Top 10 Financing and M&A Cases in the Chip and Solution Field of Smart Hardware Industry in 2014

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Since 2013, the investment community has shown a keen interest in the smart hardware market. According to statistics, by December 2014, there were 68 rounds of funding in the fields of smart wearables and smart homes, and a total of 58 emerging Chinese smart hardware companies received financing, with a total financing amount of approximately US$500 million. The traditional hardware industry has also undergone a series of capital changes, with total investment and mergers and acquisitions exceeding US$1.5 billion. Let's review the financing and mergers and acquisitions in the field of chips and solutions in the smart hardware industry in 2014.

Project 1, ChaoWifi (April 2014)

Amount: RMB 15 million

Round: Round A

Investment institution: Huaying Capital

Project Introduction: Wireless Router/Wifi Solution

Bu Kaijun, the founder of Chinese manufacturer, recently announced the completion of Series A financing for his new venture "Chao WiFi", which raised 15 million yuan from Huaying Capital. Bu Kaijun himself had also invested in Chao WiFi in the early stage. Bu Kaijun said, "Unlike Xiaomi Router and Ji Router, we are targeting consumer enterprise customers."

Bu Kaijun believes: "The mobile Internet is developing rapidly. With users migrating to mobile terminals on a large scale, mobile e-commerce and mobile marketing are valued by companies as large as Tencent and Alibaba, as small as roadside shops. As one of the key nodes of O2O, the role and value of smart routers have not been fully explored. In the commercial market for small and micro enterprises, the market has entered the red ocean ahead of time, but the participants are uneven. Although there are hundreds of participants, there is no absolute leading company and unified cognitive standards, which provides opportunities for Chao WiFi."

At present, "Chao WiFi" has announced that it has cooperated with hundreds of companies such as Zhen Gongfu, Jiaduobao, Ningbo Kuaike, Pudding Hotel, Jie Ding Hotel, Zhejiang Tourism, etc. in WeChat-based wireless marketing. According to the team's business plan, Chao WiFi will work with channel partners to deploy more than 1 million hotspots in 300 cities within 3 years.

This time, ChaoWiFi Capital's Fang Huaying Guanghui Fund is an industrial investment fund focusing on TMT and cultural and creative fields, with a fund size of over 1 billion. The fund has invested in many projects in the mobile Internet field including 51 Credit Card, PP Assistant, Xiao Enai, and Adschi.

Project 2, Chuangjie Technology ISSC (May 2014)

Amount: $329 million

Round: Acquisition

Investment institution: Microchip Semiconductor

Project Introduction: Bluetooth Solution

Microchip Technology Inc. of the United States announced that it would acquire ISSC Technologies, a Taiwan-based low-power Bluetooth technology provider, for approximately $329 million. Excluding ISSC Technologies' $34.2 million cash balance, the transaction is valued at approximately $294 million.

Microchip's motivation for acquiring ISSC is to add its low-power Bluetooth products to its existing product portfolio. Microchip already has a product portfolio for the embedded market, including microcontrollers, analog chips, flash memory patents, and WiFi and Bluetooth modules. However, Microchip's Bluetooth modules use chips made by other companies. By acquiring ISSC, Microchip can obtain more professional wireless technology for Bluetooth solution products and lay the foundation for becoming a leading player in the Internet of Things market in the future.

“This acquisition provides us with our own proprietary Bluetooth chips and significantly reduces the cost of our Bluetooth solutions,” Microchip Chief Operating Officer Ganesh Moorthy said in a conference call with analysts announcing the deal. “It also enhances our value proposition, making us a full-service supplier to the Internet of Things market.”

ISSC designs Bluetooth chips into a variety of wireless audio products, including headphones and speakers. Although wireless audio has always been its business focus, ISSC's Bluetooth products are increasingly being used in embedded products, including healthcare, sports and fitness, mobile sales terminals (POS) and home appliances. However, it has not yet entered the automotive market, which is a key market for Microchip. "Most of Microchip's customers are located in Taiwan, China and Japan," said Moorthy.

"As Bluetooth becomes an integral part of many products, Bluetooth functionality has become a must-have standard to ensure the growth of smartphone and tablet sales, and embedded has become a fast-growing market for ISSC solutions," said Moorthy. Microchip will also add a Bluetooth software stack to its expanded library, which the company said will provide the seamless communication and security protocols needed for the product's Internet connection.

