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[XGNews]: Rongxin’s acquisition of Dehuai: the influx of private capital and the “change” of wafer manufacturing industry

The following is the [XGNews]: Rongxin’s acquisition of Dehuai: the influx of private capital and the “change” of wafer manufacturing industry recommended by xgapn.com.

Recently, the newly established Rongxin semiconductor has become the focus of the industry due to the acquisition of the overall assets of Dehuai. Rongxin’s move not only solves the historical problems of uncompleted projects, but also opens a new chapter of private capital leading and exploring wafer manufacturing.

According to previous reports of jiwei.com, Rongxin was established in April this year and is a private enterprise dominated by domestic leading industrial institutions. The company has just completed the initial fund-raising of 9 billion yuan. Its shareholders include yuan hepuhua, Wei haochuangxin, meituan, Tibet Zhitong, etc.

Dehuai semiconductor acquired by Rongxin has been in bad shape for a long time, and the overall asset evaluation price of this auction is about 2.380 billion yuan. In the project auction ended on August 7, because the other two registered BYD electronics and an investment institution did not bid, Rongxin finally successfully purchased all movable and real properties of Dehuai except chip finished products and raw materials with a single bid of 1.666 billion yuan.

From its establishment to the acquisition of Dehuai, Rongxin mainly relies on the spontaneous assembly and leadership of private and industrial resources, which is very rare in the field of wafer manufacturing with heavy asset attributes. Because in the long history of the integrated circuit industry, state-owned capital has always been the backbone of China’s wafer factories.

Air inlet, chaos

Since the Eighth Five Year Plan (1991-1995), the state has begun to tilt to the field of integrated circuits at the policy level, and the curtain of industrial layout has officially opened. After 2000, the development of China’s integrated circuit industry has gradually entered the fast lane.

In 2014, the State Council promulgated the outline for promoting the development of the national integrated circuit industry, which clearly pointed out the need to accelerate the development of the integrated circuit manufacturing industry in the four major tasks of the development of the integrated circuit industry. Seize the favorable opportunity of technological change, break through the bottleneck of investment and financing, continue to promote the construction of advanced production lines, and give consideration to the development of characteristic processes. China’s wafer manufacturing field has entered an era of rapid development.

The Chinese mainland’s total of 55 wafer fabs (8 inches and 12 inches) have been mass-produced by the end of 2020, according to the latest data from Microsoft consulting. In addition to Taiwan funded and foreign-funded fabs, the other 30 domestic funded Fabs are inseparable from the support of state-owned capital.

Obviously, the great progress made in the field of wafer manufacturing in China is inseparable from the leadership of state-owned capital for many years. However, under the background of the first-line penetration of state-owned capital, coupled with the fact that the semiconductor industry has stood in the tuyere due to the digital transformation of the global economy in recent years, some negative phenomena have begun to appear in the domestic industry. For example, some local officials place their hopes on the local economic development on the wafer factory, blindly cooperate with inexperienced, non-technical and non background teams on new projects, claim that the investment is often tens of billions, and the proportion of government investment is high.

In recent years, after state-owned capital has poured a lot of funds into the wafer manufacturing field, some projects still have broken capital chains. Because these projects not only can not achieve self-profit, some even have corruption. Once the government department stops blood transfusion, these companies can only perish. According to the statistics of jiwei.com, from 2019 to 2020 alone, seven wafer manufacturing enterprises, including Chengdu grid core (planned investment of US $9 billion), Wuhan Hongxin (RMB 128 billion), Jinan Quanxin (RMB 59.8 billion), Huai’an Dehuai (RMB 45 billion), Huai’an times core storage (RMB 13 billion), Nanjing Deke code (US $3 billion) and Shaanxi kuntong (RMB 40 billion), have successively failed.

These seven enterprises received huge capital support from the local government in the early stage, but now they have failed to leave even a wafer of effective production capacity for the industry. The waste of resources and large flow of personnel caused by these uncompleted wafer factories have plunged the development of China’s wafer manufacturing field into a temporary period of chaos

New attempts to solve contradictions

In order to rectify the industry as soon as possible and prevent new projects from repeating the mistakes, the national development and Reform Commission put forward a accountability mechanism for uncompleted projects in the second half of 2020, and timely tightened the window guidance policy to limit the contribution proportion of state-owned capital in Wafer Factory projects. After the launch of relevant measures, the wafer manufacturing field trapped in Savage growth has become “disciplined” again. But at the same time, China and even the world began to suffer from the pain of chip capacity shortage, and a huge contradiction is accelerating.

