chiplet in the field of smart mobility

Solution platform R&D projects and next-generation IP R&D and industrialization projects for AIGC, graphics processing and other scenarios. Through the implementation of this fundraising project, the company will further enrich the company's technology matrix, improve product performance, improve the downstream application market, and explore cutting-edge technology research to meet the company's R&D layout and business expansion needs, and continue to strengthen the company's scientific and technological innovation strength. Therefore, the funds raised this time are mainly invested in the field of scientific and technological innovation, facing the world's scientific and technological frontiers, facing the main battlefield of the economy, facing the major needs of the country, and serving the national innovation-driven development strategy and the national economic high-quality development strategy.

The funds raised by the company are not used for financial investment and quasi-financial business such as holding trading financial assets and financial assets available for sale, lending to others, and entrusting wealth management.

(2) This fundraising project promotes the improvement of the company's scientific and technological innovation level

The integrated circuit design industry is a technology-intensive industry, with a long investment cycle and large R&D investment, so maintaining R&D investment and R&D capabilities is the key to the company's core competitiveness. With years of R&D team efforts and continuous R&D investment, the company has accumulated rich experience in R&D and industrialization, as well as deep technology and talent reserves.

Through the implementation of this fundraising project, the company will maintain the competitive advantage of one-stop chip customization business and semiconductor IP reserves, maintain the company's competitive barriers, help the company expand application scenarios, accelerate the industrial application of chiplet technology, and enhance the company's market position and comprehensive competitiveness; In addition, it also helps to optimize the company's financial structure and promote the continuous improvement of the company's scientific and technological innovation level.

IV. Conclusions

To sum up, the company believes that the company's raised funds are invested in the field of scientific and technological innovation, which will help improve the company's scientific and technological innovation capabilities, strengthen the company's scientific and technological innovation attributes, and meet the requirements of the "Administrative Measures for the Registration of Securities Issuance of Listed Companies" and other relevant regulations.

Board of Directors of VeriSilicon Microelectronics (Shanghai) Co., Ltd

December 16, 2024