Economic Observer Xu Mengyi/Text The integration and merger and acquisition cases in the field of analog chips are "one after another".

On November 6, GigaDevice (603986. SH) announced an acquisition plan. According to the announcement, GigaDevice plans to jointly acquire 70% of the shares of Saixin Electronics held by all shareholders of Suzhou Saixin Electronic Technology Co., Ltd. (hereinafter referred to as "Saixin Electronics") in cash with Stony Brook Capital, Hefei State Investment and Hefei Industrial Investment, and the transaction price is determined to be 581 million yuan. After the completion of the transaction, GigaDevice will become the controlling shareholder of Saixin Electronics.

On the same day, the leading company of signal chain analog chips, Silkpu (688536. SH) also announced that it intends to acquire 100% of the equity of Shenzhen Chuangxin Microelectronics Co., Ltd. through the issuance of convertible corporate bonds and cash payment, and raise matching funds.

On the day of November 5th, power management and signal chain chip supplier Xidi Micro (688173. SH) has also announced that the company is planning to purchase 100% of the shares of Shenzhen Chengxin Micro Technology Co., Ltd. (hereinafter referred to as "Chengxin Micro") by issuing shares and paying cash and raising matching funds; The company's shares have been suspended since November 5, and the suspension is expected to last no more than 5 trading days.

The three M&A transactions involved the analog chip business. On November 7, the staff of the secretary office of the board of directors of Xidiwei told reporters that the main business of Chengxin Micro has a synergistic effect with the business of the listed company, and the acquisition transaction will help expand the existing business areas of the listed company and expand customer resources. In addition, for the frequent occurrence of mergers and acquisitions in the field of analog chips, the above-mentioned staff believe that due to the impact of recent policy support, the industry may have the same consensus.

Chen Rongfang, an analyst at Debang Securities, told reporters that in the past two years, the analog chip industry has been affected by downstream destocking factors, and both performance and valuation have been hit hard. But with the recovery of consumer electronics, the inventory cycle is now nearing its end. In addition, the promotion of relevant policies will accelerate the integration of industry resources, and the competitive landscape may be further optimized.

The competitive landscape is fragmented

"Analog chips are one of the strategic development directions of GigaDevice." At the results conference on November 6, Li Xiaoyan, deputy general manager and secretary of the board of directors of GigaDevice, said that Saixin has a certain degree of overlap with GigaDevice's customers in the fields of consumer electronics and mobile power supply, and after the completion of the acquisition, it can further meet customer needs, and match with MCU (microcontroller) and other products to provide customers with more comprehensive solutions and enhance the company's overall value and customer stickiness to customers.

In addition, Li Xiaoyan said that GigaDevice and the joint acquirer can share advantages in their respective technologies, markets, and industrial chains, give full play to the synergies of all parties, realize the effective allocation and utilization of resources, and jointly support the sustainable development of the target company's business.

According to public information, GigaDevice is the largest MCU and niche memory manufacturer in China, and the main products of the acquiree Saixin Electronics in this transaction are analog chip products such as lithium battery protection chips and power management chips.

According to the announcement information, in the first half of 2024, the total revenue of Saixin Electronics will be 134 million yuan, and the net profit will be 34.92 million yuan. The above-mentioned transaction plan sets a performance commitment, and the audited net profit deducted from the non-attributable parent of Saixin Electronics in 2024, 2025 and 2026 shall not be less than 60 million yuan, 70 million yuan and 80 million yuan respectively.

It is worth mentioning that the premium rate of this acquisition is 289.48%. According to the above announcement, through the income method evaluation process, under the premise that the evaluation assumptions and qualifications are established, the book value of all shareholders' equity of Saixin Electronics on the valuation base date is 213 million yuan, the appraisal value is 831 million yuan, and the appraised value is 618 million yuan, with an appreciation rate of 289.48%.

Regarding the technical advantages of Saixin Electronics and its position in the industry competition, Li Xiaoyan said that the target to be acquired has a certain accumulation in battery management-related technology, process and manufacturing, and the products have certain competitiveness in terms of packaging size, performance, stability and cost. The target company's products are mainly used in mobile power supply, smart wearables and other general fields, and have been used in many well-known end customers.

Debang Securities pointed out in the relevant research report that it may be the standard path for analog chip companies to become bigger and stronger by cutting into the market through a strong product to enter the market, then catering to customer needs around the market, so as to further expand other products, and finally provide a complete set of solutions or reference designs.

GigaDevice also expressed a similar vision in the announcement: through this acquisition, the company can further enhance the strength of the simulation team, improve the technical reserves related to battery management, continue to expand related product lines, and explore new markets, which will help support the long-term development of the company's simulation business in terms of sales scale, product depth and breadth, and enhance the company's overall competitiveness.

"The characteristics of analog chips are that they do not burn much money, but they are particularly labor-intensive, very dependent on the experience of engineers, and the research and development cycle is relatively long. It is often the IDM (Custom Integrated Manufacturer) model, that is, it has its own factory. Jiang Lei, director of the Nanjing University New Technology Alumni Association, told reporters that analog chips are like human senses, mainly for the transmission of information, which are roughly divided into three categories: power management chips, signal chips and radio frequency chips.

