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Analysis EO
Jul 9, 2020
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Analysis EO
Jul 9, 2020

China's AMEC – from Etching to MOCVD (and Back?)

► Since 2017, MOCVD devices have replaced etching equipment, becoming the business with the highest proportion (51%) in AMEC’s revenue structure. ► It is challenging for AMEC to take more market share in the quasi-monopolized global etching equipment market. ► AMEC may benefit from the development of SMIC, considering the foundry’s realization of mass-production of 14nm and raising funds to expand production capacity. These days are critical for China’s fledgling semiconductor industry. The country’s top contract chipmaker SMIC (00981:HKEX, 688981:SH) is to be traded in the Star Market, a move that matches the absence of chip manufacturing in the A-share market. The Star Market was established to help high tech companies quickly raise capital. The China Securities Regulatory Commission (CSRC) has also been implementing convenience policies, such as the ‘registration-based’ IPO system, to support those companies.  AMEC (688012:SH), an etching equipment supplier, was among the first batch of companies listed in the Star Market in July 2019. Its stock price has increased by 817.20% since then. The etching equipment is used during the chip manufacturing process, and foundries like TSMC, SMIC and UMC are all AMEC’s customers. As revealed in the prospectus, AMEC accounts for about 1.4% of the global market, according to Gartner’s estimate on the market scale of etching equipment. The market share of the top 3 companies, including Lam Research (LRCX: NASDAQ), Electron (8035:JP) and Applied Materials (AMAT:NASDAQ) had a combined value of 94% in 2017. High concentration and barriers, and the fast speed of technology development show that it is hard for AMEC to achieve more market share in this field. The company thereby needs other growth drivers. After reviewing the revenue structure of the company, we have found that, since 2017, MOCVD devices have replaced the etching equipment, becoming the business with the highest proportion (51%) of AMEC’s total revenues. MOCVD is the most important equipment in LED manufacturing, and the purchase amount generally accounts for more than half of the total investment in the LED production line. We talk about the two businesses separately in the next part. MOCVD devices AMEC has been an MOCVD devices supplier to San'an Optoelectronics (600703:SH), Changelight (300102:SZ) and HC Semitek (300323:SZ); in 2018 the former two were the largest customers of the company, accounting for 34.2 % of AMEC’s revenue. Since 2017, AMEC's MOCVD has gradually entered this field. According to IHS Markit, in 2018, the company's MOCVD accounted for 41% of the new MOCVD for the GaN-based LEDs in the global market. Two other main players in this field globally are Veeco (VECO:NASDAQ) and Aixtron AG (AIXA:DE) Comparing AMEC with those two companies in terms of gross profit margin and total revenues in general, we found that, though AMEC earned less, the difference is small and the gross profit margin is slightly lower. From the perspective of the LED industry, the new applications and technologies like Mini LED and Micro LED have countless advantages. This triggers Internet giants, including Apple and Samsung, to venture for their own hardware; the market scale of MOCVD is thereby very likely to increase.  Etching equipment AMEC's plasma etching equipment has been applied to domestic and external manufacturers’ production lines of chips at a variety of process nodes, from 55nm to 5nm. The company is currently developing (in Chinese) a new generation of capacitive plasma etching equipment for 5nm or more advanced technological demands and key applications.  In addition, the company is in the process of researching and developing next-generation products to meet etching demands on products including logic chips under 7nm, 1X nanometer DRAM and 3D NAND chips above 128 layers. Though it has achieved progress, it is hard for AMEC to compete with overseas etching equipment suppliers. The global etching equipment market has been dominated by three companies: Lam Research, Tokyo Electron and Applied Materials. There is no comparison between AMEC and those three giants in terms of total revenues. In addition, AMEC’s gross profit margin has been the lowest since 2017. From the chart, we can see that, in 2019, the gross profit margin for AMEC was 35%, about 10% lower than the highest. In tech-heavy sectors, higher revenues typically mean higher investment in R&D. Those large enterprises have been in the industry for several years. For instance, Lam Research was founded in 1980 and can provide a full range of etching equipment, while AMEC was formed in 2004. Lower R&D expenditures, shorter history and higher barriers, all these factors show the impossibility of competing with overseas etching providers. In such hard conditions, AMEC has achieved around 1.4% market share in the etching equipment field globally after the accumulation of over 10 years of experience. Better than that, In the domestic etching market, according to two Chinese companies’ bidding results, Lam Research still accounts for over 50%, although AMEC’s share is higher compared with the global market. In terms of customers, we found that in 2016, SMIC was the largest client of the company, accounting for 38.11% of total revenues. In 2017, SMIC was the largest etching equipment buyer, at 11.16%, and revenues from HC Semitek were the highest, as 34.98% of the total. And in 2018, SMIC was out of AMEC’s top 5 customer list. Considering the competitive landscape in the global etching market, turning into an MOCVD supplier or LED companies is a good choice. In addition, SMIC realized the mass-production of 14nm in 2019 and raised funds to invest in the factories, which means AMEC will probably achieve some orders from SMIC. To open the world market, AMEC must start by opening the domestic market. With the development of technology like IoT, 5G and V2X boosting global demand for microelectronic equipment, there are many other fields that AMEC can potentially enter, including diffusion systems and photolithography equipment. Besides, Yin Zhiyao (尹志尧), the founder and chairman of AMEC said (in Chinese) that, they will explore core technologies in environmental protection, industrial Internet and other fields.  These steps can possibly lead to the firm's better market positioning, helping it to catch up with global rivals.

