Can Cambrian seize the in-vehicle smart chip?

On September 22, Gasgoo learned that Cambrian Xingge (hereinafter referred to as Xingge) has received investment from Bosch Venture Capital Co., Ltd. (hereinafter referred to as Bosch Venture Capital).

Wang Ping, Executive President of Xingge, said: "Both parties have rich experience and resources in the fields of chips, artificial intelligence and automotive electronics. We expect that this win-win cooperation will further enhance the capabilities of both parties in the field of autonomous driving and accelerate the development of the autonomous driving industry."

This investment is of great significance to Cambricon. Xingge is an intelligent vehicle chip company initiated and established by Cambricon. So far, the company has received investments from leading automotive companies including SAIC, NIO, CATL, and Bosch Ventures.

As early as June 2021, Cambricon announced that its wholly-owned subsidiary Xingge plans to increase its registered capital by 170 million yuan and introduce investors. In the capital increase plan, Cambricon plans to subscribe for 90 million yuan and give up the priority subscription rights for other newly added registered capital of Xingge. In addition to introducing strategic investors, Cambricon's senior management team will inject capital, and the main purpose of the capital increase is to develop in-vehicle smart chips.

It is not surprising that Cambrian has attached great importance to the development of automotive smart chip business in recent years.

Previously, most of Cambrian's revenue came from providing "intelligent computing cluster systems" to the government. At the same time, this also led to Cambrian's over-reliance on government customers, and its market value and stock price plummeted, which was questioned by the capital market. However, the smart chip business has brought new hope to Cambrian and capital.

According to the financial report, Cambricon's smart chip and acceleration card business achieved revenue of 215 million yuan in 2021, a year-on-year increase of 101.01%. The capital market was encouraged, and Cambricon's stock price rose by 6.81% on the first trading day after the annual report was released.

However, today, the smart chip market has gone from being hot in 2017 to returning to rationality in the second half of 2019, and now many smart chips are facing practical applications. As a new player in the field of smart chips, Cambrian is surrounded by veterans and experts. How can it survive in the fierce market competition?

Cambrian Opportunity: In-Vehicle Smart Chips

According to the 2021 China Smart Car Computing Power Development Research Report, the Chinese in-vehicle computing chip market will reach US$1.51 billion in 2021 and will rapidly grow to US$8.98 billion in 2025. In-vehicle computing chips will become the core value of the smart car industry. 

In-vehicle smart chips are very popular, and Cambrian knows it.

As early as the 2020 annual performance briefing, Cambrian founder Chen Tianshi revealed that Cambrian would not miss such an important application scenario as in-vehicle smart chips.

Later, at the 2021 World Artificial Intelligence Conference, Chen Tianshi disclosed for the first time the Xingge in-vehicle intelligent chip under development, and also disclosed the key data of the Xingge in-vehicle intelligent chip: over 200TOPS AI performance, 7nm process, automotive grade, independent safety island, mature software tool chain, and through an open software platform, it supports continuous updating and iteration of customer algorithms, efficiently supporting the needs of high-level intelligent driving.

In March this year, Wang Ping revealed at the China Electric Hundred Forum that Cambrian will officially release two autonomous driving chips this year and next. Among them, SD5223 is a product for the L2+ autonomous driving market, with a maximum computing power of more than 16 TOPS. A single SOC can achieve the function of driving and parking. It will be released in the middle of this year to achieve the coverage of autonomous driving systems for entry-level models with a price of 50,000 to 100,000 yuan; SD5226 targets the L4 market and supports vehicle-side training products. It adopts a 7nm process, has an AI computing power of more than 400 TOPS, and a CPU with a maximum computing power of more than 300K+DMIPs.

At the beginning of September, Chen Tianshi said that Xingge is developing three autonomous driving chips, covering L2-L4 levels; the most popular one, known as the first 7nm chip and computing platform for L4 autonomous driving in China, will be released next year. During the same period, media reported that Xingge has reached a cooperation with FAW, and its first autonomous driving chip has been taped out, and is expected to be mass-produced in the second half of this year, and will be installed on a certain FAW brand model.

