Internet celebrity, SMIC!

It takes about 24 hours to fly from New York to Hong Kong and then to Shanghai. It took SMIC 16 years to go from the New York Stock Exchange, the Hong Kong Stock Exchange to the Shanghai Stock Exchange!

On July 16, SMIC, the hottest "Internet celebrity" in the semiconductor industry, officially returned to the A-share market and landed on the Science and Technology Innovation Board. The words "flash listing", "IPO record" and "opening surge" were particularly shining. But this new "Internet celebrity" has actually been around for 20 years. The ups and downs of the past 20 years constitute a microcosm of the history of China's chip development.

Next, CNMO uses 10 key numbers to help you understand SMIC.

20 years

When talking about SMIC, one person that cannot be avoided is Zhang Rujing. It can be said that without Zhang Rujing, there would be no SMIC, and if he had not had 20 years of work experience at Texas Instruments, he might not have had the strong qualifications to support his founding of SMIC.

Zhang Rujing was born in Nanjing in 1948 and moved to Taiwan with his parents when he was young. He graduated with honors from National Taiwan University and obtained a master's degree in engineering science and a doctorate in electronic engineering in the United States, which laid a professional foundation for him to enter the semiconductor industry.

Then, at the age of 29, Zhang Rujing joined the American semiconductor giant Texas Instruments. Although Texas Instruments is somewhat invisible in today's technology circle, it was the world's largest chip manufacturer at the time. In addition to the strong platform, Zhang Rujing's boss is also a top figure in the industry - Jack Kilby, a Nobel Prize winner in physics and one of the inventors of integrated circuits. Zhang Rujing started as a research and development design engineer, and continued to work hard in the semiconductor industry. He participated in the construction of more than 10 large chip factories around the world, and the title of "factory construction maniac" came from this.

The pace of expansion spread all over the world, but the mysterious ancient country in the East remained silent. In 1996, a delegation of Chinese electronics visited the headquarters of Texas Instruments and asked Zhang Rujing: "Are you willing to return to China?" Before leaving, they left a message: "We are waiting for you in Beijing!" Thus, the seed of returning to the motherland to build the country sprouted in Zhang Rujing's heart.

In 1997, after working at Texas Instruments for 20 years, Zhang Rujing embarked on a journey back to China.

$5 billion

SMIC was not the first company founded by Zhang Rujing after returning to China. In the last few years of the 20th century, the electronics industry in mainland China was far behind the world's advanced level. There was no talent and no technology. What to do? Zhang Rujing could only adopt a roundabout strategy and set up a world-class company in Taiwan, China, which had better conditions such as technology, equipment and talent. His idea was to use his experience in building a factory at Texas Instruments to replicate the factory in mainland China in the future, thereby indirectly revitalizing the mainland's chip industry.

World Semiconductor was going smoothly under the leadership of Zhang Rujing, but there were two icebergs in front of it: TSMC and UMC. TSMC had already become the leader in the chip industry at that time, and the helmsman was Morris Chang, who was 17 years older than Zhang Rujing and had worked with him at Texas Instruments. As early as 1987, 56-year-old Morris Chang resigned as vice president of Texas Instruments and returned to Taiwan to establish TSMC. In the field of chip manufacturing, TSMC's leading position cannot be shaken by other companies, so there was a story of $5 billion.

It is reported that Zhang Rujing and a Taiwanese industry leader had a secret meeting for four hours in a private restaurant. The latter put two cruel choices in front of Zhang Rujing: either withdraw from the chip industry or sell World Advanced. Zhang Rujing did not back down, but World Advanced's shareholders made an unexpected move. They sold the company to TSMC for US$5 billion without Zhang Rujing's knowledge.

Zhang Rujing then lost actual control of the company. He was angry, humiliated and unwilling... The 52-year-old Zhang Rujing resigned angrily.

2000

The deeds of legendary figures always carry some exaggerated legends. According to Zhang Rujing's own recollection, except for the $5 billion in the above "5 billion US dollars" story, everything else is a rumor.

In fact, Zhang Rujing participated in the entire process of TSMC's acquisition of World Advanced Semiconductor. "He (Zhang Zhongmou) offered a very good price and asked me if I was willing. I said yes, and he was very happy." At that time, TSMC and UMC both showed great interest in World Advanced Semiconductor, and the price offered by TSMC was "8.5 times the original stock price", which made TSMC's acquisition of World Advanced Semiconductor a natural thing.

The most important thing is that after selling World Semiconductor, Zhang Rujing's wish to build a factory in mainland China was realized. In April 2000, Zhang Rujing raised $1.48 billion to establish SMIC in Shanghai. More than 300 semiconductor engineers also followed him to mainland China, many of whom were his former colleagues at Texas Instruments and World Semiconductor.

