On September 4, an important announcement was made by Xilian Integrated Circuit, a player in the semiconductor industry, to acquire the remaining 72.33% stake in its subsidiary, Xilian Yuezhou, for ¥5.897 billionThis acquisition, if executed, could mark the largest deal in the semiconductor sector within the secondary market this year.

Xilian Integrated Circuit has established itself as China’s largest manufacturer of automotive-grade IGBT chips and modulesIts subsidiary, Xilian Yuezhou, holds the key to China’s first 8-inch SiC MOSFET production lineThe completion of this acquisition will significantly bolster Xilian Integrated's strength in the automotive chip sector.

As the wave of new energy vehicles surges ahead, and with consumer electronics experiencing a rebound driven by AI, the potential for future growth in these booming industries appears limitlessSuccessfully closing this deal could pave the way for Xilian Integrated’s turnaround from loss to profit.

In the current climate, the chip industry is undergoing differentiation amidst a cyclic adjustment phaseEven industry giants such as Intel, who have dominated the PC era, are struggling due to their inability to capitalize on the mobile and AI wavesThe company reported a staggering loss of $1.6 billion in the second quarter, and its stock has plummeted by 60% this yearIn stark contrast, Nvidia, the new king of AI, has managed to rake in profits of $16.6 billion in the same quarter.

The advent of AI has revived the stagnant memory chip sector

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High-performance and high-capacity products such as HBM (High Bandwidth Memory), DDR5, and eSSD (enterprise solid-state drive) have seen a robust resurgence, with Samsung Electronics reporting significant recovery in its NAND Flash and DRAM revenues and profits during the second quarter.

Ultimately, differences in performance across the industry boil down to whether companies can navigate the cyclical challenges with technological prowess.

Despite the cyclical fluctuations, Xilian Integrated, founded just six years ago, has managed to showcase its ability for 'technology-driven growth' rather than merely following the trends.

In the first half of 2024, the company reported revenue of ¥2.88 billion, a year-on-year increase of 14.27%. After excluding depreciation and amortization costs of ¥2.046 billion, the company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was recorded at ¥1.123 billion, marking a staggering 176% increaseThe company's EBITDA margin reached 39%, setting a new record for revenue since its inception.

With an investment of nearly ¥900 million in research and development, a 33% growth year-on-year, R&D expenses accounted for over 31% of revenueHowever, due to depreciation and long-term intensive R&D investments, the company reported a net loss of ¥471 million in the first half of the year, albeit a reduced loss of ¥638 million, achieving a 57.53% decrease in losses compared to the previous year.

This remarkable achievement stems from a combination of factors, including the company’s penetration into rapidly growing sectors such as new energy vehicles and its capacity to harness significant financial resources.

Xilian Integrated stands out as the largest contract manufacturer for automotive-grade IGBT chips and modules in China, supplying silicon carbide chips to leading new energy vehicle manufacturers such as XPeng.

Silicon carbide (SiC) high-voltage platforms have emerged as a standard in flagship new energy vehicles, attracting investment from industry giants like STMicroelectronics and Infineon.

Having been the first in China to facilitate the mass utilization of SiC MOSFETs in main inverter applications, Xilian Integrated boasts the highest shipment volume of SiC MOS in Asia, leveraging its first-mover advantage.

In this favorable environment, revenue from the SiC MOSFET segment tripled year-on-year in the first half of the year, with automotive products accounting for nearly half of the company's core business

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The silicon carbide business revenue is anticipated to reach ¥1 billion for the year.

Xilian Integrated is not shying away from technology competition; its second-generation products have reached international standards, achieving a CP (Control Performance) yield rate exceeding 85%. Furthermore, it is the first in the country and second globally to implement true 8-inch silicon carbide line production, having begun pilot runs in April this year and set to achieve mass production next year.

In the era of combustion-engine vehicles, no Chinese automotive company made it to the global top tenHowever, in the age of electrification, six out of the ten leading new energy vehicle manufacturers in 2023 are locally producedThe rise of China’s new energy vehicle supply chain has provided fertile ground for companies like Xilian Integrated.

