The long-term and complex nature of the U.S.-China game has profoundly changed the future direction of China's semiconductor industry. The government's consideration of supply chain security and the iterative upgrading of Made-in-China technology through domestic substitution, and further promoting economic transformation, has led top-down domestic capital to reshape the competitive landscape of the semiconductor industry.

In the context of this era, how to choose the high-quality enterprise targets in this segment? I first organized the information of some major power semiconductor companies at home and abroad, and then got some qualitative judgments through the horizontal comparison observation.

1.1.1 Background of the controlling shareholder

The company's major shareholder, China Resources Group, is a diversified central enterprise capital management platform, the company's predecessor dating back to 1983, the former Ministry of the Fourth Machine, the Ministry of the Seventh Machine, the Ministry of Foreign Trade and Economic Cooperation and the China Resources Group, jointly set up in Hong Kong Hong Kong Huako Electronics Corporation and the establishment of China's first 4-inch wafer line, and then after years of development and a series of integration. After years of development and a series of integration, it has become a comprehensive IDM semiconductor enterprise with significant influence in China.

From the company's development history, China Resources Micro today's leading position in power semiconductors is the result of the major shareholders continue to invest in capital operation. In the future, CR Micro will continue to realize rapid outward expansion with the support of its major shareholders.

1.1.2 CR Micro's products and technologies:

1) The company a *** has five wafer production lines. In Wuxi, it has three 6-inch production lines with an annual capacity of about 2.47 million wafers, and one 8-inch production line with an annual capacity of 730,000 wafers. In Chongqing, there is one 8-inch production line with an annual capacity of about 600,000 wafers. The 8-inch in Chongqing mainly serves the company's own products. Both 8-inch lines were built in 2011 and are now depreciated.

2) The company's power semiconductors can be divided into power devices and power IC , of which the power device products are mainly MOSFETs, IGBTs, SBDs, and FRDs; the power IC products are mainly various series of power management chips. Among them, MOSFET 2018 revenue scale of 1.6 billion, behind Infineon's 5.2 billion, ON Semiconductor's 3.1 billion, market share of 9%.

3) CR Micro IGBT products are mainly used for induction heating, UPS, inverters, inverters, motor drives, industrial power supplies. Referring to Infineon's standards, the company's current mass-produced IGBT product technology is similar to Infineon's IGBT fourth-generation products. The company's fifth-generation IGBT products in the research and development, is expected to have results in the second half of 2020, and based on this successive development of different applications frequency products. In addition, the company's IGBT product planning route is: in the development of single-tube series of products at the same time the development of module products.

4) Third-generation semiconductor materials

The company has stockpiled silicon GaN power device design, processing and packaging test technology, SiC power device design, processing and packaging test technology. Currently the company in silicon carbide diode is on the eve of industrialization, has established a pilot production line, and completed the first phase of construction goals, 1200V, 650V silicon carbide diode in the assessment, is expected in 2020 is expected to achieve sales revenue, the target application areas for the solar energy inverters, communication power supplies, servers, energy storage equipment, etc., silicon carbide MOSFET in the active research and development. In addition, the company's gallium nitride is currently in the research and development stage, 600V GaN-on-Si HEMT device dynamic and static parameters of the basic standard.

Note 1: MOSFET and IGBT are currently the two most commonly used power semiconductor devices.

In order to improve the voltage tolerance of MOSFETs, insulated gate bipolar transistors (IGBTs) add a P+ layer on top of the MOSFET to form a pn diode with the n base layer. The pn junction formed is subjected to the vast share of voltage in the off case, while the MOSFET in the structure does not need to be subjected to high voltage, thus improving the component's voltage withstand performance. Therefore, IGBTs are generally used in high-voltage power products, the voltage range is generally 600V-6500V; MOSFETs are applied at relatively low voltages, from a dozen volts to 1000 V. However, the delay time of IGBTs is greater than that of MOSFETs, and therefore IGBTs are applied to scenarios with switching frequencies lower than 25 kHz, whereas MOSFETs can be applied to scenarios with switching frequencies greater than 100 kHz. The MOSFETs can be used for switching frequencies greater than 100kHz.