“Whether the expansion of existing large factories or the construction of new wafer factories are inseparable from the strong support of state-owned capital.” A senior executive in the wafer manufacturing industry told jiwei.com, “the contradiction is that the policy tightening has restrictions on the investment proportion of state-owned capital, and the project operation needs careful investigation by relevant departments, which may miss a rare opportunity for the development of China’s wafer manufacturing field.”

A senior industry analyst believes that it is not difficult to solve the existing contradictions, that is, it is necessary to mobilize private forces other than state-owned capital as much as possible on the premise of strictly abiding by the overall layout of the national semiconductor industry. Although state-owned capital is involved, the most essential difference between Rongxin and the above uncompleted projects is the endorsement of professional institutions, including yuanhepuhua, Sequoia Capital, meituan and Feng Yuan capital, which is shared by Yu renrong, founder of Weier shares, and these institutions are the leading force of Rongxin.

“Qingdao SASAC participated in the investment and provided support and guidance to Rongxin from government departments; Domestic leading industrial institutions will bring rich industrial resources to Rongxin and make its development and operation follow the industrial law. ” The analyst said.

Previously, most domestic investment institutions favored IC design companies because wafer manufacturing projects with heavy asset attributes will prolong the investment return cycle. A partner of an investment institution told jiwei.com that at present, there is “more money and less projects” in the market. If we can expand our attention from the design end to other links to help the balanced development of the industrial chain, we may get higher income in return for “delayed satisfaction” in the future.

Li Yajun, chairman of Shanghai Linxin investment company, said that recently, there is a new phenomenon that investment institutions begin to set foot in the field of heavy assets, including large silicon wafers, sealing and testing and wafer manufacturing where Rongxin is located. This is a new trend at present. At the same time, some upstream design companies also began to layout the construction of wafer factories (such as Zhuosheng micro, gekewei, Wentai technology, etc.). The reason for this phenomenon is that the current tight production capacity greatly limits the revenue of the design company and hinders the development of the company.

Li Yajun also pointed out that in the last wave of integrated circuit industry development, in fact, many private enterprises and investment institutions in China have enjoyed rich dividends. On the premise of demand and ability, private enterprises and investment institutions begin to work in the field of heavy assets, which is a good phenomenon in a sense, so that private capital can work simultaneously with state-owned assets, Use market-oriented methods to solve problems.

However, Li Yajun also stressed that the risk in the field of heavy assets is relatively large, but when private enterprises and investment institutions operate in a market-oriented way, their risk awareness will be stronger than state-owned assets. Therefore, when private capital takes the lead, the project success rate may be higher.

For Rongxin, under the evaluation and leadership of private capital, it chose a “springboard” such as Dehuai, which can not only cure the heart disease of the local government to a certain extent, but also save time and money for Rongxin. Since Dehuai was previously positioned as CIS foundry, Yu renrong, founder of weir shares, participated in the investment, which also made the outside world wonder whether Rongxin will continue and expand this positioning in the future, and undertake part of the foundry business while providing CIS wafer production line for Howell technology under weir shares.

The partners of the above investment institutions said bluntly: “no matter from what point of view, Rongxin’s acquisition of Dehuai is a suitable deal.”

At present, Rongxin has not disclosed more details, including its future business model and business scope, and whether it will use Dehuai’s factory in Huai’an is unknown. However, as a bold attempt led by private capital, the emergence of Rongxin officially announced the end of the chaotic era in the field of wafer manufacturing, and the disorderly development model of over reliance on state-owned capital will no longer exist.

It is worth noting that although private capital is gradually becoming one of the main forces supporting the development of wafer manufacturing, on the whole, the development of China’s integrated circuit industry chain, including wafer manufacturing, has always been inseparable from the policy guidance and financial support provided at the national level. As Chen Datong, chairman of Yuanhe Puhua Investment Committee, said, even in the new attempt of Rongxin, while concentrating private and industrial resources, it also needs the support and guidance of the government to gradually promote the development of enterprises, so as to provide accurate wafer foundry services for design companies and promote the balanced development of China’s integrated circuit industry.

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