There were 413 equity investment cases in the domestic semiconductor industry in 2020, with an investment amount of more than RMB140 billion yuan, which is nearly five times as much as the investment of about RMB30 billion yuan recorded in 2019, according to statistics released by WINSOUL CAPITAL.
This is also the year when Chinese investors have invested the most in the private market (not counting investments related to publicly listed companies) of semiconductors in history.
Due to the strong demand for imports replacement highlighted by US export bans that put some Chinese companies to the verge of collapse, many semiconductor companies have experienced rapid growth in their performance in the past year. For venture and private investments, investors are favoring those with more mature outlook with investment after series C round increasing significantly.
These are clear signs that the ball of de-Americanization has started rolling in China, particularly in the semiconductors industry. Chinese companies are likely to try to establish import replacement products domestically, as well as seeking any other help outside of China in third party countries in their pursuit of securing more reliable supply chains.
The semiconductor industry chain can be roughly divided into design, manufacturing, packaging and testing, materials, and equipment. Semiconductor design does not require high investment and is therefore still the focus of investment, accounting for nearly 70% of the total investment cases in the semiconductor field in China last year.
But it is worth noting that the investment cases in the field of semiconductor materials and equipment, which were relatively unpopular with investors in the past, grew rapidly in 2020. The proportion of the total amount increased from 13% in 2019 to 19% in 2020.
According to statistics from WINSOUL CAPITAL, the total financing amount in the semiconductor materials field exceeded RMB12 billion yuan, and the total financing amount in the equipment field exceeded RMB6 billion yuan. However, projects in these two fields are generally still in the early stages, with the proportion of series B round and previous ones taking over 50% of the total.
Chinese companies suffering from the export bans are increasing investment in these areas as well. For example, Huawei invested in 2 materials companies in 2019, but invested in 7 materials and equipment companies in 2020. SMIC’s investment platform SMIC Juyuan also invested in 7 materials and equipment companies in 2020, more than the four companies it invested in 2019.
Compared with pure financial investments, companies prefer taking industrial strategic capital. "Many founders would rather want money from industrial capital than from well-known financial investment institutions, even if they had to give industrial capital discounts on valuation," said Zhao Zhanxiang, managing director of WINSOUL CAPITAL. It is because industrial capital can bring more industrial resources.
Huwei’s Hubble Investment, Xindongneng under BOE, and Chinese phone maker OPPO are more active strategic investors in the semiconductor sector.
WINSOUL CAPITAL believes that semiconductor investment will enter a more challenging period in the future. The directions that companies and investors will focus on include those with low localization rates and large chips, such as EDA/IP, CPU, GPU, FPGA, network processing chips, automotive chips, memory chips.
For semiconductor investment in 2021, WINSOUL CAPITAL also recommends focusing on companies with guaranteed production capacity, because as wafer production capacity continues to be tight and chip prices continue to rise, the performance of companies with guaranteed production capacity will increase significantly.
In addition, driven by new technologies such as 5G and AI, the corresponding chip niche industry will grow rapidly with the rapid downstream applications, and there may be opportunities for rapid commercialization in related fields.
In the past year, semiconductors are undoubtedly one of the most watched sectors of China’s Sci-tech Innovation Board. Wind data shows that there are currently 216 listed companies on the Science and Technology Innovation Board, of which 36 are semiconductor companies, accounting for 16%.
For the entire year of 2020, the average market value of semiconductor companies increased by about 40% to 50%. The market value of semiconductor companies has accounted for 30% of the total market value of the Sci-tech Innovation Board.
However, since the second half of last year, the market value of listed semiconductor companies was considered to be too high. The stock prices of semiconductor companies have begun to fall back to a more rational level.