Jiang Lei also said that engineers who do analog chips are like "old Chinese medicine", and they need to constantly figure it out, but the advantage is that a small team can "fight", and there are very high requirements for the coordination of the chip design process.

"The market share of analog chips is scattered in the fields of communications, consumer electronics, and the automotive industry. This fragmentation of the market also leaves a lot of room for small companies to grow. Jiang Lei said that the development potential of analog chips is huge, but "domestic substitution" is also a long road.

There is a lot of pressure on R&D investment

In fact, China is the world's largest consumer market for analog chips, but the domestic self-sufficiency rate is not high.

According to Tech Insights' research data, the global analog chip market size in 2023 will be 81.225 billion US dollars, of which the size of the Chinese market will be 302.67 billion yuan, accounting for more than 50% of the global market, and the growth rate is higher than the overall growth rate of the global analog chip market. However, China's chip self-sufficiency rate in 2023 will only be 23.3%, and the operating income of leading foreign manufacturers in China far exceeds that of local manufacturers.

Chen Rongfang believes that at present, domestic analog chip manufacturers have sufficient internal conditions to merge and develop the high-end market, and the external environment also determines that the industry must integrate existing resources.

In fact, since the beginning of this year, there have been many mergers and acquisitions in the field of domestic analog chips. On October 22, the veteran analog chip manufacturer Jingfeng Mingyuan (688368. SH) plans to purchase control of Sichuan Yichong Technology Co., Ltd. by issuing shares, issuing directional convertible corporate bonds and paying cash; On October 15, analog and mixed-signal chip company NOVOSENSE (688052. SH) announced that it intends to acquire 100% of the shares of Shanghai McGoon Microelectronics Co., Ltd.; On September 20, Jinghua Micro (688130. SH) announced that it intends to purchase the smart home appliance control chip business of Shenzhen Xinbang Technology Co., Ltd. for no more than 140 million yuan.

On September 24, the China Securities Regulatory Commission (CSRC) issued the Opinions on Deepening the Market Reform of M&A and Restructuring of Listed Companies (hereinafter referred to as the "Six M&A Articles"), which ushered in new opportunities for M&A and restructuring activities in the capital market; Among them, the "Six Mergers and Acquisitions" mentions that listed companies will be actively supported to carry out cross-industry mergers and acquisitions and unprofitable asset acquisitions, and increase support for industrial integration.

On September 27, Xidiwei said in the reception of institutional investors that with the continuous improvement of market demand in consumer electronics, automobiles, industry, communications and other fields, as well as the continuous proposal of national support policies, the localization penetration rate of analog chips is expected to further increase. At the same time, the R&D industrialization of domestic local enterprises has accelerated, diversified product solutions have become more and more mature, and the entire market pattern has entered a period of adjustment, and China's analog chip market is expected to open a new round of growth.

The company's main products represented by DC/DC power management chips and super fast charging chips have the performance to compete with leading manufacturers at home and abroad, and the products are widely used in consumer electronics, vehicle electronics and other fields.

It is worth noting that while vigorously expanding, the profit pressure of Xidiwei is actually not small. In January 2022, after being listed on the Science and Technology Innovation Board of the Shanghai Stock Exchange, Xidiwei continued to be in a state of loss. According to the financial report data, from 2022 to the first three quarters of 2024, Xidiwei achieved operating income of 559 million yuan, 394 million yuan and 345 million yuan respectively, and net profit of -15 million yuan, -54 million yuan and -197 million yuan respectively. In other words, the loss amount of Xidiwei in the first three quarters of this year has far exceeded its loss amount for the whole year of last year.

However, the slight loss of Xidi is also related to its continuous increase in R&D investment. According to the announcement, from 2021 to 2023, the company's R&D investment will increase from 150 million yuan to 237 million yuan, and R&D expenses will account for 60% of total revenue in 2023.

The reporter noted that from the perspective of the amount of R&D investment, subject to the scale of the enterprise and the volume of revenue, the R&D investment scale of domestic analog chip companies is generally small.

According to the statistics of Flush iFind Financial Terminal, the top five companies in Shenwan's analog chip sector in terms of R&D expenditure in 2023 are Goodix Technology (603160.HK). SH), Arcjet Technology (688220. SH), Shengbang Co., Ltd. (300661. SZ), Zhuo Sheng Wei (300782. SZ) and SRP (688536.SH), the corresponding R&D expenditures were 1.348 billion yuan, 1.115 billion yuan, 737 million yuan, 629 million yuan and 554 million yuan, respectively. This kind of R&D investment is an order of magnitude different from the billions of dollars spent on R&D by overseas leaders such as Texas Instruments and ADI.

In this regard, Dongguan Securities pointed out in the relevant research report that the product iteration of the analog chip industry is slow, highly dependent on technology accumulation, engineer experience and customer channel management, and it is necessary to consolidate the product foundation by continuously increasing R&D investment to achieve differentiation from competitors; However, at present, the world's leading analog chip companies represented by Texas Instruments and Analog Devices have continuously expanded their categories through their own process platforms, and their products are mostly concentrated in high value-added fields such as industrial control and automobiles, and they have advantages in profitability through continuous supply chain management and optimization to reduce production costs.

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