"If you can get a share, you must get in advance and enter before the IPO", which became the most anxious portrayal of the investors who wanted to put the "money" in their pockets at that time.

The notoriously unprofitable semiconductor and chip markets have transformed into one of the most profitable tracks for VC in the world. Early investments that have been silent for a long time have also returned strongly, and the market is full of "money" for a while.

Especially under the dual influence of large fund promotion and Huawei incident detonating market sentiment, domestic semiconductor investment has increased rapidly. In 2019, the investment amount of domestic semiconductor industry was RMB 30 billion yuan, which soared to RMB 140 billion yuan in 2020. By 2021, the total amount of semiconductor financing exceeded RMB 380 billion yuan, approaching RMB 400 billion yuan, increasing by more than ten times during this period.

In this process, the opening of Kechuang Board once again promoted a large number of domestic semiconductor industry chain manufacturers to impact A-share IPO for six times, starting the listing upsurge.

Starting from 2020, the number of semiconductor companies listed on the market began to maintain a double-digit growth, which was highly sought after by capital.

At that time, the semiconductor industry can be described as "everywhere is gold."

According to the investor: "At that time, I invested in a semiconductor company. After the company released a new round of financing plan, it received billions of dollars within two weeks. Many investment institutions signed and sealed the contract with empty investment amount, and some institutions paid first without due diligence."

It can be seen that under the rapid IPO competition, the capital market also has to raise the rhythm.

Based on past experience, many companies may have to finance three or four rounds to move to an IPO. But starting in 2020, many companies will be unicorns after a round of financing, and the next step will be IPOs.

In 2020, the new crown epidemic did not dampen the enthusiasm of the capital market. Whether it was the amount of new funds raised in the primary and secondary markets or the number of IPOs, 2021 exceeded the level of the same period before the epidemic. According to incomplete statistics, 76 semiconductor enterprises were accepted for IPO in 2022,45 enterprises were listed in the six A-share capital markets, with a total raised capital of 122.5 billion yuan.

Semiconductor IPO, the wind has changed

In the face of the IPO feast set off in China, Wang Lin, managing partner of Walden Technology, said warily: "But good flowers don't always open. Throughout the 30-year history of A shares, sober practitioners can realize that this situation can't last for a long time. Just as the line in 'Flowers' says: It's necessary to be cold after the heat. Remember, this is the law."

Indeed, behind the seemingly calm surface, the "domino effect" triggered by epidemic, geopolitical and other factors has long been secretly stirring wings.

Beginning in the second half of 2022, the semiconductor industry ushered in a thrilling moment: at first, the tension of the industrial chain caused by the lack of core tide, then to the cold wave of capacity saturation, inventory backlog and price decline.

A wave of fluctuations began.

In an interview with the author, Wang Lin returned to the taste: consumer electronics are weak, cars lack cores, communication construction slows down, and computing power is blocked... It seems that suddenly there is no track worthy of investment in the industry, and the industry "inner volume" has become the culprit of everyone's criticism, as if the current investment and entrepreneurship are dragging down the semiconductor industry.

Looking back on the past 2023,"termination" and "withdrawal" have undoubtedly become the most frequent keywords for semiconductor enterprises in the IPO market, and the number of acceptances and the scale of fundraising have declined sharply.

According to incomplete statistics, in 2023,48 new enterprises were accepted in the semiconductor industry, 29 of which successfully entered the six A-share markets, all of which decreased by more than 35% year-on-year; the total amount of capital raised was RMB 47 billion yuan, with a decrease of 62%. At the same time, the number of IPOs terminated in 2023 reached 40, up 82% year-on-year.

At the beginning of 2024, IPOs of two semiconductor companies were terminated in succession, and the cold situation remained the same.

It is not difficult to see that the wind direction of the capital market has changed!

As we all know, with the structural differentiation of semiconductor downstream demand, weak demand in consumer electronics industry and slow digestion progress of industrial chain inventory, the semiconductor cycle in 2023 is at the bottom stage.

At the same time, after the CSRC gradually tightened the IPO rhythm, the IPO progress of semiconductor enterprises slowed down significantly.

It is reported that only 11 semiconductor enterprises will terminate IPO review in 2020, further increase to 19 enterprises in 2021, and increase to 22 enterprises in 2022. In 2023, 40 IPOs pressed the pause button.

Compared with previous years, in 2023, there were "0" semiconductor enterprises accepted in many months, and Kechuang Board had a "0 acceptance" for 92 days, and the financing scale was also significantly reduced, which confirmed to some extent the dismal IPO market in 2023.

Why does IPO withdrawal occur frequently?

