Report by PulseStacks, April 3rd, 2024
In 2021, a sudden chip crisis swept across the globe.
A tiny chip, like the flapping of a butterfly's wings, eventually triggered a seismic shake-up in the industry.
In this chip shortage crisis, the automotive industry bore the brunt.
At that time, coinciding with the rapid development of the new energy vehicle market, global demand for automotive chips exceeded supply by 30%. Coupled with factors such as the pandemic, trade wars, and deglobalization causing supply chain disruptions, chips became scarce, and prices skyrocketed.
A chip that originally cost only 15 Chinese CNY soared to 1500 CNY at one point, forcing many automakers to halt production.
Meanwhile, China's self-sufficiency rate in automotive chips was only 5% at the time, and none of the world's top ten chip companies were Chinese.
Increasing the domestic production rate of chips and maintaining supply chain stability became a heavy burden on Chinese chip companies.
Opportunities come with crises, and thus began the counterattack of Chinese automotive chips in the era of domestic substitution. ChiponeIC, seizing the opportunity of the times, became such a company riding the wave.
Opportunities are always for those who are prepared, and the same goes for businesses. Before this chip crisis swept the globe, ChiponeIC had already begun its layout.
Xilinx公司成立于1984年，是一家领先的可编程逻辑器件供应商，总部位于美国加利福尼亚州圣何塞。公司的产品范围涵盖了FPGA、SoC、以太网网络处理器和高性能计算加速器等领域。Xilinx的技术被广泛应用于通信、数据中心、工业、航空航天等领域。
Zhao Qi, CEO of ChipLink Integration, commented, "When we built our new factory in 2018, we followed automotive standards. Compared to other domestic enterprises that constructed production lines according to consumer standards, we had already embedded our advantages."
This strategic foresight extended to their investments in the silicon carbide (SiC) field. Zhao Qi noted, "Since we clearly anticipated that the future battleground for silicon carbide would be 8-inch wafers, we equipped our facilities with equipment compatible with both 6-inch and 8-inch wafers. I've always aimed for the future; whatever the main battleground requires, we pursue."
Their pre-established advantages bore fruit. "You can find 70% of the chips needed for a new energy vehicle here," Zhao Qi remarked. "ChipLink Integration's automotive-grade products cover 90% of China's new energy vehicles."
ChipLink Integration swiftly emerged as the largest domestic automotive-grade IGBT manufacturing base. Yuan Feng, Chairman of ChipLink Power, stated, "In 2023, the company's IGBT shipments ranked first in the domestic market, and our SiC MOSFET production volume led China." In May of last year, ChipLink Integration successfully listed on the Sci-Tech Innovation Board of the Shanghai Stock Exchange.
Presently, ChipLink Integration has established 8-inch, 12-inch, and SiC production lines, mainly producing power devices, MEMS, etc., widely used in new energy vehicles, wind and solar energy storage, high-end consumer electronics, and other fields.
With the company's IGBT, MOSFET, SiC MOSFET, and other automotive products entering full-scale production, ChipLink Integration achieved operating income of 5.324 billion CNY in 2023, a year-on-year increase of 15.59%, and operating cash flow of 2.614 billion CNY, a year-on-year increase of 95.93%. Among them, revenue from automotive applications increased by 128.42% year-on-year, accounting for nearly half of the main revenue.
As stated in ChipLink Integration's 2023 annual report, "The growth in revenue from automotive applications directly drove the strong growth of the company's overall revenue."
The rise of China's automotive industry will ultimately lead to an ecological competition showdown. As the new energy vehicle industry continues to develop, China's automotive ecosystem is gradually improving. However, the supply chain remains incomplete, with significant gaps in the chip sector.
In the second half of the intelligent era, for China's new energy vehicle industry to win and lead by a wide margin, mastering product definition and the industrial chain is key to victory.
This requires OEMs and first and second-tier suppliers to accelerate deep integration, continuously improve technology through cooperation, and achieve technological innovation and independent control of the industrial chain.
Chairman of ChipLink Power, Yuan Feng, describes ChipLink Integrated's collaboration with partners as "design in," where they work together to provide underlying technological support for the industrial chain layout of the OEMs by creating a "long board." "Design in" cooperation with automakers means collaborating from the design stage onwards. Currently, the company has partnered with the vast majority of China's new energy vehicle manufacturers.
The company's dream is ambitious, not aiming to do everything on its own. In some special fields, they choose to grow with partners. A significant example is in the field of silicon carbide.
In addition to jointly "designing in" the technical field, ChipLink Integrated also "designs in" the business model. In October 2023, to maintain the market competitiveness of its silicon carbide business, ChipLink Integrated initiated the establishment of ChipLink Power.