ISSC has a portfolio of 27 patented products, 119 patents granted, and 91 patents pending. Revenues in 2013 were approximately $69.2 million, and it achieved a 46.2% gross margin and an 18.9% operating margin. It has $34.2 million in cash and investments on its balance sheet and no debt.

Project 3, RDA Microelectronics (July 2014)

Amount: $907 million

Round: Acquisition

Investment institution: Tsinghua Unigroup

Project Introduction: Chip Semiconductor

On July 18, Tsinghua Unigroup and RDA Microelectronics (RDA) jointly announced that according to the merger (and amendment) agreement, Tsinghua Unigroup's acquisition of RDA valued at US$907 million has been completed, and each ADS traded on the Nasdaq market will receive cash compensation of US$18.5.

Tsinghua Unigroup's overseas branches completed the acquisition, bypassing the "small road" restrictions. After a 10-month equity battle with Shanghai Pudong Science and Technology Investment, Tsinghua Unigroup finally completed the privatization of RDA. This was within the scope of relevant national policies, and the acquisition was finally achieved through its overseas branches and overseas financing, bypassing the "small road" restrictions of the National Development and Reform Commission's overseas acquisition review, which was the most controversial. Pudong Science and Technology Investment also acquired Montage Technology in the early stage. Although it did not acquire RDA, it also made some gains in the red chip IC enterprise mergers and acquisitions.

From an industrial perspective, Spreadtrum and RDA are beneficial to China's mobile phone chip industry. Spreadtrum Technology + RDA will form an oligopoly competition pattern with MediaTek and Qualcomm. In the field of mobile chips, the two companies have a combined revenue of US$1.5 billion, becoming the third in the world, which will greatly enhance the competitiveness of domestic processors in the world and form an oligopoly competition pattern with Qualcomm and MediaTek. Spreadtrum is strong in the AP and TD-CDMA/LTE markets, and RDA is strong in mid- and low-end RF front-end chips. The combination of the two allows RDA to supply with Spreadtrum, and Spreadtrum also avoids competing with RDA in the mid- and low-end markets. At present, the top priority for Tsinghua Unigroup and RDA is to reorganize their businesses, make up for the losses caused by the loss of personnel in the early stage, and concentrate on accelerating the development of TD-LTE chip platforms. In the long run, it is hoped that the two can complement each other's comparative advantages, and rely on Tsinghua University's advantages in talents, resources, and scientific research in the semiconductor industry chain to continuously enhance their global competitiveness.

The merger of the two companies into Tsinghua Unigroup is expected to accelerate the overall listing process and promote the integration of the semiconductor industry chain. China's IC design industry is too fragmented, leading to excessive competition, waste of resources, and a long-term situation of talent dispersion. Under the leadership of Tsinghua Unigroup, the merger of Spreadtrum and RDA has set an example. While accelerating the overall return to the A-share market, it will also encourage upstream and downstream, competitors and other semiconductor industry chain companies to choose integration and grow together. The number of players in the mature stage of the semiconductor industry is gradually decreasing, and it is natural to support and invest in leading companies.

Project 4, Memblaze (August 2014)

Amount: $20 million

Round: Round C

Investment institutions: Bertelsmann Asia Investments (BAI) led the investment, ZTE, Dingxing Fund, PMC

Project Introduction: Chip/Solid State Storage

The financing of domestic flash storage manufacturer Memblaze (Yiheng Technology) was led by Bertelsmann Asia Investment Fund (BAI), followed by ZTEVC, Dingxing Fund managed by General Venture Capital, PMC and other investment institutions, and continued by Infinity, with a total financing amount of US$20 million.

Memblaze was founded in 2011, when flash memory was making a full-scale foray into the storage field. Over the past three years, Memblaze has quickly captured the domestic storage market with its disruptive innovative technology and high-performance flash solid-state drives, with its customers mainly being open, technology-oriented Internet companies. Leading domestic Internet companies such as Baidu, Youku, Qihoo 360, and Tencent quickly became the first users of Memblaze, speeding up the processing of key data for their companies. In just three years, Memblaze's enterprise-level customers have rapidly grown to more than 100, making it a well-deserved leader in the domestic enterprise-level solid-state drive industry.

Memblaze CEO Yin Xuebing said: "This round of financing will be used for the technical research and development and market development of a new generation of innovative flash storage products, and to attract more outstanding technical talents to join Memblaze, injecting new energy into the development of next-generation products. At the same time, Memblaze will continue to strengthen the construction and investment in supply chain and market. Entering the international market is also in Memblaze's next business plan. In the evaluation of foreign institutions, our products are comparable to similar foreign products in all parameters, and in many scenarios, they even have a great advantage. After contacting us, foreign partners have shown great interest. With the trust of investment institutions, Memblaze will accelerate the pace of innovation and market expansion."

Memblaze launched the new third-generation PCIe flash memory card PBlaze3 based on the popularity of the second-generation product Q520. Compared with the previous generation, the new generation of products has optimized the core algorithm, improved the technical architecture, and greatly improved the read and write performance of the product. After a three-month evaluation by StorageReview, a well-known foreign storage product evaluation organization, compared with similar products at home and abroad, PBlaze3 ranks first in latency performance in database application scenarios.

The powerful read and write performance of PBlaze3 flash memory card has won large additional orders from Internet companies such as Youku and Baidu in the same season of its launch, which further consolidated Memblaze's absolute leading position in the flash memory field. The huge success in the Internet industry has greatly enhanced Memblaze's confidence in expanding the market. In 2013, Memblaze began to expand users in traditional industries, improve the supplier system, actively expand partners, and comprehensively improve the level of after-sales service and customer purchase value.

With its core competitiveness in products and technologies, Derrick Harris, an analyst at the well-known American technology blog GigaOM, called Memblaze one of the "7 startups that may define China's cloud." He believes that Memblaze has become the number one flash memory product and solution company in China, taking a leading step in responding to market demand, and there is still huge room for development in the flash memory market in the future.

Project 5, Gizwits Cloud (August 2014)

Amount: Millions of dollars

Round: Round A

Investment institution: Matrix Partners China

Project Introduction: Internet of Things Solutions

On August 6, Gizwits, a cloud service platform that provides backend cloud service support for smart hardware, received millions of dollars in Series A funding from Matrix Partners.

At present, Gizwits mainly provides four SDKs and services for smart hardware developers: data statistics analysis, M2M access, OTA firmware upgrade, and hardware socialization. Among them, data statistics analysis can analyze the use of devices and user behavior from multiple dimensions; M2M access actually includes basic IoT services such as WiFi device router access, remote monitoring and management; OTA firmware upgrade supports multiple targeted upgrade strategies to solve the continuous upgrade requirements of devices after leaving the factory; hardware social service is a mechanism to connect devices to the WeChat client, supporting WeChat social networking with one click.

Similar to Umeng, Gizwits provides a data statistics and analysis service that combines standardization and personalization, connecting the three links of data collection, analysis and sharing. Gizwits can collect relevant data from hardware and software, and developers can export user and device data anytime and anywhere. These data will be presented in the form of reports, including common reports in the industry, such as the number of new devices added daily, device operating status, etc. At the same time, users can also use Gizwits' tools to customize data reports according to their needs.

In an era where data is king, most manufacturers want to keep the data for themselves. However, Gizwits has taken a different approach by reserving interfaces to support developers to export data to different third-party platforms, allowing smart device manufacturers to maintain maximum flexibility and autonomy, and not be restricted by a single platform service provider.

However, from the current perspective, the data statistics and analysis provided by Gizwits are still in the early stages and are relatively simple, including statistics on device online status, statistics on device active cycles, client (app) usage analysis, and regional distribution statistics. Just like the development of Umeng, I think the demand for data statistics and analysis is also maturing and clear with the continuous development of the entire industry. Smart hardware is still in the early stages of development, general data statistics needs are not yet clear, and the conditions for refined operations are not yet mature. Gizwits will first build a platform and get a good position, so that it can flexibly adjust and optimize the services it provides later.

Project 6, Koala Wifi (August 2014)

Amount: Unknown

Round: Round A

Investor: Alibaba

Project Introduction: Commercial Wifi Solution

Tree Bear Network received Series A investment, led by Alibaba. Previously, Tree Bear Network received millions of yuan in angel investment from Hangzhou Yingdong Investment. Tree Bear Network was founded in 2012 and is an intelligent Wi-Fi marketing system, consisting of hardware + software. On the one hand, it is an enterprise-level router, and on the other hand, it provides customer marketing services. Tree Bear currently has two main product lines, Tree Bear for small and medium-sized businesses and industrial-grade design product WiTOWN. The latter can achieve stable Internet access for 500 to 1,500 people at the same time, and is mostly used for wireless Internet access in large shopping malls.

Project 7, Fibercom (October 2014)

Amount: tens of millions of dollars

Round: Round A

Investment institution: Intel Capital

Project Introduction: Internet of Things Solutions

Shenzhen Fibocom Industrial Development Co., Ltd. is a professional provider of wireless communication solutions for the Internet of Things and mobile Internet. It provides GNSS/GPS modules and solutions for Internet of Vehicles OEMs in the field of location-based services (LBS). The company independently designs, develops and manufactures FIBOCOM GSM/GPRS, WCDMA/HSPA+, LTE wireless communication modules and GPS, OBD and other series of module products, which can be used in personal and commercial automobile fields.

This is a relatively old company, founded in 1999, and previously had been a strategic partner with Intel. Its general manager Ying Lingpeng said, "We have been cooperating with Intel since 2008. From GPRS in the 2G era to 3G modules, and then to LTE 4G modules, we have always been cooperating with Intel. We have 3G/LTE modules for notebooks and tablets."

According to Ying Lingpeng, Fibocom mainly does two things in the field of intelligent transportation:

One is passenger cars. The current automotive industry is very competitive. After the car manufacturers produce cars, they need to collect some data about their cars. Therefore, many cars in China are equipped with our products because they need to obtain body data from the car, such as which parts are prone to failure and how to improve product quality. In addition, the distribution of accessories can achieve refined management. Car manufacturers can also do big data analysis to cope with market competition. Another type is commercial vehicles. In July (2014), the Ministry of Transport issued Order No. 5, which requires long-distance buses and short-distance buses to install safety communication products to monitor the safety of vehicle operation. We have great opportunities in this regard. This is a combination of more Intel technologies, including its computing technology and communication technology. In the future, such products will continue to upgrade. We established a joint laboratory with Intel in April, including transportation, to upgrade technology specifically for commercial vehicles. In the future, Intel's assisted driving and camera face recognition will also be added.

Project 8, Jinghai Boyuan (November 2014)

Amount: Unknown

Round: Acquisition

Investment institution: China Media Group

Project Introduction: Car Wifi Solution

China Media Group, a domestic mobile Internet company, held a press conference in Beijing to announce the successful acquisition of Jiangsu Jinghai Boyuan Information Technology Co., Ltd. The latter became a wholly-owned subsidiary of China Media and was renamed Jiangsu China Media Ruiyou Information Technology Co., Ltd. (referred to as "China Media Ruiyou").

China Media Group and China Media Ruiyou will fully integrate the advantages of mobile local area WiFi technology framework, software and hardware system layout and operation resources to accelerate the construction, deployment and application of train wireless local area WiFi on various types of domestic trains (including wired and high-speed trains), providing passengers with a series of convenient services such as diversified information and entertainment and leisure. This will also significantly improve the overall service level of domestic railway passenger transport, and enhance the competitiveness of trains in passenger experience compared with other long-distance transportation tools such as airplanes and buses.

This corporate merger has successfully achieved a strong combination of technical research and development and operational capabilities and the integration of advantageous resources for the deployment and application of WiFi in domestic trains. Since its establishment, China Media Group has focused on the open platform business of mobile Internet for ten years. So far, it has more than 100 intellectual property rights based on mobile Internet, satellite network, WiFi network-related clients and servers, including 23 patent technologies. In addition, China Media Group and its subsidiaries have accumulated rich high-quality content resources such as videos, books, music, and games, covering more than 1,000 Hollywood films and American dramas updated every year, and are committed to promoting content mobility and building a multi-screen interactive exhibition model covering mobile communication networks, WiFi networks, and satellite communication networks.

Project 9, Wifi Companion (December 2014)

Amount: RMB 60 million

Round: Round A

Investment institution: Guoke Jiahe

Project Introduction: Wifi Solution

WiFi Companion completed a RMB 60 million Series A financing round from Guoke Jiahe in May this year, and plans to accelerate network construction in China.

The three founders of WiFi Companion, including Lian Zhiyao, all have backgrounds in the communications industry. They participated in the construction of operators' indoor networks in the early days. It was this experience that made them determined to buy out, optimize and commercialize operators' low-utilization WiFi networks in the early days. Lian Zhiyao, who came from Huawei, did not even know how to develop Android applications when the company was founded. The first version he made after a short period of learning was not even used smoothly by the company's COO Lin Xinyang. Later, they began to obtain product recommendations and hotspot usage in different regions through QQ user groups. Lian Zhiyao said that the largest number of user groups reached 30 during the period, and they were the first users of QQ's super group of 1,000 people. These user groups were also the basis for their later determination of the crowdsourcing model.

In addition to buying out operator resources and lending them to users through app distribution, WiFi Mate also hopes to turn personal hotspots into a crowdsourcing business. According to Lian Zhiyao's description, everyone from college students, employees of small and micro businesses, and household residents to commercial properties can share their controllable hotspot resources on the WiFi Mate platform and make commercial profits from WiFi Mate. "These users have a large amount of idle network resources and no independent commercialization capabilities. Through the crowdsourcing platform of WiFi Mate, we can provide a platform and channels to help them activate these previously wasted resources," said Lian Zhiyao.

Lian Zhiyao believes that some commercial WiFi networks built through ground promotion require high costs in implementation and communication, and the slow network construction speed is not suitable for the fierce competition in the current WiFi entry market. WiFi Companion hopes to start with end users, and will invest in acquiring users in the early stage. Through data priority, it will lock in popular merchants with high user activity, and then promote its radiation merchants to join the network construction through the Matthew effect of core users. Connecting the existing hotspot resources that meet the standards of the business district under property management with the WiFi Companion platform is a win-win situation for both parties. On the one hand, the commercial operator of WiFi resources can avoid the cost of self-laying pipelines, and on the other hand, it can help resource owners to flexibly transfer and realize existing idle resources. In the future, WiFi Companion can help users obtain surrounding discounts and group purchases through merchant and user location information, and help merchants gain exposure to nearby potential users. "We hope to turn hotspot resources into a fan economy and build WiFi Companion into a brand that users think of first when they have network needs. After grasping users, there will be greater imagination space for traffic conversion," Lian Zhiyao told us.

After completing the angel round of financing in May 2013, WiFi Companion has begun to try to build networks in popular business districts. Lian Zhiyao believes that the actual results are ideal. Since the completion of the A round, the progress of network construction will be accelerated. For this product, hotspot resources are a rigid demand for users. However, due to funding constraints, Lian Zhiyao admitted that they had to focus on resource buyout and network construction in the early stage and compromise on user experience. Now that the financing is completed, they will also enter a comprehensive development period, expanding in both merchant resources and end users.

Project 10, Maiweidi (December 2014)

Amount: RMB 300 million

Round: Round C

Investors: Tencent, Dianping.com

Project Introduction: Commercial Wifi Solution

On December 8, commercial WiFi service provider Maiwai Di officially announced the completion of its C round of financing of RMB 300 million, with all funds received. After the financing, the Maiwai Di team remains the company's largest shareholder. Maiwai Di's investors in this round are Tencent and Dianping, which brings more room for imagination to the development prospects of the commercial WiFi market.

Xiong Ge, the founder of Meng Technology, said that in the second half of this year, due to the unclear business model, the commercial WiFi market has shown a trend of being "negative" by the capital market. At this point in the end of the year, this investment is like a "heart booster" for the entire commercial WiFi market, which may lead to a chain reaction and give rise to industry cooperation and capital injection in the commercial WiFi market. Since Maiwai Di and Dianping have a high degree of business fit, this investment can directly promote Dianping's business, and it is mainly of strategic significance to Tencent.

However, Xiong Ge also pointed out that the domestic commercial WiFi market is still in its early stages of development and user experience is unlikely to improve significantly in the short term.

As the first commercial WiFi operator in China, Maiwai Di was established in September 2007. Official information shows that before the C round of financing, Maiwai Di received A and B rounds of investment from Jinglin Asset and Xiaomi Technology in 2012 and 2013. At present, its WiFi service has covered more than 20 airports and over 500 commercial chain brands across the country.

Maiweidi CEO Zhang Cheng said that the financing will be mainly used for hardware product research and development and the expansion of its own channels. The entire commercial WiFi market chain is very long, and the products in each chain have key points to grasp. From this point of view, WeChat, as a super APP, is a good entry point for Maiweidi, and Dianping, as a lifestyle consumption platform, occupies a leading position in O2O applications. Maiweidi can "complement each other" after combining with it, and form a complete product system on this basis.

Dianping said that the investment in Maiwei Di enabled it to "more conveniently connect online and offline, and between merchants and consumers, and effectively improve offline service capabilities and O2O closed-loop transaction service levels."

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