ZTE Microelectronics is rumored to be split into an independent company

According to Semiconductor Industry Observer, domestic chip design company ZTE Microelectronics will be independent from ZTE Communications and will subsequently raise funds in the market as an independent company. Going public will also become a goal of the company's spin-off.

According to ZTE’s first-half financial report, ZTE Microelectronics’ revenue in the first half of the year was 4.25 billion yuan and net profit was 937 million yuan, a year-on-year increase of 241.83%. Relevant people from ZTE also pointed out that looking forward to the second half of the year, ZTE will adhere to technological innovation in key areas, increase investment in core technologies such as chips, algorithms, and architecture, maintain technological advantages, continue to invest government and enterprise business resources, and continue to build servers and storage. , data center and other key products’ underlying competitiveness.

According to the 2021 financial report, ZTE Microelectronics' revenue in 2021 reached 9.731 billion yuan, with a net profit of 846 million yuan. The announcement stated that ZTE Microelectronics’ net profit in 2021 increased by more than 30% compared with the same period last year, mainly due to the increase in gross profit. ZTE Microelectronics' performance also accounts for more than 10% of ZTE's overall performance.

Data shows that ZTE Microelectronics was formerly the IC design department of ZTE Communications. After years of development, it has become a leader in integrated circuit solutions.

It already has profound technology accumulation in the solution field. It has moved from the inside to the front desk, not only providing chip research support for ZTE itself, but also starting to sell chip products and design solutions to the outside world.

In April this year, ZTE stated on the investor interaction platform that the company’s wholly-owned subsidiary ZTE Microelectronics focuses on the design of communication chips and focuses on continuously improving its full-process chip design capabilities, mainly for the company to achieve technological leadership in the company’s main channel products. At the same time, There are also some self-developed chips sold externally, including PON ONU chips (mainly used for optical fiber broadband access products) and mobile terminal chips.

At an earlier financial report meeting, ZTE President Xu Ziyang said, "ZTE's investment in key technologies will ensure that the space and share of the main channel continue to increase, and strive to be among the top two in segmented products and obtain the maximum return. But At the same time, we will balance the benefit ratio and treat opportunities and risks with caution.”

He emphasized that the company must resolutely invest in algorithms, chips, architectures, and patents involving core technology competitiveness, including R&D platforms. He further said that from the perspective of R&D resource investment, 2019 to 2021 is the peak period of the company's 5G and chip R&D investment. The R&D expense rate is gradually rising, but the month-on-month growth rate is slowing down. In the future, as the company's revenue scale grows, the company will gradually enter a virtuous cycle of business growth - R&D investment - technology leadership - business growth, and the scale effect of R&D expenses will gradually be reflected.

In addition, he also said that ZTE will use its ICT advantages to expand automotive electronics and only "be integrated."

In their view, ZTE has accumulated experience. ZTE's automotive electronics business is technically a matter of course. In the process of CT and IT research and development and the integration of CT and IT, ZTE has acquired the capabilities required for automotive electronics: hardware, software, operating systems, databases, connections, big data and AI, etc.; ZTE is in the process of long-term service operations In the process of business network construction, we have gained experience in highly reliable and high-performance system integration. This makes our new business more accessible in terms of key technologies, reliability, and performance. At the same time, the main costs of these capabilities have been shared in R&D over the years and have been incorporated into our platform capabilities.

Secondly, customers have clear needs. Just like terminals evolved from feature phones to smart phones many years ago. The electrified car behind it will also evolve from a functional car to a smart phone-like car, and it will become part of people's actual connection. In this regard, we work with customers to leverage our strengths and couple the links in the virtual world with the links in the physical world. This is also an evolution of ZTE based on its own deterministic advantages.

Finally, in terms of automotive electronics, we only do "being integrated", and ZTE will use our own capabilities in the ICT field to help customers succeed.

As early as September 2020, ZTE issued an announcement stating that after friendly negotiations between the National Integrated Circuit Industry Investment Fund Co., Ltd. (hereinafter referred to as the Integrated Circuit Industry Fund) and the company, ZTE would use its wholly-owned subsidiary Shenzhen Renxing Technology Co., Ltd. (hereinafter referred to as Renxing Technology) acquired a 24% stake in the company's holding subsidiary Shenzhen Zhongxing Microelectronics Technology Co., Ltd. (hereinafter referred to as Zhongxing Microelectronics) held by the Integrated Circuit Industry Fund. Calculated based on equity value, ZTE Microelectronics’ market value exceeds 10 billion.

ZTE stated in the announcement at the time that Guangdong Hengjian Xinxin Investment Partnership (hereinafter referred to as Hengjian Xinxin) and Shenzhen Huitong Ronxin Investment Co., Ltd. (hereinafter referred to as Huitong Ronxin) planned to cooperate with the company and Renxing Technology. Jianxinxin and Huitong Ronxin provided cooperation funds of RMB 1.4 billion and RMB 1.2 billion to Renxing Technology respectively, which will be used by Renxing Technology to pay the consideration for this acquisition. After the completion of this acquisition, they will cooperate with the company and Renxing Technology. Xing Technology negotiates for further cooperation.

The announcement shows that ZTE established Renxing Technology 8 days before the transfer, with a registered capital of 10 million yuan; Hengjian Xinxin was established on September 9, the day before the announcement, and was backed by Guangdong Guanghengshun Investment Co., Ltd., Guangdong Hengjian Asset Management Co., Ltd. and Guangdong Henghang Industrial Investment Fund Partnership (Limited Partnership); Huitong Ronxin was established in December last year, and the shareholder behind it is Shenzhen Huitong Financial Holdings Fund Investment Co., Ltd.

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