After GigaDevice acquired Silead, what is the next plan for this under-screen fingerprint company?

On May 31, GigaDevice announced that it had completed the acquisition of 100% equity of Shanghai Silead Microelectronics Technology Co., Ltd. ("Silead" for short). The merger of GigaDevice and Silead has been going on for more than a year and is now finally finalized.

In an exclusive interview with a reporter from 21st Century Business Herald, Cheng Taiyi, CEO of Silead, said: "Since the earliest contact between Silead and GigaDevice, we have had a consistent idea, which is to look at the landscape of this industry in China in the next five to ten years. There are hundreds, even a thousand or two thousand design companies in China, and most of them are relatively small. Even the listed design companies are not very large. The annual sales of the top ten design companies in China may be about the same as the annual sales of a large American company. China needs such platform-based companies. Whether it chooses mergers and acquisitions or listing now, integration is inevitable. This is the development trend."

Compared with other industries, acquisitions are common in the semiconductor industry. The main reason is that the technology and capital barriers in the semiconductor industry are extremely high.

The same is true for the domestic semiconductor industry. Taking GigaDevice and Silead as examples, GigaDevice's main products are NOR FLASH memory chips and microcontroller MCU chips. Founded in 2011, Silead's main business is the research and development and sales of smart mobile terminal sensor SoC chips and solutions, providing a full set of human-computer interaction solutions including capacitive touch chips, fingerprint recognition chips, emerging sensors and system algorithms. GigaDevice announced that the transaction aims to integrate high-quality domestic chip design assets, acquire core technologies in the field of intelligent human-computer interaction, expand and enrich the company's product line, form a complete system solution as a whole, and help strengthen the company's industry position.

Cheng Taiyi told reporters: "From an overseas perspective, including the development of European and American companies, their development in the semiconductor industry is relatively mature, and they have been constantly acquiring in recent years. This is a process of accelerated growth. We think Chinese companies will also follow this path, that is, how to grow into a platform-type company."

He said that Silead and GigaDevice were very consistent on this point. "This is our basic logic, and then we will see which companies will have an integration effect together. This case was initiated at the end of 2017. After talking about it, everyone hit it off and announced the news in 2017. At that time, we didn't expect it would take more than a year."

This acquisition went through several twists and turns. For example, in the eyes of the outside world, Siliwei's valuation was too high and its profit promises were too high. In 2016, Siliwei's revenue was about 175 million yuan, and it needs to achieve a total net profit of no less than 321 million yuan in the next three years.

However, in 2018, after Silead entered the under-screen fingerprint industry chain and supplied to major mobile phone manufacturers, its performance grew rapidly. In the third quarter of 2018, Silead achieved large-scale mass production of under-screen optical fingerprints and became the only domestic supplier of optical fingerprint chips that can mass-produce and supply, except for Goodix Technology.

While competing for market share, Goodix Technology filed a lawsuit against Silead, which Silead denied and filed a counterclaim. As the litigation battle between the two parties became increasingly fierce, the merger and acquisition case that had been approved was required to be reviewed again. On April 30, the China Securities Regulatory Commission conditionally approved the merger for the second time, and then on May 8, the company received the approval document from the China Securities Regulatory Commission. On May 31, the merger and acquisition case was finalized and was not affected by the lawsuit.

Cheng Taiyi told reporters: "So far, patent litigation is still going through the legal process, and the specific results need to wait for the final judgment of the court. At present, both at home and abroad, patent litigation has become a means for high-tech companies to cope with market competition, and its intention is to redistribute the market interests and market share of enterprises. Patent wars have become a regular means of competition in the high-tech industry."

From the perspective of horizontal industry fields, Swedish company FPC was the leader in fingerprint chips in the domestic market before, but was later surpassed by domestic company Goodix Technology. Now, with the entry of Silead, the competition among the three major companies has become more intense, and each company has also found its own way in algorithms and implementation methods.