Analysis EO
Jul 6, 2020
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Analysis EO
Jul 6, 2020

Chips on Shoulders: China’s 10 Largest Public Semiconductor Companies

The United States released a new ban in May, preventing companies using software and hardware developed by American firms from doing business with Huawei without specific approval. Though China has shouted its slogan of ‘supporting domestically produced chips’ for many years, its capabilities in the domain are still lagging behind those of more developed economies. In recent years, many local chip companies have made progress, reaching new milestones and nabbing significant shares of the global semiconductor market. EqualOcean has long been keeping a close eye on China’s semiconductor industry. In this article, we introduce the 10 largest publicly traded Chinese chipmakers that are worth following, given the country’s attempts to further open its financial markets. Will Semiconductor (603501:SH) completed the acquisition of OmniVision and Superpix in 2019, both of which are image sensor manufacturers. OmniVision ranks third by 9% after Sony (42%) and Samsung (22%) in the globe. After that, revenues increased from CNY 3.96 billion (CNY 9.7 after adjustment) in 2018 to CNY 13.63 billion in 2019. Among all products and services, CMOS contributed the most, accounting for about 71.94% of total revenues.  SMIC (00981:HKEX), one of the largest foundries globally, won orders from Huawei after achieving an unprecedented leap from 28 nm to 14 nm lithography. The process, which spans two generations at a time, is mainly due to Liang Mengsong’s participation. He used to be the director of TSMC’s R&D department and helped Samsung directly jump to 14nm after leaving TSMC. AMEC (688012:SH), or Advanced Micro-Fabrication Equipment, develops electronic equipment for front-end semiconductor manufacturing, back-end wafer-level packaging, LED production, micro-electromechanical system (MEMS) applications and other Integrated Circuit (IC) fabrication processes. Its downstream is pretty much localized: over 83% of its 2019 revenue came from China’s mainland-based clients. Meanwhile, the domestic semiconductor manufacturing equipment market more than tripled in the past five years, reaching nearly USD 13.5 billion in 2019. Montage Technology (688008:SH), which started its way in the noughties as a TV chipset producer, has evolved into China’s top memory interface chip designer. Recently, the company has also been involved in a few alternative projects. One example is its new server platform Central Processing Unit (CPU) for data centers that entered the mass production stage in 2018, after two years of cooperation with Intel and China’s top school and research center Tsinghua University. GigaDevice (603986:SH) is a fabless flash memory developer developing independent products in NAND flash and MCU segments, cooperating with ChangXin Memory Technologies (CXMT), a four-year-old challenger that is projected to occupy China’s still-empty spot in the global Dynamic Random-Access Memory (DRAM) market.  Goodix (603160:SH) is a fingerprint-recognition and touch chips seller, and two such kinds of products accounted for 99.65% of total revenues in 2019. It has cooperated with terminal giants including Huawei, OPPO, vivo and Samsung. The company realized a gross profit margin of 60.40% in 2019, because of the large-scale commercial use of new products. Naura (002371:SZ) has realized the mass-production of high-end semiconductor equipment, including 12-inch silicon etching machine, metal PVD, vertical oxidation/reduction stoves and wet cleaning machines. Among the two major business segments, electronics manufacturing equipment business achieved operating income of CNY 3.19 billion and the electronic components business achieved CNY 847 million, accounting for 78.64% and 20.88% of total revenues in 2019. NSIG (688126:SH) is one of the biggest semiconductor silicon wafer manufacturers in China, mainly providing 300mm and below products. The global semiconductor wafer industry has a high market concentration. In recent years, the market shares of the top five semiconductor wafer factories in the world are over 90%, showing an oligopoly pattern. The company is relatively small, accounting for 1.26% of the global market in 2018. Over 70% of revenues in 2019 were from the market outside of China’s mainland. Maxscend (300782:SZ) is an enterprise of domestic chips in the field of RF front-end segmentation. As two main kinds of Radio Frequency (RF) products of the company – switch and low-noise amplifiers – accounted for 79.86% and 16.87% of total revenues respectively in 2019. Samsung, Huawei, Xiaomi, OPPO and vivo are Maxscend’s customers, and according to the performance in recent two years, over 71% of its revenues came from the overseas market. Changjiang Electronics (JCET) (600584:SH) provides one-stop services for microsystem integration, packaging and testing. It has a close relationship with SMIC, because the chairman of JCET, Zhou Zixue holds the same position in SMIC. Those two parties made up the vacant parts of the domestic chip industry. According to TrendForce, in the global packaging and testing market in 2019Q3, JCET ranks third by 17% after ASE (36%, including Siliconware Precision Industries’ 13% of the market share) and Amkor (19%.) Divided by region, 78.61% of its revenues in 2019 come from the overseas market. These 10 companies’ business scopes cover three main steps of the chip-making process: design, manufacturing, packaging and testing. While it seems that Chinese firms are capable of producing completely domestic chips, there are some problems to be considered: 1)    IP authorization. The vast majority of fabless firms need to purchase IP from overseas companies like ARM and Cadence, to place their design upon it. 2)    Local technologies are lagging behind those of some companies outside of China. For instance, SMIC can produce 14nm chips while TSMC can manufacture 7nm and 5nm, which is necessary, for one, when it comes to 5G devices. 3)    Tracing the upstream of the industry chain, it is hard to avoid American technology in the whole process. Apart from those public companies, there are quite a few significant private mainland-based chipmakers worth attention. For instance, 13 out of 50 worldwide upstarts mentioned in EqualOcean’s report ‘Semiconductors: Trends and Startups 2019’ are China-based.