These engineers who left Taiwan to work in Shanghai were all impressed by Zhang Rujing's professionalism and innovative spirit. In addition, Zhang Rujing's meticulous quality is also very contagious, which has become a weapon for him to win people's hearts. It is reported that almost everyone who has worked with him will mention this, "Every time we meet in the elevator, he can call out my name. There are hundreds of people in the company, and he can remember almost everyone."

13 months

Rather than saying that the times create heroes, it is better to say that heroes adapt to the times. Zhang Rujing and more than 300 equally passionate engineers came to Shanghai, and at this time the mainland was also encouraging the development of the semiconductor industry. Compared with a few years ago, SMIC had more fertile soil for development.

Zhang Rujing, the "factory building maniac", worked hard in Shanghai, building factories and accelerating expansion with a vigorous attitude. From the description of Zhang Rujing's work status by the Taiwanese media, we can see how much he loves and devotes himself to this career - he doesn't even wear a suit, just a work shirt and a worn gray sweater, like a missionary, and his desk is a cheap one made of plywood.

You should know that at that time, it took at least one and a half years to build a wafer fab, but SMIC's first plant took only 13 months. Later, Zhang Rujing's idea of ​​"copying and pasting" gradually became a reality.

SMIC subsequently built three eight-inch chip plants in Shanghai and expanded its business to Beijing and Tianjin. It built two 12-inch chip plants in Beijing and acquired an eight-inch chip plant of Motorola in Tianjin. With the support of policies and Zhang Rujing's bold decision, SMIC has since entered the fast lane and entered the first camp of the chip foundry industry.

year 2004

For most companies, the most lacking thing on the road to development is capital, and going public is a good financing solution. In March 2004, SMIC, which was founded only four years ago, was listed on the New York Stock Exchange with the reputation of "China's first chip stock", raising $1.44 billion in equity at an issue price of $17.5. Soon after, SMIC was listed in Hong Kong. After successfully listing in New York and Hong Kong, SMIC was sought after by investors in the domestic and overseas markets, and the financing amount was nearly $1.8 billion.

The absorption of these funds laid a good foundation for SMIC's further expansion in the future. At that time, SMIC mainly used the raised funds to expand the production capacity of its chip factories. The construction of the Beijing 12-inch chip factory and the improvement of the production capacity of the Tianjin factory required a lot of funds, and the financing amount of US$1.8 billion was like a godsend.

On May 24, 2019, SMIC officially delisted from the New York Stock Exchange, which also laid the groundwork for SMIC's return to the A-share market.

$200 million

However, the foreshadowing was a bit too deep. After listing in New York and Hong Kong, SMIC did not usher in the good times as imagined, but instead encountered some twists and turns.

On November 11, 2009, a gathering of relatives and friends was held in Shanghai. Many of the people who came had never attended the gathering before. They were concerned about only one topic: Is Zhang Rujing really going to resign from SMIC?

Before this day, SMIC announced two major news: first, the six-year dispute litigation between SMIC and TSMC finally came to an end, and both parties agreed to reach a settlement; second, Zhang Rujing, CEO and executive director of SMIC, resigned, and Wang Ningguo, former CEO of Huahong Group, took over.

If the rapid development of SMIC was the trigger for the two lawsuits, then it was not Zhang Rujing who ignited the fuse, but Morris Chang, the man who had a "narrow road" with him.

From 2003 to 2006, SMIC was sued twice by TSMC on the grounds that Zhang Rujing's Taiwan team infringed TSMC's technology patents and even stole its trade secrets. In the first lawsuit, TSMC demanded compensation of 1 billion US dollars. In comparison, SMIC's revenue that year was 350 million US dollars. But the fact is that a few grassroots engineers at SMIC did make the mistake of plagiarism. Zhang Rujing filed a counterclaim against TSMC in the Beijing High Court and California, but the final result is predictable.

In the winter of 2009, the US court ruled that SMIC lost the case. Zhang Rujing and SMIC Chairman Jiang Shangzhou flew to Hong Kong with their lawyers for emergency negotiations with TSMC. As Zhang Rujing's old boss, Morris Chang did not show much mercy. The two sides finally reached a settlement. In addition to SMIC's compensation of US$200 million in cash and 10% equity, there was also a condition that Zhang Rujing must leave SMIC. The words in the non-compete agreement were more heartbreaking than the other: starting from 2010, Zhang Rujing was not allowed to engage in chip-related work within three years.

This non-compete agreement affected Zhang Rujing's subsequent career. After bidding farewell to SMIC, which he founded and devoted countless efforts to, Zhang Rujing continued his own factory-building journey, successively establishing the LED factory, Xinsheng Semiconductor and Xin'en Semiconductor.

