The deal is a harbinger for the future of the wireless communication industry’s upstream sector.
Source Photonics, which develops optical communication hardware for wireless and fixed-line access networks, has obtained CNY 1 billion (around USD 135 million) in a funding round announced on June 9.
As a result of this deal, Jiangsu-based textile materials manufacturer Huaxicun (000936:SZ) now indirectly holds 54.68% of Source. On June 10, its share price dropped by 7% in morning trading on the Shenzhen Stock Exchange, hitting CNY 9.85 apiece. It is noteworthy that the stock has lately been climbing, starting from the COVID-19 outbreak-triggered slump in early February when it bottomed at CNY 6.20.
Founded in 1988, Source Photonics is positioned at the heart of both wired and wireless communication systems: it makes transceivers, devices enabling information transmission and reception at the same time. Headquartered in California, the company possesses R&D and manufacturing facilities in Taiwan, Shanghai, Chengdu, and Jintan.
China has been famously betting big on the fifth generation of wireless technology, with industry players signing huge equipment contracts all across the value chain. The industry analysts Mobile Experts estimated in their latest report that more than 70% of the global 5G RF transceiver pool will be utilized within the country in 2020.
Against such a backdrop, the local hardware companies’ need for funds is acute. Amid the massive commercial rollout of 5G, we expect the number of venture capital injections into Chinese small and medium-sized communication tools providers to increase this year.