Note 2: Gallium Nitride GaN is suitable for high-frequency, high-power scenarios with voltages less than 600V.

Due to the excellent performance in the field of high efficiency and miniaturization, gallium nitride in the radio frequency, charging and other aspects of the advantages are obvious. GaN market has a high growth rate, in the radio frequency, power electronics has a wide range of potential demand. From the point of view of the accelerated construction of 5G base station now, GaN due to the superior performance, and 5G base station for the explosive growth of the demand for frequency injection, GaN is expected to achieve rapid penetration, and with the scale effect, the cost is expected to further decline, and once again help the whole downstream field of the penetration rate increase.

Note 3: Silicon carbide, SiC has an advantage in the voltage 600V and above in the field of high power. It is currently used in new energy automotive wind power and other industries. According to Yole, the SiC power electronics market size will be about $400 million in 2018 and grow to $1.4 billion in 2023. SiC is currently used in new energy automobiles mainly for charging piles, and it is expected that there will be a wider range of potential uses in automotive devices in the future.

1.1.3 Market Share and Technology Gap against International Headquarter Companies

The predecessor of Silan Micro was founded as Hangzhou Silan Electronics Company Limited by seven natural persons, including Chen Xiangdong, and listed in the stock market in 2003, and it has been gradually developed into an integrated semiconductor product company in IDM mode. The company's business strategy is to focus on specialty semiconductor products. The company's business strategy is to focus on specialty processes, enter the multimedia industry, and utilize its own technology accumulation to enter high-threshold industries such as white goods and automotive.

Silan Micro's layout is mainly in four areas:

1) LED lighting driver field: Utilizing the advantages in technology and cost of control chips and power devices, Silan Micro accelerates the development of chips and application solutions for intelligent lighting systems.

2) MEMS field: has launched three-axis accelerometer, three-axis geomagnetic sensor, six-axis inertial unit, the future will be launched air pressure sensors, infrared proximity sensors, and other MEMS sensors products, the main application scenarios are the mobile smart terminals, smart wearable and automotive.

Note 2: MEMS that is, micro-electromechanical control system (Micro-Electro-MechanicalSystems) is a set of micro-structures, micro-sensors, micro-actuators, as well as signal processing and control circuits, up to the interface, communication and power supply is equal to the integration of the micro devices or systems. Compared with ordinary sensors, MEMS has ordinary sensors can not reach the IC wafer processing mass production cost advantages, but also has ordinary sensors can not have the miniaturization and high integration advantages.

Note 3: Pressure MEMS in the automotive application scenario is the aftermarket intake manifold pressure sensor, automotive aftermarket oil pressure sensor module and automotive fuel pump sensor module and other automotive and industrial pressure sensors.

Note 4: Inertial sensors are used in automotive applications to help GPS systems navigate and measure dead space. In the automotive field, the fast response of inertial sensors can improve the safety performance of automotive airbags, anti-lock systems, traction control systems.

3) IGBT field: Improve the high-voltage high-power product line: Increase investment in high-voltage BCD process, high-voltage semiconductor power device and module technology research and development, expand and enrich the power device products represented by IGBT and intelligent power module products, expand the new energy, high-efficiency motor drive, industrial control and other areas of application.

4) 8-inch chip project: 8-inch IC chip production line was completed and put into production with the support of the National IC Industry Fund and local governments. Silan Micro to expand production capacity, in the field of special processes to adhere to the IDM model.

Wintech acquired Ansell Group (Nexperia), which is independent from NXP's Standard Business Unit, in 2019.