50%

At this point, the Zhang Rujing era of SMIC came to an end. In the days without him, SMIC went through another period of hardship.

Due to the huge compensation, SMIC's financing and expansion capabilities were basically zero. Coupled with the impact of the financial crisis, SMIC set a record of losses of more than 3 billion yuan in 2010! In the following year, SMIC's management was turbulent, and two senior executives, Wang Ningguo and Yang Shining, left one after another, but hope was rekindled in the hands of the new CEO Qiu Ciyun.

Qiu Ciyun, who is eight years younger than Zhang Rujing, was the senior vice president of operations when SMIC was founded. In 2005, Qiu Ciyun's overly "stable" business operation strategy was incompatible with Zhang Rujing's idea of ​​rapid expansion, and the former resigned immediately.

But after returning to SMIC, Qiu Ciyun made the previously unused business philosophy of maintaining stability and performance come into play. He advocated "putting aside ambitions, slowing down the pace, and taking steady steps", focusing more on mature processes and high-capacity yields instead of pursuing the most advanced processes, and also shifting the market focus back to the domestic market.

At the same time, around 2013, mainland China's semiconductor industry ushered in new changes. In 2014, the National Integrated Circuit Industry Fund with a scale of 100 billion yuan was established. With national funds and the support of many overseas returnees, the domestic semiconductor industry began to recover.

In 2009, only 20% of SMIC's total revenue came from China, but by 2016, this figure had climbed to 50%. During this period, SMIC turned losses into profits and its market value increased several times.

14nm

In 2017, Chiu Tzu-yun resigned as CEO of SMIC, and two other successors ushered in a new era for SMIC: one was Zhao Haijun, who had served as COO, and the other was Liang Mengsong, who had worked for TSMC and Samsung. Although both were CEOs, their division of labor was very clear - Zhao Haijun was responsible for manufacturing, and Liang Mengsong was responsible for R&D.

Liang Mengsong is not just an ordinary R&D talent. He once served as a senior R&D director at TSMC. He can be said to have witnessed and participated in the R&D process of each generation of TSMC's chip manufacturing process. After joining Samsung in 2009, Liang Mengsong helped Samsung cross the 20nm process gap and developed the 14nm process half a year earlier than TSMC, which lost Apple's A9 chip and Qualcomm's orders.

Such a research and development giant that TSMC and Samsung were vying for naturally brought the aura of a protagonist when he came to SMIC. At that time, SMIC began to abandon the 20nm process and turned to the development of the more advanced 14nm process. What is astonishing is that Liang Mengsong led SMIC to successfully develop the 14nm process technology in less than 300 days. Not only was it a success from scratch, but the product yield was also increased to 95%, which brought SMIC's chip foundry competitiveness to a new level.

Don't think that 14nm has no commercial value. Data shows that in the first half of 2019, the semiconductor sales market was more than 200 billion yuan, of which 14nm process products accounted for 65%. ZTE Securities Research Institute predicts that by the end of 2020, 14nm is expected to account for 10% of SMIC's revenue.

In September 2019, SMIC achieved mass production of the first generation of 14nm FinFET process chips in China. The Honor Play4T mobile phone released in April 2020 uses the Kirin 710A processor manufactured by SMIC's 14nm process.

600 billion

On July 16, SMIC officially landed on the A-share Science and Technology Innovation Board, with an opening price of 95 yuan per share, far higher than the issue price of 27.46 yuan per share, an increase of 245.96%, and a total market value that once soared to 700 billion yuan, becoming one of the semiconductor companies with the highest market value in the A-share market. At present, SMIC's total market value is around 600 billion yuan, even far exceeding Sinopec.

According to the prospectus, about 40% of the funds raised from SMIC's IPO on the Science and Technology Innovation Board will be used for the 12-inch chip SN1 project, namely the first phase of SMIC South. SMIC South will mainly be used for the research and development and mass production of SMIC's 14nm and below advanced process nodes, with a target production capacity of 35,000 pieces per month and a total investment of US$12.04 billion.

SMIC's return to the A-share market is not only a matter for SMIC itself, but also a matter of the direction of China's semiconductor industry. 20 years ago, Zhang Rujing founded SMIC with a sincere heart and passion, and other people with lofty ideals. Unexpectedly, in the tide of the times, it wrote a history of blood and tears. This history of struggle is also a history of the development of China's semiconductor localization.

But we cannot be blinded by the market value of 600 billion yuan. From a rational point of view, the current SMIC is covered by a filter of capital enthusiasm. We have seen the positive development trend of the domestic semiconductor industry from SMIC, but we must also recognize the real gap between us and the advanced level of foreign countries. Only by taking one step at a time and continuing to work hard can we see the day when we can overtake others.