Looking back at these IPO termination enterprises, there are different reasons, including: some enterprises proposed to withdraw IPO application due to some violations of key indicators such as business revenue, sustainable profitability, R & D investment rate, etc. exposed in the inquiry; equity-related and plate positioning problems; In addition, terminated enterprises also have been reported, initiated inspection and on-site supervision, as well as major adverse changes in the industry.

For example, when the enterprise applies for the plate positioning is not accurate, the withdrawal of the replacement plate re-declaration occasionally occurs. Some semiconductor enterprises will choose to replace the listed plate to restart IPO according to the company's performance, industry prospects and market trends after withdrawing orders.

Some enterprises said that they withdrew orders due to the fact that the industrial market was not as good as expected: on the one hand, the prosperity of semiconductor industry in 2023 showed an obvious downward trend. In this atmosphere, the capital market was not active, the secondary market continued to be depressed, and many enterprises also experienced the dilemma of listing immediately, and some enterprises would think that this was not a good opportunity for listing.

At the same time, Li Zhanmeng, founding partner of Xinpai Capital, also pointed out that the phenomenon of internal volume is serious, the performance of most semiconductor enterprises is under pressure, the operating pressure of enterprises increases sharply, and the performance indicators and revenue growth cannot meet the regulatory standards, so they have played a "retreat".

In addition, the implementation of the policy has had a substantial impact on IPOs.

In the first half of 2023, the implementation of the comprehensive registration system threw a "sweet date" to the IPO of semiconductor enterprises, whose essence is to give the option to the market and expand the channels for social funds to support the real economy.

However, the delicious fruit has not yet had time to chew.

In August 2023, China Securities Regulatory Commission issued the Supervision Arrangement for IPO and Refinancing as a Whole for the Balance of Primary and Secondary Markets, saying that "according to the recent market conditions, the IPO rhythm shall be tightened by stages to promote the dynamic balance between investment and financing", and further strengthen the supervision on IPO review.

"In particular, Kechuang Board basically does not accept the declaration of loss-making enterprises, resulting in many unprofitable semiconductor enterprises having to withdraw materials," Li Zhanmeng added to the author.

Since then, the number of A-share new listings has decreased significantly, IPO financing has declined for the first time since 2018, and more companies in other sectors have chosen to terminate the IPO process in addition to semiconductor companies.

With the increase of voluntary withdrawal enterprises, the exchange also continues to compact the responsibility of intermediary agencies, emphasizing the need to improve the quality of practice. The supervision of IPO projects is more detailed, and the "zero tolerance" regulatory situation is constantly increasing.

Just before the deadline, the new document issued by the Shanghai Stock Exchange reiterated that the sponsor should check three major matters for the IPO application again. Specifically, it includes: 1) the time of the previous IPO application, the main problems concerned at the review and registration stage, and the specific reasons for whether the previous IPO application was withdrawn or not;2) the rectification and implementation of the relevant problems leading to the withdrawal of the previous IPO application;3) the reasons and rationality of the issuer's previous changes of intermediary institutions.

Under the strict review mechanism, a large number of enterprises have retreated.

Zhao Zhanxiang, partner and chief technology officer of Yunxiu Capital, believes that the above-mentioned factors lead to difficulties in listing, exit, valuation and market value inversion of many enterprises, thus leading to the gradual increase of IPO threshold, investment in the primary market faces greater uncertainty, entering the "capital winter".

"Can't see clearly, dare not vote, no money" has become the keynote throughout the industry, semiconductor "blind vote can also make money" era officially declared an end.

Capital winter,

Where do IPO companies go?

In the era of semiconductor "full of gold", semiconductor poured into a large amount of capital, too many people poured into semiconductor entrepreneurship, the number of domestic chip enterprises was large, and a large number of repetitive projects appeared, while valuations were generally inflated, blowing up a lot of bubbles.

The result is small, chaotic, scattered markets, and low levels of duplication in technology and products, so high valuations do not bring high returns, and many semiconductor companies have even become normal on their first day of listing.

At present, the phenomenon of "inner volume" upgrading in some low-end chip tracks in China,"price by price, patent war by patent, domestic substitution for domestic production" is widespread, resulting in the red sea of vicious competition for low-end chips.

In this case, when the boom comes down, there will be more and more thunderstorms.

As it is difficult to raise funds this year, everyone has tightened their pockets, funds are no longer as abundant as before, and companies lacking vitality gradually fail to finance the next round.

Some investors said to the author,"At present, low-end chips, In the primary market basically no one to invest again."

However, those high-quality projects with tenacious vitality will still be more sought after and will not worry about financing. Because in similar track areas, capital will never choose "similarity", but choose "innovation".

