YUYAN Silicon Materials is rushing for an IPO on the Science and Technology Innovation Board. How strong is China's semiconductor silicon materials?

On December 28, the official website of the China Securities Regulatory Commission disclosed the draft prospectus for the listing of YUYAN Semiconductor Silicon Materials Co., Ltd. (hereinafter referred to as "YUYAN Silicon Materials") on the Science and Technology Innovation Board. YUYAN Silicon Materials officially rushed for its IPO and plans to raise 1 billion yuan for the expansion of 8-inch silicon wafers for integrated circuits, silicon materials projects for integrated circuit etching equipment, and to supplement research and development and operating funds.

In the field of semiconductor silicon materials in China, Youyan Silicon Materials is quite famous. According to Youyan Silicon Materials' information, it is the main supporting unit of the National Engineering Research Center for Key Materials for Integrated Circuits, one of the earliest units in China to engage in the research and development of semiconductor silicon materials, and one of the few companies in China that can stably mass-produce 8-inch semiconductor silicon polished wafers and produce zone-melting silicon single crystals (reporter's note: zone-melting silicon single crystals have the advantages of high purity, high resistivity and low oxygen content). It was the first in China to achieve the industrialization of 6-inch and 8-inch silicon wafers and the technological breakthrough of 12-inch silicon wafers, and to achieve the industrialization of silicon materials for integrated circuit etching equipment. It has been rated as one of the "Top Ten Chinese Semiconductor Materials Companies" by the China Semiconductor Industry Association for five consecutive years.

However, it is worth pointing out that although China is the world's largest semiconductor demand market and semiconductor silicon wafers are key materials for chip manufacturing, the global silicon wafer market is currently mainly occupied by overseas manufacturers, and the market concentration is very high. The top five manufacturers in terms of market share account for nearly 90% of the global market share. The global market share of Chinese mainland silicon material companies such as YAMA Silicon Materials and Zhonghuan Semiconductor is less than 3%.

Performance and Fundraising

YUYAN Silicon Materials was established in 2001. It is mainly engaged in the research and development, production and sales of semiconductor silicon materials. Its main products include semiconductor silicon polishing wafers, silicon materials for integrated circuit etching equipment, semiconductor zone melting silicon single crystals, etc. The products are mainly used in the manufacture of semiconductor products such as integrated circuits, discrete devices, power devices, sensors, optical devices, integrated circuit etching equipment components, etc.

From 2018 to the first half of 2021, the revenue from silicon materials used in semiconductor silicon polishing wafers and etching equipment accounted for more than 95% of YUAN Silicon Materials' revenue.

From the perspective of revenue and profit, the performance of YUAN Silicon Materials has declined in recent years. YUAN Silicon Materials' financial data shows that its revenue from 2018 to 2020 was 696 million yuan, 624 million yuan, and 529 million yuan, respectively, and its net profit attributable to shareholders after deducting non-recurring items was 138 million yuan, 116 million yuan, and 78.3848 million yuan, respectively.

YUYAN Silicon Materials explained that the decline in performance in 2019 was due to the decline in overall industry demand, and the decline in performance in 2020 was mainly due to the relocation of the company's production base.

It is understood that there is a certification barrier in the semiconductor silicon material industry. Chip manufacturers usually require silicon wafer suppliers to provide sample silicon wafers for trial production of chips. Test chips are generally produced in the trial production stage. After the test is passed, small batches of mass production chips are produced. After the mass production chips pass the internal certification, the chip manufacturer will send the mass production chips to downstream customers. After the downstream customers also pass the certification, the silicon wafer supplier will be finally certified and the purchase contract will be signed. The entire certification process is quite time-consuming. If it is for the certification of polishing wafers and epitaxial wafer silicon materials commonly used in integrated circuit manufacturing, the certification cycle is generally 6 to 18 months. If it is for the certification of semiconductor silicon wafer products used in automotive electronics, medical health, aerospace and other fields, the certification cycle is usually 2 years. Therefore, once chip manufacturers have determined the silicon wafer supplier, they generally do not make changes easily.

