Source: Market Capitalization

A Capital Solution to the IC Dilemma.

Author Guan Tao

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regarding the related companies in the semiconductor industry chain, feng yun jun introduced a lot, but recently he found a "fish out of the net" named Yan dongwei (688172.SH) ".

on December 18, some restricted shares and some strategic placement shares of yandong micro were lifted. the cost of restricted shares varies due to the different time of entry. However, the subscription price of the strategic placement part is the initial listing price of 21.98 yuan/share, and Yan Dongwei's share price has already fallen below this price.

(Market Value of Professional Services Registration System APP)

Judging from the third quarter report, Yandong Wei does seem to be in trouble. In the first three quarters, total revenue 1.524 billion, down 12.25 percent year-on-year, and net profit 0.348 billion, down 20.55 percent year-on-year.

So does Yan Dongwei have a chance?

New China's first integrated circuit factory

in 1987, with the approval of the Beijing Municipal Economic Commission and the Beijing Municipal Planning Commission, the state-owned 878 factory and the second Beijing Semiconductor Device Factory were merged into Beijing Yandong Microelectronics Co., Ltd. (hereinafter referred to as "Yandong Microelectronics Co., Ltd."), and plans to build a 4-inch integrated circuit production line.

The state-owned 878 Factory is my country's first integrated circuit factory. It was established in 1968. It and the Shanghai Radio 19th Factory established in the same year have been combined into "North Hegemony" and "South Hegemony". Two.

878 factory completed the first 2-inch integrated circuit production line in China in 1978 and the first 3-inch production line in China in 1980. before TSMC appeared, all chip manufacturers adopted IDM mode, and 878 factory was no exception.

from design to packaging testing, and then to the final printing and packaging, 878 factories even produce their own special materials and shells. However, in the 1990 s, it also stagnated, and at the end of the century it was on the verge of bankruptcy.

In May 2000, Beijing Electronic Control, Huarong Capital Management, Great Wall Capital Management, Oriental Capital Management and Yandong Micro jointly signed the Debt-to-Equity Agreement and established Yandong Micro's predecessor, Ltd.

(Yan Dong micro prospectus)

After the completion of the debt-to-equity swap, Yandong Micro also re-searched its business focus, with discrete devices and analog integrated circuits becoming the two main directions.

Avoid Moore's Law

The semiconductor industry has two branches: integrated circuits (chips) and discrete devices.

(CR Micro Prospectus)

01 discrete device leader, ECM preamplifier shipments number one in the world

Discrete devices refer to semiconductor devices that have fixed single characteristics and functions and cannot be separated in function.

A more popular way of saying is that the "separation" of discrete devices is relative to the "integration" of integrated circuits. Integrated circuits integrate thousands of PN junctions onto a chip, while discrete devices only form one or a small number of PN junctions on the chip to achieve some relatively simple functions.

This makes it unnecessary for discrete devices to be stuck by Moore's Law like integrated circuits. Based on comparative advantages, most domestic companies choose to expand their business in the field of discrete devices.

Yandong Micro's discrete device products include: digital transistors, ECM preamplifiers, surge protection devices and RF power devices, and they are all very competitive.

(Yan Dong micro prospectus)

02 Specialty Chip Building Competitive Advantage

chips can be divided into digital chips and analog chips. unlike digital chips such as CPU, GPU and DRAM, analog chips do not require so much advanced manufacturing processes and are not completely subject to moore's law.

analog chip products emphasize high signal-to-noise ratio, low distortion, low power consumption, high reliability and stability. the reduction of process may lead to the reduction of analog circuit performance. at present, 0.18um and 0.13um process nodes are still widely used in the industry.

But even so, none of the world's top 10 analog chip makers in 2021 will be Chinese. Global analog chip sales in 2021 are $74.1 billion, while Yandong Micro's analog chip plus discrete device revenue is just 0.306 billion yuan, less than $0.1 billion.

But combining the strengths of its own discrete devices and analog chips, Yandong Micro has found its competitive advantage in the field of special integrated circuits and devices, which have been Yandong Micro's number one source of revenue since 2019.

(Yan Dong micro prospectus)

Yandong Micro's customers in special fields mainly come from three fields: remote sensing and telemetry, instrumentation and communication transmission. Based on the independent and controllable needs of special fields, the relevant customers have a stable cooperative relationship once confirmed.

Coincidentally, the listed company Zhenhua Scenery (688439.SH) is also the main supplier of special integrated circuits for the Aerospace Military Industry Group by virtue of its amplifier product advantages.

