Economic Observer reporter Zhang Xiaohui Recently, China's semiconductor industry ushered in an acquisition. The acquisition is worth up to 5.9 billion yuan and spans 2024 and 2025.

On December 30, 2024, the company listed on the Science and Technology Innovation Board, Xinlian Integrated Circuit Manufacturing Co., Ltd. (688469. SH, hereinafter referred to as "Innolink") disclosed the revised draft of the report on the issuance of shares and the payment of cash for the purchase of assets and related party transactions (the "Revised Draft").

Xinlian disclosed in the announcement that it plans to purchase 72.33% of the equity of Xinlian Yuezhou Integrated Circuit Manufacturing (Shaoxing) Co., Ltd. (hereinafter referred to as "Xinlian Yuezhou") from 15 counterparties, including Shaoxing Binhai New Area Xinxing Equity Investment Fund Partnership (Limited Partnership) (hereinafter referred to as "Binhai Xinxing") and Shenzhen Yuanzhi No. 1 Private Equity Investment Fund Partnership (Limited Partnership) (hereinafter referred to as "Yuanzhi No. 1"), at a price of 5.897 billion yuan.

On December 31, 2024, the Shanghai Stock Exchange accepted the application for this transaction of Silicon Link.

5.9 billion yuan acquisition

Xinlian Yuezhou is mainly engaged in wafer foundry business in the field of power semiconductors. The company was established in 2021, and its main products are silicon carbide (SiCMOSFET).

On December 31, 2021, SINIC signed the "Investment Agreement of SMIC Yuezhou Integrated Circuit Manufacturing (Shaoxing) Co., Ltd." with 15 shareholders including Binhai Xinxing to jointly invest in the establishment of SINIC Yuezhou. With a total investment of 6 billion yuan, each shareholder subscribed for all the registered capital of 3 billion yuan at the time of the establishment of Xinlian Yuezhou. The subscription price is 2 yuan/registered capital. Among them, Innosilicon has invested 1.66 billion yuan, holding 27.67% of the shares so far, and is the largest shareholder.

In this transaction, the appraised value of 100% equity of Xinlian Yuezhou is 8.152 billion yuan, an increase of 2.152 billion yuan from the beginning of its establishment three years ago. The 72.33% equity of Xinlian Yuezhou purchased by Xinlian Integration was 5.897 billion yuan. Innolink will pay 90% of the transaction price by issuing shares and 10% of the transaction price by cash. The issue price of the issued shares is determined to be 4.04 yuan.

On January 2, 2025, the closing price of Silint was 4.93 yuan, which was about 22% higher than the above issue price.

Silicon carbide is the core technology

Silicon carbide is a refractory material smelted by resistance furnace at high temperature with quartz sand, petroleum coke (or coal coke) and wood chips as raw materials, and is a non-metallic carbide covalently bonded by silicon and carbon elements, which was discovered by the American engineer Acheson by accident when he fused diamond in 1891.

As a new semiconductor material, silicon carbide is gradually becoming one of the key technologies to promote the transformation of the automotive industry. Silicon carbide has become an indispensable material in the core components of new energy vehicles, such as battery charging, inverters, and electric drive systems. Especially in high-efficiency charging applications, silicon carbide devices perform well at high voltages, reducing energy loss and improving charging efficiency, resulting in shorter charging times.

In the revised draft, Xinlian introduced that semiconductor products produced with silicon carbide as raw materials have obvious performance advantages over silicon-based semiconductor products. Silicon carbide has a wide bandgap, which allows a single device made of silicon carbide to carry tens of thousands of volts; Silicon carbide has high thermal conductivity and strong working reliability under high temperature conditions; High carrier mobility, high operating frequency, power saving and energy saving. These advantages have enabled silicon carbide devices and modules to maintain rapid growth in recent years. According to the forecast of market research agency Yole, the silicon carbide power device market will grow from $1.794 billion in 2022 to $8.906 billion in 2028, with an average annual compound growth rate of 31%.

According to the revised draft, Xinlian Yuezhou has achieved mass production of automotive-grade silicon carbide power devices. Xinlian Yuezhou has a 6-inch and an 8-inch silicon carbide power device production line. Among them, the shipment volume of the 6-inch production line ranks first in China, and the 8-inch production line will be put off trial production in April 2024, striving to achieve mass production in 2025.

SINOUS expects SINIC Yuezhou to become the first domestic enterprise to produce 8-inch silicon carbide on a large scale and make it one of the important sources of profit for the company in the future.