News EO
Mar 13, 2020
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News EO
Mar 13, 2020

AMEC, Montage, GigaDevice Surge as New Coronavirus Cases Dwindle in China

Most Chinese chipmakers’ stocks rallied on March 13. Flash memory designer GigaDevice (603986:SH) added 3.47%, reaching a market cap of CNY 99.72 billion (USD 14.26 billion). AMEC (688012:SH) went up by 9.63% and Montage Technology (688008:SH) closed the day 4.31% higher. A newly launched microelectronics firms-focused ETF (159801:SZ) went up by 2.74% today, closing the week – which was quite tough for traders on a global scale – only 2.87% lower than the previous one. With its complex, geographically diverse supply chain, China’s semiconductor industry was directly hit by the COVID-19 outbreak, with predictable lockdowns and other economically painful restrictions. Nonetheless, many local up-and-coming chip developers claim that their business processes have barely been affected. One example is Wuhan-based NAND memory maverick YMTC. Several sources close to the company told EqualOcean that the chip designer has been operating normally throughout the quarantine period. As the official numbers of confirmed cases in China are dropping drastically, the country seems to be verging on a triumph in combating the epidemic. The victory is in combating the spread, not containing it hermetically to affected areas – the latter was simply impossible, and, as a result of the planetwide sloth, the chickens have come home to roost now for the rest of the world: as of March 13, over 128,000 cases had been confirmed globally. In 2019, the stock market boomed in the United States. The Dow Jones Industrial Average, S&P 500 Index and Nasdaq Composite added 22.3%, 28.9% and 35.2% respectively in that year. Ironically enough, what goes up must come down. The first two weeks of March turned out to be the worst in decades for these three indicators and, hence, for millions of investors in public equity globally. The Shanghai and Shenzhen bourses, which also saw a major market slump right after the prolonged Lunar New Year holidays, now are considered attractive by many investors. Of particular interest is the Star Market, China’s answer to Nasdaq (read more about the board’s performance during the coronavirus outbreak). The new board has become a home for a handful of chipmakers, including the abovementioned AMEC, Montage, as well as EEPROM developer Giantec Semiconductor (688123:SH) and lithography equipment firm KINGSEMI (688037:SH), to name a few.

Analysis
Feb 27, 2020 · EO Company
Analysis
Jan 16, 2020 · Science and Technology Board Daily
News EO
Jan 3, 2020
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News EO
Jan 3, 2020