Since 2019, old customers have contributed more than 90% of the revenue of special integrated circuits and devices, and the annual turnover rate of old customers is very low.

(Yan Dong micro prospectus)

on the shoulders of giants

In addition to producing its own products, Yandong Micro also provides wafer fabrication and packaging and testing services to other semiconductor companies.

from the data, the proportion of foundry has far exceeded its own use, especially the 8-inch wafer production line, the proportion of self-use is only 3% before 2022, mainly for foundry.

(Yan Dong micro prospectus)

speaking of yandong micro's wafer production line, we have to introduce another growth path of yandong micro.

01 agreement to introduce 8-inch production line

In 2008, Yandong Wei's 6-inch wafer production line began mass production.

in 2018, Yan dongwei's 6-inch production line needed to move out of Beijing due to industrial easing and business adjustment in the capital. at that time, Yan dongwei had just completed the expansion of production and started the contract manufacturing business.

Eventually, Yan Dongwei acquired Sichuan Guangyi and acquired a 6-inch integrated circuit production line it had built.

unlike the 6-inch production line, which is only the relocation of production capacity, yandong micro has been groping in this field for many years. in 2016, yandong micro started the planning of the 8-inch production line project.

in order to speed up the construction progress of the project, in September 2016, Yan dongwei signed a technology license (golden Kirin analyst) agreement with Malaysia's SilTerra company:

in 2018, yandong micro's 8-inch production line started construction in Beijing economic and technological development zone, will be opened in 2019, and the monthly output will exceed 50000 pieces in December 2021.

in addition, during the construction of the 8-inch production line, yandong micro took the lead in realizing the mass production and application verification of domestic complete sets of key equipment on the 8-inch large-scale production line in China. it pressed the acceleration key for the localization process of complete sets of domestic integrated circuit equipment. the equipment mainly came from northern huachuang.

02 patent transfer, cooperative research and development, promote technology iteration

Coincidentally, Yandong Micro's RF power device is also a follow-up research and development on the technology of 28 invention patents and 19 retrial patents of the Institute of Microelectronics of the Chinese Academy of Sciences.

In addition, although Yandong Micro is the world's first in ECM preamplifier shipments, its technology is mainly concentrated in the JFET-type field.

Voltage gain is an important parameter used to measure the performance of the preamplifier. The larger the range, the stronger the technology. The prospectus shows that Yandong Micro's ECM preamplifier can cover voltage gain of-1.5dB to 5dB, while RFsemi's products cover-1.5dB to 15dB.

CMOS preamplifier can achieve higher gain. However, due to the demand of technology for circuit design experience and simulation experience, Yan Dongwei chose to jointly develop relevant technologies with Shenzhen Ruidi Core Electronics Co., Ltd. in 2014. Ruidi Core is mainly responsible for design simulation.

Based on the above cooperation, the two parties share relevant technical achievements. On this basis, Yandong Micro finally independently developed ECM preamplifiers with gains of 3dB and 6dB.

(Yan Dong micro prospectus)

Specialty chips and chip foundry, two growth tools

from the growth point of view, Yandong micro whether its own business or contract business growth mainly occurred in 2021, when the contract business grew 199 percent year-on-year, up 0.867 billion, its own business revenue grew 62% year-on-year, up 1.118 billion.

(Charting: Market Value Fengyun APP)

Further dismantling, the most obvious growth is mainly in the special integrated circuit and device and wafer manufacturing business, discrete device products, although the market occupancy rate is leading, but the growth rate is not bright.

(Yan Dong micro prospectus)

01 Special Chip for Growth Engine

special products are exempted from disclosure due to their special business attributes. from the downstream customers, they are mainly sold to the three major groups a, B and c and the controlling shareholder Beijing electric control. basically, 80% of the annual revenue is contributed by these four customers.

(Charting: Market Value Fengyun APP)

The sudden rise of Group C and the surge in orders for Group A, Group B and Beijing electronic control are the main reasons for the revenue growth of specialty products in 2021. However, there is limited information for further analysis except that it can be inferred that Group C comes from the remote sensing and telemetry industry.

(Yan Dong micro prospectus)

In the first three quarters of 2023, Yandong Wei did not separately disclose the performance fluctuations of its own products and OEM products, and we have no way of knowing the correlation between the performance decline in the first three quarters and specialty products.

However, the main reason for the decline in revenue and profit in the semi-annual report is the decline in the sales price of consumer products.

(Semi-Annual Report 2023)

special integrated circuits and devices are certainly not consumer products, which seems to indicate that the decline in revenue has little correlation with special businesses. of course, special products should not grow much either. then, let's look at wafer foundry business.