Fingerprint recognition is the foundation for the development of wearable devices, and it extends the boundaries of screen touch. At present, there are two main under-screen fingerprint recognition solutions on the market, one is optical under-screen fingerprint technology, and the other is ultrasonic under-screen fingerprint technology. Among them, companies with optical fingerprint recognition technology include Goodix, Silead, Synaptics, etc., which is also the solution adopted by most mobile phone companies. Companies that develop ultrasonic fingerprint recognition technology include Qualcomm and Silead, and Samsung's flagship phones are the first to use this solution.

2018 is the first year of large-scale commercial use of under-screen optical fingerprint technology. According to Zhiyan Consulting, the shipment volume of smartphones using under-screen fingerprint sensors is expected to reach at least 100 million units in 2019, and further double to 200 million units by 2020. The market space exceeds US$2 billion and is expected to maintain rapid growth in the next three years.

Looking back at the technological development of Silead, Cheng Taiyi said: "We have actually always been focused on sensors. Our earliest product was capacitive touch screens. Capacitive touch screens to capacitive fingerprints are actually a natural extension. The sensor technology and algorithms used are actually very similar. The history of optical fingerprints is actually earlier than that of capacitors. We originally had an angel investor who was engaged in optics. In 2014, when the company started to make capacitors, we were also engaged in optics because we saw that capacitors had a defect at the time. They could not penetrate too thick objects, while optics could penetrate relatively thick objects. However, capacitors have better anti-counterfeiting, while optics have worse anti-counterfeiting. So at that time, capacitors and optical technologies were being developed at the same time."

At the same time, he also introduced: "We also have ultrasonic technology, because we think that both capacitance and optics have some defects and some inherent physical limitations. Ultrasound is relatively rare, and we think that ultrasound may be the ultimate from a technical point of view. However, there is uncertainty from a commercial point of view, but from a technical point of view it is the best choice, so we have invested in ultrasound since 2015. The research and development of Sili Micro's ultrasonic fingerprint chip is progressing smoothly. The preliminary process design has been completed and mass production is expected in Q4 2019."

A report provided by TrendForce to the 21st Century Business Herald reporter shows that as major brands such as vivo, Xiaomi, Huawei, OPPO, and Samsung have extended FOD (Fingerprint on Display) fingerprint recognition technology from flagship phones to mid-to-high-end phones, thereby driving the market size to increase and causing the price and cost of FOD technology to decline rapidly, it is expected that the penetration rate of FOD fingerprint recognition solutions including optical and ultrasonic solutions is expected to exceed that of traditional capacitive solutions in 2022 and become the mainstream fingerprint recognition technology for smartphones.

TrendForce analyst Chen Yanyin pointed out that although the launch of Face ID once caused the outside world to worry about the future development of fingerprint recognition-related companies, with Synaptics and Goodix launching optical FOD solutions in 2018, in addition to being compatible with the full-screen design of mobile phones, it also has a cost advantage. As a result, many mobile phone brands are competing to invest in the introduction of this technology.

In addition, Samsung released a flagship model equipped with Qualcomm's ultrasonic FOD solution in early 2019. Therefore, it is estimated that the number of smartphones equipped with FOD technology in 2019 will challenge 200 million, of which optical and ultrasonic solutions account for approximately 82% and 18% of the overall FOD technology market respectively.

It can be seen that the solution of optical under-screen fingerprint will continue to grow this year, and the competition will be more interesting. In Cheng Taiyi's view, "From the perspective of optics alone, this year is relatively friendly to new optical R&D companies, because there are only two in China, but this industry cannot have only two. One is that the suppliers themselves need two to three, or even three to four. Second, there is some misalignment between the needs of mobile phone manufacturers for suppliers. For example, it is impossible for all mobile phone manufacturers to choose one company to do it, and there will be competition for resources. They will be afraid of shortages and lack of technical support capabilities. So I think this year is relatively friendly to new entrants in terms of optics, and even ultrasound. For capacitors, it is already a relatively mature market, and it is more difficult for new entrants."