Compared to globally prominent firms like Samsung, Nvidia, and Texas Instruments, China’s integrated circuit industry is still in pursuit of catching upHowever, given the advance of new energy vehicles, it is not unrealistic to foresee the emergence of a world-class enterprise in automotive electronicsThe company has its sights set on capturing 30% of the global silicon carbide market share in the future.

In the first half of the year, Xilian Integrated expanded its automotive power module products overseas, securing procurement contracts from prominent European car manufacturers, with installation volumes growing more than five-fold year-on-year, achieving nearly a 10% market share.

On another front, the revival of the consumer electronics sector has led to a remarkable 107% increase in the company’s consumer business revenue, while the 12-inch silicon wafer production line saw a revenue surge of over sevenfold year-on-year.

Looking ahead, with the mass production of SiC, more projects involving collaborations with OEMs and Tier 1 suppliers are anticipated

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The growing prominence of AI data centers, renewable energy, and analog IC fields will drive Xilian Integrated's continuous growth and fortification.

The acquisition plan for Xilian Yuezhou embodies a significant step towards enhancing the company's core competitiveness, particularly in the high-potential domains of silicon carbide and analog integrated circuitsThis move is expected to solidify the company's holdings in these compelling arenas significantly.

Moreover, it enables a unified management of the 8-inch silicon wafer production capacity, boosting efficiency and augmenting the company's advantage in innovation and updates.

In the global chip landscape, companies like Samsung and SK Hynix have built their foundations on memory chips, while TSMC dominates with advanced manufacturing technologies, and Nvidia has surged into prominence through GPUs for AI applications.

While the digital chip sector is rife with competitive technological battles, analog chips remain relatively understatedYet, through steady progress, they have exhibited durability amidst the volatile capital markets.

In 2024, industry giants Texas Instruments (TI) and Analog Devices Inc (ADI) both achieved historic market valuations, surpassing IntelWith various kinds of analog integrated circuits in demand, the current trends of new energy vehicles, energy transitions, and AI proliferation are considerably enlarging the market for analog chips.

Although China stands as the world’s largest chip consumer market, it faces distinct challenges

Unlike the digital chip realm, analog chips heavily depend on engineers’ expertise, resulting in a domestic self-sufficiency rate of less than 15%. This has been a slow incline, trailing behind the overall chip self-sufficiency rate.

Furthermore, production capacity is primarily focused on mid-range and low-end consumer electronics, while the high-end segment relies heavily on importsThis calls for urgent domestic development and alternatives to ensure independence and competitiveness.

Since its establishment, Xilian Integrated has maintained a strategic approach of 'taking one step while anticipating three more'. Beginning with MEMS in 2017, followed by silicon-based power devices in 2018, module business expansion in 2019, and venturing into high-voltage analog ICs, silicon carbide, and laser radar MCUs in 2020.

The company continuously enters new fields each year and aims to elevate product standards through iterations within two to three years, aligning with the automotive industry’s increasingly high demands for chip innovations.

At present, Xilian Integrated has developed three growth trajectories: one centered on 8-inch silicon-based chips and modules predominantly featuring IGBT, MOSFET, and MEMS; the second rooted in SiC MOSFET chips and modules; and the third focusing on high-voltage, high-power BCD processes in analog ICsEach trajectory serves various product domains and application directions.

During the first half of the year, all three trajectories witnessed momentum, driven by the empowerments of AI large models, accelerating iterations in AI mobile phones and PCs, and improved demand for consumer electronics boosting the company’s performance in that sector.

The second growth trajectory, SiC MOSFET, saw projects entering mass production and maintaining high production line efficiency, resulting in a threefold revenue increase year-on-year.

In the first half of 2024, several integrated BCD process platforms filled gaps in the Chinese market, with projections indicating that analog ICs will become the fastest-growing segment for the company from 2024 to 2026.

Concurrently, riding the wave of AI, Xilian Integrated is continuously expanding its boundaries, establishing a comprehensive foothold in the high-growth AI server sector

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