Nexperia is a manufacturer specializing in the manufacturing and sales of discrete devices, logic devices, and MOSFETs, with more than 50 years in the industry and 11,000 professional employees. Ansell's manufacturing model is IDM, and it currently has 2 manufacturing lines (Manchester, UK and Hamburg, Germany) and 3 packaging lines (Dongguan, Philippines and Malaysia) worldwide, with a wafer capacity of about 60,000 wafers (converted to 8 inches) and 100 billion pieces of packaging. 39% of the company's revenue from bipolar transistors and diodes, ranked No. 1 in the world; MOSFETs accounted for 25% of total revenue, ranked No. 2 and No. 3 in the automotive grade small-signal field; the remaining logic devices and ESD protection devices.

Ansell's market share in China is small, mainly at the low end of the technology spectrum.In 2018, Ansell Semiconductor discrete device shipments totaled 90 billion units. According to the revenue scale backwards price shows that the average unit price of Ansell Semiconductor products shipped is only 0.12 yuan, even lower than the domestic counterparts of China Resources Micro 0.15 yuan.

1.4.1 Infineon (Infineon):

Infineon was initially the semiconductor division of the Siemens Group, was officially established on April 1, 1999 in Munich, Germany, listed in 2000, and after 2002 was renamed Infineon Technologies.

Infineon is one of the world's top ten semiconductor solution leaders, with a focus on automotive, industrial power control, power and sensor systems, and digital security solutions, with a focus on power semiconductors, sensors, RF, and more. The company's IGBT products offer a comprehensive portfolio of products at different voltage and current levels, including bare chips, discrete devices and modules, etc., of which IGBT modules have the top global market share.

Financial Characteristics: 1) Slower revenue growth; 2) Continued improvement in gross margins (close to 35% in 2019), continued decline in net margins from 2018 (less than 5%), and R&D expenses/revenue (15%).

Acquisition of Cypress in June 2019 for $8.7 billion

In the third quarter of fiscal 2020, we invested €266 million in property, plant and equipment, intangible assets and capitalized development costs. This compares to €247 million in the previous quarter, which of course did not have Cypress. Depreciation and amortization (including the impact of non-segment results)*** amounted to €381 million, which also includes the previously mentioned €52 million related to fair value amortization in the Cypress PPA, as well as ongoing depreciation of €78 million of Cypress' residual assets.

1.4.2 ON Semiconductor

Spun off from Motorola's semiconductor division in 1999.

Over the past 20 years, the company has expanded its product portfolio from traditional standard semiconductors and discrete devices to analog semiconductors and signaling products, sensors, and complete system-on-chips (SoCs). ON Semiconductor focuses on automotive, industrial, and cloud power applications such as data center servers, communications infrastructure, and the Internet of Things. ON Semiconductor has an unrivaled position in the IGBT space, offering best-in-class IGBT technology and the broadest IGBT product portfolio.

Currently, ON Semiconductor has total revenues of approximately $5.5 billion. ON Semiconductor is ranked second in the world in power semiconductors after Infineon.

Through mergers and acquisitions (17 since its inception), ON Semiconductor has grown rapidly. In particular, with the acquisition of Fairchild Semiconductor, ON Semiconductor is the world's second largest supplier of high-power discrete device semiconductors.

In 2020, the company will lay off 475 employees. The layoff plan is expected to be completed within the first half of the year, but ON Semiconductor did not disclose the subsidy package for the laid-off employees.

Observing the above information collated in the face of Infineon and ON Semiconductor, as well as the history of the development of the semiconductor industry in the European and American markets, we can find that:

1. Mergers and acquisitions for the growth of the semiconductor business is a norm. There are significant differences in the motivations for M&A in the semiconductor industry and in traditional industries. M&A between traditional industries tends to occur in the stock, and M&A can alleviate the pressure of price wars in red ocean markets. And the semiconductor industry M&A is in an incremental market, M&A motivation is often a rainy day, layout in advance, to seize the industry dominance of future competition. For example, Intel's acquisition of startup Nervana in 2016, followed by the acquisition of Mobidius, was followed by Intel's unrelenting drive to acquire AI chip companies, with the acquisition of Mobileye in 2017, and the acquisition of Israeli upstart HabanaLabs in 2019.Nvidia's and Intel's battle for Mellanox, and the recent NVIDIA's acquisition of Arm. these acquisitions are all focused on dominating the blue ocean markets of AI and edge computing.