AMEC's Star Market Stock Surges to Fresh Record

China's semiconductor companies ended the year on a high note, with most of their stocks soaring to new highs. One example is the 'National Chip Index' (国产芯片, 861205:EI), which grew by 15.4% in December, peaking at over 1,609 points on the first trading day of 2020. Advanced Micro-Fabrication Equipment (AMEC, 中微半导体, 688012:SH), which was among the 25 pioneers on the new experimental Nasdaq-style venue in Shanghai, is one of those firms. On January 2, its closing price surpassed the symbolic value of CNY 100 (around USD 14.35) per share for the first time. It is worth mentioning that the Chinese capital market (to be precise, the Shanghai and Shenzhen exchanges) saw at least 40 new stocks that hop over this bar in 2019 – a significant number, if we consider that there were only six stocks of this type at the very end of the previous year. Back to AMEC. The chipmaker started its current rally four weeks ago: it bottomed at CNY 65 apiece on December 3. Later on, this growth halted following the news about the China National Integrated Circuit Industry Investment Fund, known as the 'Big Fund,' trimming the stakes in some of its portfolio companies (by the way, the Fund took part in AMEC's Series A in 2016); it then continued steadily growing. Shanghai-based, the firm markets electronic equipment for front-end semiconductor manufacturing, back-end wafer-level packaging, LED production, micro-electromechanical system (MEMS) applications and other Integrated Circuit (IC) fabrication processes. The global industry playground is filled with giants like Applied Materials (AMAT:Nasdaq), Dutch manufacturer ASML (ASML:Nasdaq, ASML:EN) and Japanese corporation Electron (8035:JP). In China, the field is rather nascent. Among others, within some of the supply chains, the company is facing competition from Giantec Semiconductor (聚辰半导体, 688123:SH) and KINGSEMI (芯源微, 688037:SH) – both have recently kicked off trading on the sci-tech board. Check out EqualOcean's latest report on the global semiconductor startup scene (download).

News
Dec 27, 2019 · Weixiang Information
News EO
Aug 22, 2019
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News EO
Aug 22, 2019

AMEC Surges in Morning Trade on Star Market as It Pours CNY 13.75M into RSIC

The earlier announced CNY 13.75 million (USD 1.94 million) round of strategic investment in RSIC (Raintree Scientific Instruments Corporation, 上海睿励) made AMEC (中微公司, 688012:SH) took off on the Shanghai Stock Exchange Star Market. Adding another CNY 2.3 billion (CNY 325.11 million) this morning, the chipmaker's market capitalization has reached CNY 44.89 billion (USD 6.35 billion). Headquartered in Shanghai, RSIC manufactures and markets testing equipment for integrated circuits. AMEC (Advanced Micro-Fabrication Equipment Inc.) is an upstream peer of RSIC that built its business around semiconductor device fabrication. A small-sized chipmaker, it generated CNY 1.64 billion (USD 231.75 million) in revenue last year. AMEC, which once set an IPO price at over 175 times earnings (now the P/E ratio is twice as high as this number), has been lately performing well on the Star board, along with other semiconductor companies therein. Meanwhile, the company was said to earn its first Triple Crown win in the 2019 Customer Satisfaction Survey (CSS) a few weeks ago. Hardware portal MaschinenMarkt International reported in January 2019 that China represents more than 40% of the global chip market, which amounted to USD 450 billion in 2018. Later on, Nikkei published an industry group forecast projecting the sector to shrink 12% in 2019 to USD 412 billion. This decline, according to the group, will be mostly related to the unflagging trade and technological tensions between the U.S. and China.

Announcements
Aug 2, 2019 · AMEC
News EO
Jul 15, 2019
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News EO
Jul 15, 2019

AMEC, Star Market’s 'Top Seed', Prices IPO at CNY 29.03 per Share

The first regular trading day on China’s new sci-tech board is approaching. Among the 25 companies composing the first batch, one stands out. Semiconductor manufacturer AMEC has priced its initial public offering at CNY 29.03 (USD 4.22) apiece. This number corresponds to a three-digit P/E ratio: 170.75 – a unique case for China as the market average in the country has been floating within the 12-to-17 zone recently and hasn’t been seen above the 30-times bar since the 2008 global financial crisis outbreak. In a word, institutional investors are extremely positive about this firm. AMEC (Advanced Micro-Fabrication Equipment Inc.) is a global semiconductor micro-fabrication equipment manufacturer that also provides services across several industrial value chains. The Shanghai-based company generated operating revenue of CNY 1.64 billion (USD 238 million) last year, up 68.88% from the 2017’s CNY 971.9 million (USD 141.4 million). Although it turned profitable two years ago, AMEC still isn’t making much: its net profit margin amounted to 3.1% and 5.5% in 2017 and 2018 respectively. Nonetheless, these numbers are deemed to be significant in view of fierce market competition and the recent macroeconomic jolts. Despite its medium size, AMEC has been steadily pumping capital into the research and development activities: over CNY 477 million (USD 69.4 million) was invested since 2016, according to the IPO prospectus. Worth noting that AMEC spent almost half (49.62%) of its revenue on R&D in 2016. According to PwC, global semiconductor market size was close to USD 500 billion last year. Asia-Pacific remains to be the most important region here, accounting for more than 60% of the global supply. The semiconductor industry, normally being placed in the middle of the supply chain, is vulnerable to all kinds of shocks occuring in both downstream and upstream zones. An epitome of such a fragile positioning is a loss-making foundry HeJian Technology, which is also heading to the new sci-tech board.

News
Jun 20, 2019 · China Securities Journal
News
Apr 23, 2018 · Component Trading Network