Source of this article: Times Business School Author: Peng Chenyu
Source | Times Business School
Author | Peng Chenyu
Edited by | Xu Mo
As the downstream market industry improves, Xintianxia Technology Co., Ltd. (hereinafter referred to as "Xintianxia") achieved rapid growth in performance, and its net profit increased by more than 83 times year-on-year last year.
XinXia is a company specializing in the research, development, design and sales of code-type flash memory chips. On August 5, 2022, Xintianxia has submitted a prospectus to the Shenzhen Stock Exchange GEM.
xintianxia products are mainly used in consumer electronics, network communications, Internet of Things, industry and medical fields. In recent years, downstream terminal products have rich applications and sufficient market demand. But with the gradual recovery of the "chip shortage wave", can high performance growth continue? Due to the high distribution ratio and the defects of patented technology, where should Xintianxia's technological path go?
"chip shortage wave" is gradually recovering, and net profit has increased by 83 times and is difficult to copy
xin Tianxia's net profit has increased by 83 times in just one year. Whether its profitability is sufficient is attracting attention.
2019-2021 (hereinafter referred to as the reporting period) revenue was RMB 249 million, RMB 335 million and RMB 790 million, respectively, with net profits of RMB 3.341 million, RMB 2.5303 million and RMB 212.6224 million, respectively, and net profit after deducting non-recurring gains and losses were RMB -4.0632 million, -1.5893 million and RMB 209.3155 million, respectively, turning losses into profits in just one year. As shown in Figure 1.
The logic behind its surge in performance is mainly due to the tight supply in the chip industry. Xintianxia mentioned in its prospectus that since the second half of 2020, due to various factors such as the new crown epidemic and the international environment, the global chip market has been in a tight capacity supply, and a serious "chip shortage wave" has emerged.
But can such a high demand market and high profits continue to maintain?
Although Xintianxia's revenue and net profit achieved rapid growth in 2021, with the replenishment of supply capacity, the "chip shortage wave" gradually recovers, and chip prices will fall in the future, which may have a certain impact on Xintianxia's performance. As the prospectus stated, "In the future, with the gradual release of upstream production capacity, if the growth rate of demand in the downstream market slows down or decreases, an oversupply situation may occur, resulting in a decline in the revenue and gross profit margin of the company's products, which will have an adverse impact on the company's performance."
and such an impact has gradually emerged. Among them, NOR and SLC NAND medium and low density chips showed an overall downward trend from January to June 2022. As shown in Figure 2. The recent slowdown in demand for consumer electronics has led to uncertain demand outlook in the second half of this year, and downstream equipment end-of-service manufacturers will face increasing sales pressure.
rides on the "chip shortage trend" last year, other large-scale memory chip companies in China also saw performances of different scales last year, but the growth rate was not as high as that of Xintianxia. Behind the 83-fold increase in net profit is also because compared with other companies in the industry, Xintianxia's performance base in the previous year was lower and its overall scale was smaller. In addition to its small overall scale, Xintianxia also faces the risk of intensifying market competition. Xintianxia mentioned in its prospectus that the company's current market share is relatively low and its overall scale is relatively small. Its market share in 2021 was only 2.28%, lower than three of the four comparable companies in the same industry. As shown in Figure 3.
From the perspective of product technology level, the pace is slightly slower than the head. For example, Xintianxia 55nm NOR Flash products have been sold in small batches during the reporting period, while Zhaoyi Innovation’s same products have been fully mass-produced last year.
Judging from the research and development results, 12 of Xintianxia's 93 patents were obtained from the acquisition, and nearly 80% of the original invention patents obtained were applied for in 2020.
To sum up, with the recovery of the "chip shortage trend" and the intensification of market competition, Xintianxia, which has a low market share, small scale and no advantage in patent technology, may find it difficult to replicate the grand scene of a 83-fold increase in net profit.
failed to form an effective technical barrier, and the value of the patent is questionable. In addition to the uncertain future development prospects, Xintianxia has also failed to complete a "magnificent turn" to a technology company.
Xintianxia Company was established in 2014. It was a semiconductor chip sales company in its early stages and did not participate in chip design and manufacturing.Until 2017, Xintianxia acquired Huimangwei's NOR product line (including 5 basic patents) for 40 million cash and about 9% of its shares. Xintianxia began to transform and upgrade to a technology company.
Before founding Xintianxia, the company's actual controller, Mr. Long Dongqing, had been the sales director of the South China Region of the Shenzhen Branch of Shixun Semiconductor Trading Co., Ltd. Except for Hu Guoqing, 90% of the company's board members have never designed chip development research.
can also see this in the prospectus. Xintianxia has "non-self-developed wafer products" in its main business, accounting for 40% of the total revenue, as shown in Figure 4. Xintianxia focuses on the research and development, design and sales of code-type flash memory chips. The other production links such as wafer manufacturing, wafer testing, chip packaging, and chip testing are all realized through commissioned processing, which means that Xintianxia only develops and designs chips in production, while the actual production is completed by foundry. However, chips are semi-finished products completed by wafer cutting. How can a technology company responsible for designing and developing chips have such a high proportion of non-self-developed wafer products?
Similarly, in the inquiry response, we can also know that during the reporting period, Xintianxia mainly purchased SLC NAND storage wafers such as Kioxia, Samsung, Micron, and other world-renowned IDM manufacturers, through Kioxia Asia, Limited, and through Kioxia, Samsung, Micron, and other world-renowned IDM manufacturers, Shiteng Technology Co., Ltd., Wenye Technology (3036.TW), and its subsidiary Wenye Technology (Hong Kong) Co., Ltd., and Dalianda (3702.TW) subsidiary Shiping International (Hong Kong) Co., Ltd. During the reporting period, the above-mentioned companies accounted for 100% of SLC NAND storage wafer procurement, accounting for 48.4%, 53.3% and 52.7% of the total procurement. As shown in Figure 5.
This means that Xintianxia's SLC NAND storage wafer products have no R&D technology to speak of, and are sold just by simply cutting.
Correspondingly, Xintianxia's road to transforming into a technology company is actually difficult.
First of all, although Xintianxia has 22 copyrights at the software development level, it actually only has the sales management system and Xintianxia CRM system successfully published through public announcements. However, both systems are essentially sales systems and have no direct connection with the research and development of their main business.
Secondly, the core technology of Xintianxia's SLC NAND only accounts for a lower proportion of self-developed controllers are independently developed, and storage wafers are purchased directly or indirectly. This means that on SLC NAND, Xintianxia has failed to form an effective technical "barrier", and its market share may be squeezed at any time.
As of press time, Xintianxia’s IPO materials have been officially accepted and are planning to sprint to the Shenzhen Stock Exchange GEM.
Faced with internal and external troubles, how should Xintianxia break the deadlock and can it successfully go public and raise funds?
Reference
"Prospectus for the Initial Public Offering of Shares and Listing on the GEM for Xintianxia Technology Co., Ltd. (Presentative Draft)". GEM official website
"Reply to the Implementation Letter of the Review Center for the Application of Xintianxia Technology Co., Ltd. for the Initial Public Offering of Shares and Listing on the GEM for Xintianxia Technology Co., Ltd.". GEM official website