However, an industry source expressed his concern about production capacity: there are about 20 domestic companies with 6-inch silicon carbide power device production lines. In addition, although there is no wafer factory for mass production of 8-inch products in China, Anyifa (referring to Anyifa Semiconductor Co., Ltd.), Silan Micro (600460. SH), Xinlian Integration and other large manufacturers are actively deploying here.

According to the current calculation that one 8-inch silicon carbide wafer can meet the demand of 10 vehicles in China, the 8-inch planned production capacity of only two companies, Anyifa and Silanwei, can meet the annual demand of 12 million new energy vehicles.

At present, SILINT is a listed company without actual controller.

According to the cooperation between Silint and SMIC (688981. SH) signed the Intellectual Property License Agreement and the Supplemental Agreement to the Intellectual Property License Agreement, and as a company controlled by SINIC, SINIC Yuezhou is within the scope of the intellectual property rights licensed by SMIC. On January 4, 2022, Innoline Yuezhou and Innosilicon signed the Intellectual Property License Agreement, under which Innoline Yuezhou was authorized to use its own intellectual property rights and the intellectual property rights authorized by SMIC to Innoline.

According to the above agreement, SMIC has the right to terminate the master agreement if a company or other organization that competes with SMIC becomes the largest shareholder or actual controller of SINIC in the future. In the future, if the intellectual property license is terminated due to the above circumstances or other uncertain factors, the production and sales of the first-generation products of Xinlian Integration and Xinlian Yuezhou involved in the relevant intellectual property rights will be affected.

The underlying asset has not yet made a profit

Financial data show that the net profit of Xinlian Yuezhou has been in a state of loss for three consecutive years, with a loss of 700 million yuan in 2022, a loss of 1.1 billion yuan in 2023, and a loss of 868 million yuan in 2024 (as of October 31). In other words, Xinlian Yuezhou lost about 2.668 billion yuan in three years after its establishment.

The

sharp drop in the price of 6-inch silicon carbide wafers may be the main reason for the loss of Xinlian Yuezhou. In 2024, the price of 6-inch silicon carbide will fall from 6,000 yuan/piece to 1,500 yuan/piece, and the silicon carbide market will face huge price fluctuations.

Automotive customers account for more than 75% of silicon carbide wafer demand. Innosyn said that Silian Yuezhou has become the top manufacturing base for silicon carbide device shipments in Asia, and has assisted listed companies to obtain strategic cooperation agreements with leading new energy vehicle companies such as Ideal and NIO.

Although China's automotive-grade chips have a certain home advantage, from the perspective of the global market, silicon carbide products are still dominated by foreign manufacturers. STMicroelectronics, Infineon, Wolfspeed (a U.S.-based company), onsemi, ROHM and Bosch are leading the SiC industry, with these six players accounting for about 85% of the SiC market.

The threshold for silicon carbide is very high, and even a large factory like Silian Integration does not have the ability to set up a wholly-owned subsidiary in the first place.

Innosilicon said that when Xinlian Yuezhou was established in December 2021, the company had not yet been listed, and due to financing channels, it did not have the strength to implement the "Phase II Wafer Manufacturing Project" through the establishment of a wholly-owned subsidiary, so investors such as Binhai Xinxing and Yuanzhi No. 1 were introduced to provide the financial support needed for the construction of Xinlian Yuezhou.

At present, the competition situation in the silicon carbide industry is severe. In November 2024, Beijing Century Sinar Mas Semiconductor Co., Ltd., a well-known enterprise in the industry, was filed for bankruptcy liquidation by creditors.

The above-mentioned industry sources said that the silicon carbide industry has entered the knockout round. From the moment of its establishment, many domestic silicon carbide companies are rushing to support a certain car company. At present, the silicon carbide market is "cold and biting", and there have been well-known silicon carbide companies that have gone bankrupt, and the difficulty of survival can be imagined.

After the purchase of 72.33% of the equity of Xinlian Yuezhou for 5.9 billion yuan, Xinlian Yuezhou will become a wholly-owned subsidiary of Xinlian Integration. For this acquisition, Xinlian said in the announcement that it still needs to be approved by the Shanghai Stock Exchange and the registration approval of the China Securities Regulatory Commission. In the operational risk warning of the amendment, SINOSILICON suggested that there is a risk that the target company may not be profitable in the short term in the future.