02 wafer foundry, related to the strong consumer electronics industry boom

wafer foundry business revenue growth reasons in fact, we all know, the 2020 epidemic led to the global production capacity affected, China due to proper control, production capacity first to recover, tight supply and demand led to the entire industry from the second half of 2020 began to break out lack of core tide, followed by the trade war triggered by the wave of domestic substitution.

From the price point of view, due to the lack of core tide, the average unit price of 6-inch and 8-inch wafers will rise significantly in 2021.

(Yan Dong micro prospectus)

on the other hand, with the continuous recovery of production capacity after the 8-inch project will be opened at the end of 2019 and the 6-inch relocation, yandong micro's production capacity will also be fully released in 2021, and the price and volume will rise together. there is no reason why the 2021 data are not good-looking.

(Yan Dong micro prospectus)

starting from 2022, the lack of core has faded. as about 80% of the terminal applications of yandong's micro-foundry business are concentrated in the consumer sector, the entire consumer electronics industry has been experiencing weak demand since the first half of 2022, resulting in stagnant growth in 2022.

(Yan Dong micro prospectus)

In the first half of 2023, China's exports of notebook computers, mobile phones and integrated circuits fell by 23.9, 13.5 and 10% respectively, and the market was still in a state of destocking.

consumer products, weak demand and falling prices, the main reasons for the decline in revenue in the first three quarters of 2023 are basically the same.

peers are basically the same performance changes. in 2021, the lack of core tide reaped a wave of performance growth dividends, and in 2022, the growth stagnated. In the first three quarters of 2023, China Resources Micro (688396.SH) total revenue fell 1.3 percent year-on-year, while China Microelectronics (600360.SH) total revenue fell 18 percent year-on-year.

(Charting: Market Value Fengyun APP)

From the perspective of gross profit margin, Yandong Wei's overall gross profit margin is basically close to that of its peers. The gross profit margin of this industry is not low. This is also the main reason why its gross profit margin declined in the first three quarters, but its net profit is still 22.08.

(Charting: Market Value Fengyun APP)

But this does not mean that Yan Dongwei only wait for the consumer electronics industry to recover a chance.

Research and development of more process platforms, 3 billion construction in progress to be completed soon

although yandong micro 6-inch wafer production line can provide customers with process platforms such as planar MOS, planar IGBT, BJT, TVS, JFET, SBD, FRD, analog IC, etc., 8-inch wafer manufacturing production line can provide customers with process platforms such as trench MOSFET, planar MOSFET, trench IGBT, CMOS, BCD, MEMS, etc.

but from 2019 to 2021, whether it is 6-inch or 8-inch wafer foundry, the actual services provided are mainly MOSFET technology, accounting for nearly 100 percent.

(Yan Dong micro prospectus)

at present, yandong micro's wafer production line has built process platforms such as planar MOSFET, trench MOSFET, planar IGBT, trench IGBT, BCD, MEMS, BJT, TVS, JFET, SBD, FRD, analog IC, etc., and continues to develop a variety of process platforms such as silicon light, radio frequency power devices, infrared thermal imaging MEMS, etc.

Under the wave of localization substitution, as the process platform becomes mature and perfect, Yandong Micro has no reason not to provide more service categories.

On the other hand, Yan Dongwei is also continuing to promote the construction of production capacity.

As of the end of September 2023, its book construction in progress was as high as 3.223 billion, slightly more than fixed assets. Among them, the most important are the 8-inch production line and the 12-inch production line, which add up to nearly 3 billion, constituting almost all the projects under construction.

8 inches is the production line mentioned above that has been put into use. by 2023, the project progress will be 97%.

the 12-inch production line is a fund-raising project of yandong micro, with a total investment of 7.5 billion nm and a process node of 65nm. the products are positioned as high-density power devices, display driver ICs, power management ICs, silicon optical chips, etc.

In April 2023, the first phase of the 12-inch wafer production line was completed and passed through the line, and the yield rate reached expectations.

from the perspective of development, Yan dongwei is actually the capital plan to solve the dilemma of integrated circuits. it focuses on major issues, does not give up independent research and development, does not rigidly adhere to closed doors, and complements other enterprises in the industrial chain, pressing the acceleration button for domestic substitution.

On the whole, Yandong micro is just an ordinary member of many domestic integrated circuit manufacturing enterprises. Its opportunity is basically the opportunity of the whole industry and the opportunity of the rise of domestic integrated circuit industry.