Market value reaches 13.8 billion after one year of listing! Revealing Espressif's road to the Science and Technology Innovation Board

On July 22, the Science and Technology Innovation Board celebrated its first anniversary. Over the past year, 132 companies have been listed on the Science and Technology Innovation Board, with cumulative financing exceeding 200 billion yuan. As one of the first companies listed on the Science and Technology Innovation Board, Espressif (688018) has always attracted much attention from the industry.

On the first day of the opening of the Science and Technology Innovation Board last year, Lexin Technology had the highest issue price among 25 companies at 62.60 yuan per share . At noon on the first day of listing, the increase reached 126.84% and closed at 142.00 yuan. In 2019, Lexin's performance hit a new high, with a total sales of 144 million chips and modules, an increase of 79.44% over 2018.

So, how did Espressif achieve a rapid increase in sales and a market value of 13.809 billion yuan (as of 15:00 on July 29) one year after listing? How will it improve in the face of a 45.35% year-on-year drop in net profit in the first half of 2020? What layout has Espressif made in the AIoT track?

(Image source: Espressif Technologies official website)

Founded in 2008, Espressif Systems is a professional integrated circuit design company that adopts a fabless business model. It is mainly engaged in the research and development, design and sales of IoT Wi-Fi MCU communication chips and modules. Its main product, Wi-Fi MCU, is the core communication chip in the IoT fields such as smart home, smart lighting, smart payment terminals, smart wearable devices, sensor equipment and industrial control.

The Internet of Things wireless communication chip is a communication chip that uses short-range wireless communication technologies, such as Wi-Fi technology, Bluetooth technology, etc., to connect devices to the network, transmit data within the local area network, and effectively realize the wireless connection between physical devices and virtual information networks.

Since its establishment, Espressif has been deeply involved in the field of WiFi MCU chips. In 2018, its shipments accounted for 33.59%, and its market share has grown rapidly. In 2019, Espressif sold a total of 144 million chips and modules, an increase of 79.44% over 2018. WiFi MCU is one of the mainstream solutions for the Internet of Things, and downstream applications are constantly driving demand. According to IDC data, global Wifi chip shipments will reach 4.9 billion in 2022, accounting for more than 40% of the shipments of major mainstream interconnection solutions. According to statistics from market research firm Markets and Markets, the global Wi-Fi chip market is expected to grow to US$19.27 billion in 2022.

We know that the global MCU embedded WiFi market is growing very fast. At present, the competition pattern of the Wi-Fi MCU chip market has formed a relatively stable situation. Its major participants include giants such as Qualcomm, Texas Instruments, Marvell, Cypress, MediaTek, and Realtek . It is worth mentioning that according to the TSR industry report, Espressif ranked first in the world in the field of embedded MCU in 2017.

(Image source: Espressif Technologies official website)

In the MCU segment, Espressif has achieved high integration and low power consumption by focusing on and accumulating rapidly. Its product definition accurately targets the IoT market and has also successfully entered the first echelon. It should be noted that downstream applications and communication chip suppliers are more likely to form good stickiness. Generally speaking, the cooperative relationship between downstream customers and chip design companies is relatively stable. After selecting suppliers, application manufacturers and chip manufacturers collaborate on research and development to continuously meet the latest needs. Therefore, in the field of communication chips, the competitive landscape rarely changes. In addition to leading companies, there are also some small and medium-sized enterprises in Wi-Fi MCU chip design companies, including Southern Silicon Valley, Lianshengde, etc.

Technology has always been the foundation of life, and Espressif has long been aware of its importance. They have been continuously investing a lot of resources in technology research and development. From 2016 to 2018, their R&D expenses accounted for 24.64%, 18.16% and 15.77% of their operating income respectively. In 2019, their R&D expenses were approximately 120 million yuan, a year-on-year increase of 59.88% .

Relying on continuous technological research and development and accumulation in the field of Wi-Fi MCU communication chips, Espressif already has some core technologies with independent intellectual property rights, such as high-power Wi-Fi RF technology, highly integrated chip design technology, and multi-Wi-Fi IoT device grouping collective control system.

At the same time, they have developed a number of highly influential products. In 2013, they launched the ESP8089 series Wi-Fi chips for tablets and set-top boxes; in 2014, they launched the ESP8266 series of IoT chips; in 2016, they launched the ESP32 series chips, which use a dual-core structure, support Wi-Fi and Bluetooth, have richer functions, and are more convenient to develop; in July 2019, they launched a new product ESP32-S2, which has high integration, low power consumption, built-in secure boot, Flash encryption functions, and a complete security mechanism.

(Global IoT Observation Map)

Cost-effectiveness is one of the key factors for the rapid popularization of IoT terminals. It is understood that the overall average price of Espressif chips is around 5 yuan, and the average price of modules is in the 10-11 yuan range , both lower than the industry average.

Espressif has always been favored by global technology giants and has received investments from many companies and investment institutions before its listing, such as Intel, Yabo Dongchen, Core Dynamics, Jinmi Investment, Haier SAIF, and Midea Investment .

In addition, based on Espressif's continuous accumulation in the field of communication chips, it has been recognized by end customers such as Xiaomi, Tuya Smart, Ecovacs, Daikin, and Ant Financial, becoming a stable chip supplier for these companies. In 2018, Espressif's sales to the top three customers were RMB 105.3557 million, RMB 44.0979 million, and RMB 29.1583 million, respectively (see the figure below).

(Global IoT Observation Map)

Among them, Xiaomi must be mentioned. In addition to being a customer, Xiaomi Group is also a shareholder of Espressif , having acquired a stake in Espressif Technology in 2016. In this way, with Espressif's successful listing, Xiaomi will also make a profit.

In its first year of listing, Espressif's operating performance has grown strongly again. According to the annual report, in 2019, Espressif achieved operating income of 757 million yuan , an increase of 282 million yuan from 475 million yuan in the same period last year, an increase of 59.49%. It achieved a net profit of 159 million yuan, compared with 94 million yuan in the same period last year, an increase of 65 million yuan year-on-year, an increase of 68.83%. Basic earnings per share were 2.32 yuan, an increase of 0.76 yuan from 1.56 yuan in the previous year.

However, affected by the epidemic, R&D investment, product price cuts and other factors, Lexin's net profit fell 45.35% year-on-year in the first half of 2020. On July 13, Lexin Technology announced that the company achieved operating income of 293.2025 million yuan in the first half of 2020, a year-on-year decrease of 9.31% (including a year-on-year decrease of 16.15% in the first quarter and a year-on-year decrease of 3.56% in the second quarter); the net profit attributable to the parent company's owners was 34.7784 million yuan, a year-on-year decrease of 45.35%.

Regarding the main reasons for the performance changes during the reporting period, Lexin Technology stated that operating profit decreased by RMB 38.2553 million year-on-year, a decrease of 50.42%, which was greater than the decrease in operating income, mainly due to the following reasons:

In addition, on July 22, Lexin Technology lifted the ban on 25.9806 million restricted shares, accounting for 32.48% of the total share capital. The restricted shares lifted this time are mainly held by investment institutions such as Yadong Dongchen and Xindongneng. After the lifting of the ban, the number of its outstanding shares will increase by 142% . On July 23, Lexin Technology issued an announcement that Shinvest, a shareholder holding 6% of the shares, intends to reduce its holdings of the company's shares by no more than 3% of the total share capital through centralized bidding and block trading.