YUYAN Silicon Materials' 8-inch and below silicon products have been certified by companies such as China Resources Microelectronics, Silan Microelectronics, Sino Microelectronics, and SMIC, and its silicon materials for etching equipment have been certified by etching equipment component manufacturers such as Japan's CoorsTek and South Korea's Hana. However, after the relocation of YUYAN Silicon Materials' production base, major downstream customers of semiconductor silicon wafers need to re-certify the new factory, which has affected the overall performance.

At present, the products that Youyan Silicon Materials excels in are mainly 8-inch and below silicon wafers. From the perspective of industry development trends, the larger the area of ​​the silicon wafer, the more popular it is. The larger the size of the silicon wafer, the more chips can be manufactured on a single silicon wafer, and the cost per unit chip will decrease accordingly. At the same time, making rectangular chips on round silicon wafers will make the area at the edge of the silicon wafer unusable. The larger the size of the silicon wafer, the smaller the loss at the edge of the silicon wafer, which will also help to further reduce the cost of the chip. Under the same process conditions, the usable area of ​​​​a 12-inch semiconductor silicon wafer can be more than twice that of an 8-inch silicon wafer, and the usability is more than 2.5 times that of an 8-inch silicon wafer.

According to data from SEMI (Semiconductor Equipment and Materials International), before 2008, large-size silicon wafers were mainly 8 inches on a global scale. The market share of 12-inch silicon wafers has gradually increased since 2000, and exceeded 8-inch silicon wafers for the first time in 2008. In 2020, the market share of 12-inch silicon wafers has increased to 68.08%, making it the most mainstream product in the semiconductor silicon wafer market.

However, the larger the size of semiconductor silicon wafers, the higher the requirements for production technology, equipment, materials and processes of semiconductor silicon wafers. YUYAN Silicon Materials predicts that the industry will not blindly pursue the growth of silicon wafer size, but also consider the rationality of product investment. Although the market share of 8-inch silicon wafers has fallen below 30%, due to the growth of markets such as fingerprint chips for smartphones, there is still market space for 8-inch silicon wafers. 8-inch and 12-inch silicon wafers will coexist for a considerable period of time in the future.

Of the 1 billion yuan raised by YUYAN Silicon Materials, the largest amount was invested in the 8-inch silicon wafer expansion project for integrated circuits, with an investment of 384 million yuan, followed by the silicon material project for integrated circuit etching equipment, with an investment of 357 million yuan. The remaining 257 million yuan was used to supplement R&D and operating funds.

Opportunities for domestic substitution of semiconductor silicon materials

Semiconductors mainly include four categories: integrated circuits, discrete devices, optoelectronic devices and sensors. According to statistics from WSTS (World Semiconductor Trade Statistics), integrated circuits, discrete devices and sensors accounted for a total of approximately 90% of the semiconductor market share in 2020.

Semiconductor silicon wafers are key materials for integrated circuit manufacturing and the cornerstone of the semiconductor industry.

According to SEMI statistics, the global semiconductor materials market size accounted for approximately 12.56% of the total size of the global semiconductor industry in 2020. Semiconductor materials mainly include wafer manufacturing materials and packaging materials, of which wafer manufacturing materials accounted for 63%. Semiconductor silicon materials are the main component of wafer manufacturing materials, accounting for approximately 35%, with a market size of US$12.2 billion.

According to SEMI statistics, the global semiconductor silicon wafer shipment area reached 12.407 billion square inches in 2020, a 5% increase from 2019, close to the historical high set in 2018. The global sales amount was approximately US$11.2 billion. The global semiconductor silicon wafer shipment area is expected to create a new high in 2023.

For mainland Chinese companies, semiconductor silicon materials are a promising field. China is the world's largest semiconductor consumer. According to data from SEIM and WSTS, the proportion of global semiconductor product sales to China in 2020 was 34.4%, far higher than the 21.7% sold to the United States.

In the field of silicon materials, Chinese mainland enterprises are still quite weak. According to SEMI data, the top five manufacturers in the global silicon wafer market are Japan's Shin-Etsu Chemical, Japan's SUMCO, Taiwan's Global Wafers, Germany's Siltronic and South Korea's SK Siltron, with market shares of 27.53%, 21.51%, 14.8%, 11.46% and 11.31% respectively. Currently, YUAN Silicon Materials has a market share of less than 1% in the global semiconductor silicon wafer market.