It is worth noting that Cambrian does not have much share in the "big cake" of in-vehicle smart chips. At present, Intel's Mobileye, Nvidia and Qualcomm still have a high penetration rate in the global autonomous driving chip market. Taking Nvidia as an example, according to the first quarter financial report of fiscal year 2023, Nvidia has confirmed that more than 35 automakers around the world will adopt Nvidia Orin chips. Among them are many domestic car companies, including Chinese automakers Weilai, Xiaopeng, Ideal, Weimar, SAIC Zhiji, BYD, Volvo, Lotus, etc.

As for domestic in-vehicle smart chip manufacturers, Horizon Robotics and Black Sesame Intelligent have higher valuations, and both have car companies as senior shareholders. For example, Horizon Robotics' shareholders include SAIC, GAC, Great Wall, BYD and other car companies; Black Sesame's shareholders include Xiaomi, NIO and SAIC.

The target customers of Cambrian Xingge are mainly traditional car companies, whose level of intelligence is still relatively low. According to statistics from Soochow Securities, from the first quarter of 2021 to the first quarter of 2022, in the L2 autonomous driving representative function APA automatic parking, the penetration rate of new car manufacturers was about 60%, while the penetration rate of traditional car companies was 15%-20%.

It is true that people have to survive in the cracks, but this does not mean that the Cambrian period is lifeless.

Short of money, but willing to spend money

As early as 2018, Cambricon founder Chen Tianshi made it clear in an interview with the media: "If the intelligent era really arrives, it is hard to imagine that new giants will not emerge in the intelligent chip industry. I do not deny that Cambricon wants to be this general."

But being a "general" is not so easy. At present, Cambrian, in addition to solving the problem of commercialization of in-vehicle smart chips, is also facing the dilemma of lack of money.

In fact, since its listing, Cambrian has been troubled by lack of money, and the most prominent feature of the smart chip field is high investment and long payback period.

According to Capital IQ data, Boston Consulting Group estimates that the semiconductor industry has the highest proportion of R&D investment to sales revenue, reaching 22% across the industry, one percentage point higher than biopharmaceuticals and eight percentage points higher than software and computer services, which ranked third. It can be seen that the nature of the industry and the way of competition determine the investment in R&D. In the semiconductor industry, companies without R&D investment will find it difficult to gain a foothold and will be easily eliminated.

Although every step for Cambrian was extremely difficult, it was not stingy in its investment in research and development.

According to the TOP15 list of the Hexun SGI Index's 2022 semi-annual report, in terms of R&D investment intensity, the average proportion of R&D investment of the listed companies to operating income reached 36.79%, among which the highest was Cambrian at 366.34%, followed by ArcSoft at 46.66%, and the lowest was Bejet at 2.9%.

Recently, Cambrian disclosed a plan for a private placement. The company plans to issue no more than 80.1629 million shares to no more than 35 specific objects, with a total amount of funds raised not exceeding 2.65 billion yuan, which will be used for advanced process platform chip projects (5nm or newer generation processes), stable process platform chip projects (7nm or earlier generation processes), general intelligent processor technology research and development projects for emerging application scenarios, and to supplement working capital.

However, the active high investment in research and development also dragged down Cambrian's performance, and losses became the norm.

In the first half of 2022, Cambrian's total R&D investment was 629 million yuan, an increase of 214 million yuan from the same period last year, a year-on-year increase of 51.45%; the proportion of R&D investment to operating income was 366.34%, an increase of 65 percentage points year-on-year. The two items of share-based payments in Cambrian's R&D expenses and administrative expenses accounted for 86.46% of the overall operating expenses, and revenue cannot cover this expense for the time being. The financial report shows that the main reasons for the increase are: the increase in the number of R&D personnel, the increase in the average salary of employees, and the increase in testing and processing fees (new product tape-out and other related expenses).

As a result, Cambrian suffered losses again in the first half of 2022 as expected. The financial report shows that in the first half of 2022, Cambrian achieved revenue of 172 million yuan, a year-on-year increase of 24.6%; net profit was -622 million yuan, compared with -392 million yuan in the same period last year, and the loss amount increased by 58.94% compared with the same period last year; net cash flow from operating activities was -833 million yuan, compared with -539 million yuan in the same period last year.