With a registered capital of 500 million CNY, ChipLink Integrated holds a 51% stake in ChipLink Power. This company is jointly invested in by six well-known new energy industry investors, including XPeng Motors and SAIC Motors, Bosch, Luxshare Precision, CATL, and Sunport Power.
This hardcore and luxurious industrial layout has made ChipLink Power the hottest project in China's hard technology capital market. Through this "design in" business model, they establish closer ties with the upstream and downstream of the automotive industry chain, thereby constructing a stronger moat and ecosystem.
Specifically in the field of the circuit industry chain, ChipLink Integrated states: "In terms of industry and technology, we are striving to be the leader of the chain." In Shaoxing, ChipLink Integrated is defined as the chain leader because it has made the heaviest investments and has the most intensive technology in the integrated circuit chain, effectively rallying the upstream and downstream of the industry chain to drive the development of the entire integrated circuit industry chain.
From top to bottom, inside and out, in terms of product technology or business models, ChipLink Integrated continues to intensify its close cooperation with the entire automotive industry chain, and it's "not just a one-off transactional cooperation but truly innovative, deeply binding with them."
ChipLink Integrated has already reached deep strategic cooperation in automotive chips with several leading new energy vehicle manufacturers such as BYD, NIO, XPeng, and Li Auto.
Under the "chip shortage" dividend, domestic substitution has become a trend in the semiconductor industry, but the road ahead is destined to be long. The technology cycle of automotive chips is very long, requiring huge upfront investment, and even after entering the automotive field, it requires long-term practice.
Currently, China's self-sufficiency rate in automotive chips is only about 10%, with 90% relying on imports, indicating the need for further improvement in production capacity and independent research and development capabilities for Chinese automotive chips.
In 2023, the global semiconductor industry experienced turbulent development, with annual revenue down by about 10%. Despite showing counter-trend growth, ChipLink Integrated is still in a loss-making state. In 2023, ChipLink Integrated's net profit attributable to the parent company reached (-)1.95 billion CNY. The reasons for the loss are twofold: one is the nature of the industry, requiring high research and development investment and high depreciation of fixed assets; the other is the expansion of new production lines and the ramp-up of production capacity, with economies of scale not yet fully realized.
Excluding the impact of depreciation and amortization, the full-year EBITDA (earnings before interest, taxes, depreciation, and amortization) reached 925 million CNY, an increase of 116 million CNY compared to the previous year.
In order to achieve profitability as quickly as possible amidst fierce market competition, Xinlian Integrated Circuits (Xinlian) is continuously seeking new avenues for business growth.
Firstly, the company is continuing to increase investment in silicon carbide (SiC) business. With an investment exceeding billions last year, Xinlian has become a leading manufacturing base for SiC MOSFET in Asia and the top shipper in China, achieving a monthly shipment scale of over 5,000 pieces. Additionally, the establishment of Xinlian Power is dedicated to the SiC business, thereby realizing a complete industry chain layout.
In 2024, Xinlian Integrated Circuits will also focus on the AI field, seeking the "third growth curve," while promoting international expansion to accelerate the development of overseas markets.
During the recent annual media communication conference, Xinlian's management once again addressed the current loss situation while expressing confidence in future profitability.
A major industry practice brought by TSMC is rapid depreciation, with TSMC adopting a three-year depreciation period for equipment that can typically be used for twenty to thirty years. In contrast, Xinlian Integrated Circuits adopts a five-year depreciation period, resulting in a depreciation expense of 3.4 billion CNY in 2023.
Zhao Qi stated, "Currently, half of Xinlian Integrated Circuits' costs are depreciation. Excluding depreciation, the profit growth last year was 70%."
Starting from the second half of last year, there has been a trend of slowing demand for automotive chips, leading to overcapacity and significant price declines. This also implies that Xinlian Integrated Circuits, whose revenue heavily relies on automotive business, will face even fiercer competition in 2024.
In an interview earlier this year, Zhao Qi predicted, "The 'Spring and Autumn Period' of China's third-generation semiconductor industry has ended, and 2024 will enter the 'Warring States Period,' forming the 'Seven Powers of the Warring States.' This period will certainly be accompanied by intense competition."
With the end of the "chip shortage" dividend, there is now an oversupply of chips on one hand and a scarcity of high-quality production capacity on the other. For Xinlian Integrated Circuits entering the semiconductor industry's "Warring States Period," facing the upcoming fierce competition and elimination, the future demands more than just domestic substitution. It requires diversification, technological innovation, and readiness for fierce competition.
