Montage Technology (澜起科技) has priced its Shanghai Stock Exchange initial public offering at CNY 24.80 (USD 3.60) per share. Lately, the firm has been performing exceptionally well: its net profit margin jumped over 41% last year while operating income exceeded CNY 1.7 billion (USD 247 million).
China's chipmakers have lately been encountering a plethora of technological and macroeconomic challenges. Not all of them though. EqualOcean has noticed that foundries, with their low margins, are more exposed to risks than their fabless peers (consider Espressif Systems). Public offerings often come into play as a peculiar acid test for semiconductor firms: in some ways, IPO is a way to identify essential weaknesses in their business models.
Over the past three years, Montage has been generating lofty revenues. Worth mentioning is that Chinese fabless chipmakers, which, by default, are labor-intensive, often have a high 'revenue to the number of employees' ratio. In this particular case, this indicator hopped over USD 1 million in 2018. Theoretically, two factors can lead to such an outstanding result: solid expertise and well-tailored human resource policy. The second is worth digging into.
The prospectus shows that the Shanghai-based memory challenger has a quite strict approach to HR. More than 40% of the employees working at Montage in 2016 were fired in the following year. This headcount optimization program apparently had something to do with the product mix shift undertaken by the company.
According to the prospectus, the last Montage-made consumer electronics chip was sold two years ago, the firm thereby completely shifted its focus to the memory interface chips segment.
Despite the smooth performance over the last three years, Montage’s business reputation is far from being excellent. In the United States, where it was once listed on Nasdaq, the company is famous for its short-selling-caused delisting in 2014.
Another issue that is on the industry insiders' lips is an unbalanced salary structure. “Average annual salary in Montage Technology is CNY 1.43 million (USD 208,000), while the chairman and the general manager gain CNY 35.5 million (USD 5.16 million) each,” said people with knowledge of the matter.