Based on the above understanding, we can find that, along with the future of the local enterprise technology upward iteration process and the process of domestic substitution, will inevitably be accompanied by a large number of mergers and acquisitions, so whether the major shareholders have a strong capital operation strength will become the local enterprise can have the potential of the industry leader of the core genes of the jigsaw puzzle.

2. International headquartered companies continue to spend a high percentage of their R&D expenses on R&D, which is an important financial feature, while domestic companies mainly spend on capacity expansion.

Chinese companies as technology catch-up, technology R & D capability is the enterprise has long-term competitive advantage, but the main point of strength of our enterprises is not technology R & D, but capacity expansion.

1) Our power semiconductor industry is still in a low level of primitive accumulation stage;

2) This field of R & D technology upgrade iteration lagging behind the speed of rapid expansion of production capacity, which means that the risk of excessive competition in this field can not be ignored.

Usually, we analyze a company's core competitiveness and long-term competitive advantage, will be combined with three financial statements to assess the value of the company, to assess the ability of management. But in the power semiconductor field, this analysis model is not applicable. Because from the competitiveness point of view, whether it is Silan Micro or China Resources Micro, and even the vast majority of domestic power semiconductor companies are still in the stage of technological catch-up. Market tail and asset-heavy characteristics doomed their financial performance will not be particularly attractive, so what is the underlying logic of investing in these companies? That is the rapid growth in the context of domestic substitution. Domestic substitution is the current domestic cycle of the need for supply chain security needs.

It is based on this underlying logic, to build a semiconductor company analysis framework focuses on:

1) industry boom cycle characteristics;

2) whether the enterprise has a fast-growing endowment , mainly includes : technology accumulation (endogenous growth), capital integration capabilities (epigenetic growth), capacity scale (taking into account performance release and capital investment and depreciation pressure) and management capabilities.

Capital integration ability mainly depends on the background of the major shareholders, while the management ability can be observed through the management resume, and the long-term performance of the enterprise. Technology accumulation depends on the company's production line plan and major customers.

In my opinion, the most important thing is to determine the industry boom cycle. In the industry boom during the upturn, domestic local enterprises in the government tilted to support a variety of policies, is hopeful of ushering in a period of rapid growth, therefore, the cycle of judgment is the most important issue of investment in this high-growth industry, but also in the context of domestic substitution, the investment in China's technological backwardness of the high-growth technology enterprises whether the basis of the margin of safety.

Referring to Figure 1-3 above, the following important features can be observed:

Observation 1: The growth boom of domestic semiconductor enterprises and the global industry boom is basically synchronized

Observation 2: In 2015-2017, the growth of Shanshan Micro is significantly weaker than the growth of the world's semiconductor industry due to the boom cycle driven by the cloud computing and automotive electronics. electronics.

It is worth discussing what caused Observation 2.

My own understanding is that during 2015-2018, Silan Micro's technology upgrade iterations hit a ceiling, making the company fail to keep up with the global semiconductor industry boom as it did in the previous two times. On the one hand, Silan Micro's return on assets in terms of gross margins continued to go up due to its products being at the low end (see Figure 4). On the other hand, Silan Micro is actively increasing R&D expenditures for technology upgrades and capacity expansion.

Figure 4: Cloud Computing, Big Data Drive Technology Upgrades in Semiconductors

Observations on R&D Expense Ratio

Observations on the Correlation between Capital Prices and Market Performance

By comparing the micro level (Silan Micro) with the macro level (historical valuation of Shenwan Semiconductors and Philadelphia Semiconductors Index), we have the following two key findings: