"Chips" and "Chip Fraud" - Beware of "Luckin Coffee" in the Semiconductor Industry
Latest update time：2020-04-04
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Source: Content from from "Centric Research", thank you.
On April 2, Luckin Coffee released an official announcement, admitting to fake transactions of 2.2 billion yuan. The truth was revealed, and Luckin's stock price plummeted 75% that day, causing an uproar in the industry. Coffee and chips are not related, but the bubble floating on coffee is somewhat similar to the recent bubble in the industry. As an industry analyst, I am more worried about whether this kind of "Internet" chip manufacturing and "Luckin"-style chip companies will appear in the semiconductor industry.
The routine of "Luckin Coffee" is very clear, "burning money on subsidies in exchange for growth, passing the parcel around and telling stories": a bunch of well-known investors, even investors with status in the industry, quickly spend money to increase their fame, expand at a loss, continue to raise funds, pass the parcel around, go public as soon as possible, exit quickly, and finally go bankrupt.
Originally, this model of "spending big money, telling stories, cashing out quickly, and withdrawing quickly" is not suitable for an industry like semiconductors that requires "deep accumulation, slow development, heavy technology, and long cycles." However, the chip boom and the power of capital are making the semiconductor industry develop towards an Internet model. Perhaps the "Luckin Coffee" in the chip industry is not far from us.
Chip vent
Since the release of the "National Integrated Circuit Industry Development Promotion Outline" in 2014 and the establishment of the National Big Fund, chips have become a hot topic! We strongly support design, fully support the construction of production lines, and do our best to support equipment and materials. As long as it is an integrated circuit, it is a combination of national strategy, market demand, capital favor, etc.; the "ZTE" and "Huawei" incidents have made waves, and the integrated circuit industry has become very popular and lively. Local governments, regardless of whether they have strength or not; experts from all walks of life, regardless of whether they understand chips or not; investment tycoons, regardless of whether they are familiar with the industry, always mention chips and talk about hard work! Even the epidemic cannot stop the launch of various semiconductor projects-during January and February this year, the total investment amount of domestic semiconductor projects that only disclosed the investment amount has exceeded 100 billion.
The prosperity of the industry is a good thing, but the prosperity of the industry has changed, bringing the impetuous atmosphere in the industry and the covetous eyes of the barbarians. In the eyes of some people, semiconductors are just a tool for them to tell stories and make money, just a lever to pry cash returns. How long will the chip boom last? What will be left for the industry after the storm?
Carnival Capital
The power of capital is strong, and the status of funds in the semiconductor industry is becoming more and more important. In the past few years, hundreds more semiconductor investment companies have been established than before! The capital carnival has brought not only the nourishment of money, but also the change of mentality: the accumulation of technology has given way to the accumulation of capital, and the accumulation of products has given way to the accumulation of fame. In the past, companies worked steadily, but now they are raising funds, listing, promoting, and holding meetings every day.
Now, many startups have just finished their A round and are about to start their B round. They are raising money and shares quickly and are busy dividing up the land. Less than a year after their establishment, their valuations have doubled; executives can’t wait to cash out, and employees can’t wait to go public tomorrow. If they can’t go public, it seems like the sky is falling and the earth is collapsing, and the company can’t continue. It makes people sigh that people’s hearts have changed and their original intentions have changed!
Enterprises have no intention to develop products, and capital is more interested in making quick money. If there is a lack of respect for industry rules and a lack of awe for industry development, can enterprises develop? When the capital train roars past the platform of the industry, people can't help but sigh, is it capital too fast or industry too slow? I hope that our call can be heard by everyone in the industry: the mentality has changed, but the nature of the industry and the laws of development have not changed!
Strange Company
In recent years, some strange companies have been active in the semiconductor field. Some of them were established very recently, but they are well packaged; some are not seen in the supply chain, but are often in the news; some have almost no performance, but their market valuation is super high; what's worse, they are always in R&D, and when it comes to delivery, they always emphasize that this generation of technology has no economic benefits, and immediately enter the next generation of R&D. "His 'core' is waiting, always waiting", but the semiconductor market is not a university, customers want industrialization rather than scientific research results, and good companies always need strong products in the market to speak for themselves. It can be said that R&D that is not for the purpose of mass production is rogue.
It is undeniable that the industry needs fresh blood, so we should also treat it differently. Some people are not really making chips - chips, chips, beware of people who use chips to cheat. We sincerely hope that there will be no "Luckin Coffee" in the high-tech field, but at present, there are already some in the AI field, and there is also a trend in the chip field. In the carnival of capital, everything can be packaged and everything can be beautifully presented to us, even "performance"! We want "chips", not "chip scams".