Wang Lin said frankly that "innovation" will always be the constant driving force for the development of the semiconductor industry, but the wave of "import substitution" in the past few years has made the most valued innovation neglected, and everyone is using mature technology to meet the replacement needs of mature markets. What if we jump out of quadrant three? The space for innovation is infinite, and there are still many new opportunities for everyone to try, whether it is technology or application.

Wang Lin's analysis of the entrepreneurial track

A number of investors said to the author, once high-profile chip design track, investment and financing took the lead in cold.

Compared with 2022, although IC design still occupies the first place in semiconductor investment field in 2023, the heat drops obviously in the same period. In each segment, only the semiconductor equipment sector financing volume increased by 27.7% year-on-year, while the other track financing volume decreased or remained flat. Among them, MCU, analog chip, microprocessor and other fields decreased significantly, respectively-82.6%,-50.7% and-44.4%.

Among the categories of companies that have announced the termination of IPOs, chip design is also a "hard-hit area."

Among the enterprises going to IPO, although chip design is still the majority, with the influence of the ban on China, the purchase of equipment and high-end parts in batches is restricted, which makes the capital and industry direction change obviously. The financing direction starts to shift from the former chip design to the neck field with low localization rate such as equipment and materials at the source. Companies with more and more semiconductor equipment and materials have rushed to the capital market.

However, at present, the domestic semiconductor equipment and material companies that are IPO are generally small in operation scale, and the product market of some companies is mainly occupied by foreign manufacturers. It is difficult to break through relevant technologies, and there is still a long way to go.

All in all, when the semiconductor industry has developed so far, the heat of financing has slowly subsided and the market has calmed down. Those submerged in the investment boom in the "impetuous" enterprises, will also emerge with the market choice and the passage of time.

As a "winner-take-all" industry, the top three companies in each segment of semiconductor often occupy most of the market share. Even if the IPO of the second and third echelon companies in the industry segment is successful, they will face problems such as limited market space and weak performance growth.

Looking forward to 2024, the industry generally believes that the IPO tightening trend is likely to continue.

IPO review is becoming stricter, semiconductor subdivision track is becoming more and more crowded, homogeneous competition intensifies, all become the problems that IPO companies in the industry need to face.

"This means that the first wave of listing window for semiconductor enterprises is nearing the end, and the industry is gradually returning to a rational normal state." Zhao Zhanxiang believes that the idea of semiconductor enterprises wanting to get more funds through listing financing may be more realistic. To return to the essence of operation, do a good job in products and technologies, and create value for customers, enterprises with certain profitability and mature business models may successfully pass the "big test" of CSRC. Rather than relying on burning money to quickly increase revenue in a low or even negative gross profit manner to meet listing standards

At the same time, semiconductor enterprises should do everything possible to "open up sources and reduce expenditure" and prepare for long-term winter "grain". At the same time, we can consider "group warming" and carry out capital-level cooperation with listed companies or peers.

After IPO cold, M & A heats up

IPO tightening, the most direct impact is that investment institutions exit channels blocked, profitability reduced.

Over the past few years, star start-ups in the semiconductor field have emerged one after another, and whether investment institutions can bet on the hot track and successfully land on the secondary market has become the key to nuggets.

Now, with the narrowing of IPO channels and frequent breakdowns, the once-hot listing exit logic of semiconductor companies has been challenged. Moreover, the IPO of the project is not equal to withdrawal. As early as before the IPO tightening, many GP have already encountered the dilemma of "reducing holdings".

In this context, the industry turned its bow. Some entrepreneurs and investors are considering moving away from IPOs and looking for an alternative route-mergers and acquisitions.

Primary market investors told me that some investment institutions are starting to set up M & A funds in 2023, while some earlier prepared investment institutions are now running a large number of targets.

One obvious difference between mergers and flotations is undervaluation. Compared with previous years, when investing in a project now, the intention to be acquired in the future will be considered, and the valuation will be lower than the original.

Some investment bankers said that for companies that have not yet IPO, they can achieve curve listing through mergers and acquisitions. For enterprises that have already been listed, after having advantages such as capital, they hope to further increase R & D, expand the market, and enhance competitiveness. Foreign acquisitions are also a "fast channel".

A person in charge of a listed company told me that they have been paying attention to M & A targets, and some semiconductor start-ups are willing to be acquired under the dual pressure of tighter IPO review and industry downturn, and there are already some signs.

This is just as Li Zhanmeng said in an interview with the author: "In the next two years, China's semiconductor industry will definitely undergo industry reshuffle. A considerable number of uncompetitive companies in the market will break the capital chain due to financing difficulties and lack of self-hematopoietic ability, and industry liquidation will be carried out. Mergers and acquisitions between enterprises will also become the norm."

In fact, mergers and acquisitions in the semiconductor industry have already quietly warmed up.