How to prevent it
The devil is one foot high, but the way is ten feet higher. Because of the inherent laws of the industry, it is actually very simple to prevent "chip fraud". Looking back on the past, we can find that such companies or teams need special attention and analysis: first, they were established not long ago; second, they have no voice in the supply chain; third, they have no sales and profits; fourth, they rely on parasitic growth by hanging out with wealthy people; fifth, they lack professional talents in the prime of the industry. Let's listen to the detailed analysis:
Some companies have been established for only one or two years and have many products and brilliant performance. Such companies are either evil or have done something wrong. The top ten semiconductor companies in the world have been established for an average of 33 years, and the top ten companies in China have been established for an average of more than 10 years. The development of the industry requires time to accumulate. Capital can increase rapidly, but the laws of the industry remain unchanged: a new company or a new team needs at least 2 years from product definition to R&D, production, and listing.
Some companies have great reputations and good performance, but they are rarely seen on the supply side. This is either because their performance is fake, or their sideline business is their main business, or they are more likely to be "agents" or "labeling companies" - they do not produce chips, but are just chip carriers.
Some companies have many industrial and strategic investors, but in fact have a bad reputation in the industry. Such companies often have related transactions or rely on large investors for parasitic growth. After all, those powerful investors may have shareholders in their left hand and customers in their right hand, and they can make clouds and rain with a flip of their hands.
Some companies lack professional teams with industry experience and in their prime. Semiconductors rely on technology and products. Professionals in their prime are able to support the accumulation of technology and the polishing of products. This is the standard for a company to take the right path. For teams that are just for show and makeshift teams, we don’t understand the value of such companies. Making money may be their only purpose.
If there are any of the five "symptoms" listed above, then the semiconductor companies are already "terminally ill". Semiconductors are a strategic industry, a national heavy equipment, and cannot withstand turmoil, let alone serious illness. Only by formulating strict supervision, investigation, restriction, and punishment measures, following the "symptoms", finding the "source of the disease", and "prescribing the right medicine" can we ensure the healthy, sustainable, and orderly development of the industry.
Conclusion
Semiconductors are a high-tech industry with global competition, and they have the inherent characteristics of being capital-intensive, talent-intensive, technology-intensive, and industry-intensive. Therefore, only companies with the above elements can truly shoulder the responsibility of China's core. In order to avoid bad money driving out good money, we must seriously review the patent sources, intellectual property rights, R&D investment, related transactions, industrial achievements, and gap filling of related companies, set higher standards for the sales and profits of companies, and raise the listing threshold for companies, so that companies that are advancing on the front line under fire can get supplies, and companies that really do things can enjoy the policies!
Luckin Coffee’s fraud has cast a shadow on the image of all Chinese concept stocks and triggered a credibility crisis for Chinese companies. As an industry analyst, I am very worried about whether this kind of “Internet”-style chip manufacturing and “Luckin Coffee”-style chip companies will appear in the semiconductor industry. At that time, it will not be as simple as bad money driving out good money, but the entire industry may have to pay for it. Historical experience tells us that internal factors are more important than external factors. The help of capital may allow you to lead for a while, but what can really support you to run further is only strength and persistence.
The essence of a cup of coffee is that it tastes good, not that it is a coupon; the essence of a chip is that it is useful, not that it shouts slogans. We must be wary of "artificial unicorns" and "bubble unicorns". We want "chips" instead of "chip scams".
About Strategy Analytics:
ICwise is a leading high-tech research company in China. ICwise takes "Intelligent China, Strategies for the World" as its mission and "Strategies for the World" as its mission, and is committed to becoming a world-class authoritative research institution in the semiconductor and electronics industry rooted in China. The company has three major businesses, including industry research, investment consulting, and strategic planning. It closely tracks the development of the international and domestic semiconductor and electronics industries and provides customers with objective, independent and accurate industry data and professional and authoritative analysis reports. At the same time, relying on a deep understanding and insight into the industrial laws of China's semiconductor industry, relying on objective and accurate industry data accumulation, as well as extensive personal connections and resources, it provides comprehensive and objective consulting services for semiconductor industry investment and financing, mergers and acquisitions, and provides scientific, forward-looking and operational strategic planning for enterprises and governments.
*Disclaimer: This article is originally written by the author. The content of the article is the author's personal opinion. Semiconductor Industry Observer reprints it only to convey a different point of view. It does not mean that Semiconductor Industry Observer agrees or supports this point of view. If you have any objections, please contact Semiconductor Industry Observer.
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