In July 2023, Nanochip disclosed that it planned to acquire 33.63% equity of Kunteng Micro in cash, and the overall valuation of the subject company did not exceed RMB 1.5 billion yuan.

Not long ago, the analog chip leader of Kechuang Board announced that it plans to acquire 85.26% shares of Chuangxin Micro, and more than ten investment institutions withdraw in a cluster.

Siruipu has been the third listed company to initiate merger and reorganization of Kechuang Board since the beginning of the year. On January 17, AsiaInfo Security plans to acquire 28.8%-29.9% equity of AsiaInfo Technology; on January 8, Puyuan Jingdian plans to acquire more than 67% equity of Nai Digital Electronics.

At a time when capital withdrawal is difficult and the number of A-share IPOs has fallen sharply, the quietly rising merger fever can be regarded as a good phenomenon. Zhao Zhanxiang said that 2024 is expected to become the first year of mergers and acquisitions in the domestic semiconductor industry, and industry mergers and acquisitions will continue to heat up, firstly as an exit channel for capital parties; secondly, it will pave the way for the re-listing of larger-scale enterprises formed after merger and integration.

Of course, the semiconductor M & A boom is also inseparable from the warm wind of policy.

Since 2023, China Securities Regulatory Commission has repeatedly expressed its support for high-quality industrial mergers and acquisitions, and new market-oriented reform policies have frequently emerged. It has clearly proposed to establish and perfect the "green channel" for M & A and reorganization of technology-based enterprises breaking through key core technologies, showing an open and inclusive regulatory attitude.

In October 2023, China Securities Regulatory Commission issued a notice to extend the validity period of financial data of share issuance restructuring projects, promote listed companies to reduce restructuring costs and speed up the restructuring process. In November, China Securities Regulatory Commission issued a document again to further support listed companies to restructure with directional convertible bonds as payment instruments, place high-quality assets and improve the quality of listed companies.

At the same time, the regulatory authorities actively interact with all parties in the market to jointly discuss how to better stimulate the vitality of the merger and reorganization market and give full play to the function of "experimental field" of Kechuang Board.

It can be seen that the current policy environment is unprecedentedly friendly for listed companies, especially technology-based enterprises to carry out mergers and acquisitions. The opening of the M & A channel is tantamount to sending carbon in the snow. After the IPO dividend window closes, the M & A dividend may follow.

In addition, from the perspective of industrial development, the current semiconductor industry in China is too scattered, and it is difficult to become a leading enterprise only by virtue of a single product. It is also a logical choice to move towards "platform type" and comprehensive manufacturers through mergers and acquisitions to form international competitiveness. Such as Texas Instruments, Xinsi Technology, Intel and other international companies, in the process of development and growth are accompanied by a large number of mergers and acquisitions.

Some investors say that as the A-share valve slowly closes on chip design companies, companies that have already gone public will have a greater first-mover advantage, while many start-ups face survival problems and begin to accept sharply discounted financing. It can be said that now is the market bubble fade, the first listed companies "copy bottom leak" a good time.

Zhu Jing, deputy secretary-general of Beijing Semiconductor Industry Association, pointed out that the tracks with more integration of domestic chip design and merger will appear in analog chip, RF front-end, MCU, display driver IC, EDA and IP fields. These tracks have several characteristics: firstly, there are many existing start-ups; Second, there are many listed companies and they have fault advantages; Third, price war and internal volume are very serious; Fourth, once a hot field of capital, capital has pressure to promote integration; Fifth, the valuation level is relatively reasonable and meets the preconditions for merger and acquisition negotiations.

"Although mergers and acquisitions will heat up, but also can not be blindly optimistic," Li Zhanmeng stressed, because the domestic mergers and acquisitions of listed companies have not been fully market-oriented, management still tends to use traditional valuation methods to restrain listed companies, in addition, the approval process and cycle are very long, resulting in many transactions because of valuation or approval reasons difficult to really land.

written in the end

Generally speaking, the semiconductor industry is an industry with long capital withdrawal and huge investment in the early stage, and capital is extremely important for its development.

However, what needs to be warned is that listing is not the end point of an enterprise's development, and there is still a long way to go;IPO tightening is not all bad, which will also screen out a large number of participants who lack competitiveness, truly focus on the country's "neck" problem, rather than "replace domestic" low-level internal volume, and promote the market to return to benign development.

On the bright side, bubbles eventually burst, and consensus emerges only after bubbles burst. 10,000 steps back: "People, they always have to be tied up in one thing." If it's not stocks, it's houses, or semiconductors,"Wang Lin said with a smile.

At the time of writing, the Shanghai Composite Index had fallen below the 2700 mark.