Domestic IC test equipment pioneer Changchuan Technology encounters crisis

Since the second half of last year, the semiconductor industry's business climate has declined sharply, and this trend reached its peak in the first half of this year. Market demand has dropped significantly, causing the domestic packaging and testing industry to fall into a "cold winter". The performance of packaging and testing manufacturers has generally declined sharply, and some companies have even suffered losses.

As an upstream equipment manufacturer in the semiconductor packaging and testing industry, Changchuan Technology was not immune. In 2018, affected by the cyclical fluctuations in the semiconductor industry, Changchuan Technology achieved revenue of 216 million yuan, a year-on-year increase of 20.20%, and the growth rate slowed down significantly. The net profit in the same period was 36.47 million yuan, a year-on-year decrease of 27.42%.

Industry insiders said that after experiencing a rapid decline in the semiconductor recession, the semiconductor market gradually recovered in the second half of 2019, and the orders received by packaging and testing manufacturers rebounded significantly.

However, Changchuan Technology's performance did not improve as a result. According to Changchuan Technology's announcement, in the first half of 2019, its revenue decreased slightly year-on-year, and its net profit was only 0-2.5 million yuan, a year-on-year decrease of 90%-100%. Changchuan Technology explained the decline in net profit as a substantial increase in R&D investment.

The sharp decline in performance is all due to R&D investment?

Due to the increase in R&D investment, Changchuan Technology's net profit in the first half of the year may be zero. Such an explanation seems pale and powerless, and the lack of core competitiveness is the real reason for its performance decline.

Changchuan Technology was established in April 2008 and listed on the Shenzhen Stock Exchange's Growth Enterprise Market on April 17, 2017. It is a high-tech enterprise focusing on the research and development, production and sales of integrated circuit equipment. The integrated circuit testers and sorters produced by Changchuan Technology have been used by integrated circuit manufacturers such as Changdian Technology, Huatian Technology, Tongfu Microelectronics, Silan Microelectronics, China Resources Microelectronics, and ASE.

Like other semiconductor equipment, the world's advanced testing equipment manufacturing technology is currently basically in the hands of manufacturers in developed integrated circuit industry countries such as the United States and Japan, such as Japan's Advantest, the United States' Teradyne, the United States' Agilent, the United States' Xcerra, the United States' Cohu, etc.

According to people familiar with the matter, mid-to-high-end semiconductor test equipment is basically provided by Teradyne of the United States and Advantest of Japan. The equipment produced by these manufacturers is relatively good in terms of efficiency and stability. The leading domestic test equipment manufacturers include Changchuan Technology, Huafeng Measurement and Control, Foshan Liandong, etc., which can only produce mid-to-low-end equipment such as power devices and analog circuits, mainly used in discrete devices, power ICs and other products.

The insider further stated that in the field of analog circuit testing machines, the gap between domestic manufacturers is not that big. The key lies in who cooperates better with the packaging and testing factories and provides better customer service.

Another industry insider also said that Changchuan Technology's testing equipment does not have high technical content, and research and development is its shortcoming, but its sales customer service team and price are advantages, which has opened up the domestic mid- and low-end testing equipment market.

According to the official website, Changchuan Technology has a series of products including analog, mixed analog and digital, and discrete devices, and has a 35% share of the domestic market; the digital tester to be launched soon has a channel rate of 200Mbps and 1024 channels. It is a high-end ATE equipment that is comparable to its international advanced counterparts.

Obviously, insufficient R&D capabilities are Changchuan Technology's biggest shortcoming at present. In order to solve this dilemma, in 2018, Changchuan Technology acquired 90% of the equity of Changxin Investment for a transaction price of 490 million yuan. The actual operating entity of Changxin Investment is STI, a Singapore integrated circuit packaging and testing equipment manufacturer.

STI is a global leading provider of integrated circuit packaging and testing equipment, providing optical inspection, sorting, taping and other equipment to large semiconductor manufacturers such as Texas Instruments, Micron, STMicroelectronics, and Samsung, as well as world-class semiconductor packaging and testing companies such as ASE and Amkor.

According to the plan, STI's high-quality assets and businesses will enter Changchuan Technology in 2019. However, from the current situation, there has been little progress in the integration of Changchuan Technology and STI, and the synergy has not been reflected.

Huafeng Testing & Control plans to list on the Science and Technology Innovation Board, and Changchuan Technology is under further pressure

Recently, another leading domestic testing equipment manufacturer, Huafeng Testing & Control, has also accelerated its listing plan, intending to abandon the Growth Enterprise Market and switch to the Science and Technology Innovation Board. It has been accepted by the Shanghai Stock Exchange and is expected to be listed on the Science and Technology Innovation Board soon.

Huafeng Testing & Control was founded in 1993. It is a high-tech enterprise affiliated to the 9th Academy of China Aerospace Science and Technology Corporation. It focuses on the research, production, sales and technical services of semiconductor test equipment (ATE).

It is understood that the STS test system products independently developed by Huafeng Testing and Control have the largest market share in the domestic military market. Huafeng Testing and Control has entered the civilian market since 2003. Its AccoTest brand received its first formal order in 2005, and its sales exceeded 1,000 units in July 2015. As of August 2018, the total sales of AccoTEST test machines exceeded 2,000 units. At present, it has accounted for 50% of the domestic market share of similar products and ranks first in the domestic civilian market share.

Obviously, Huafeng Testing & Control, which focuses on testing machines, has become a strong rival of Changchuan Technology. After all, the two companies have many of the same customers.

In terms of customers, relying on its excellent technical strength, service quality and strict quality control, Huafeng Testing & Control has obtained supplier certification from a large number of well-known domestic and foreign semiconductor manufacturers, including but not limited to Changdian Technology, Tongfu Microelectronics, Huatian Technology, China Resources Microelectronics, Huawei, STMicroelectronics, Core Source Systems, Micro Silicon Electronics, ASE Group, Sanken, etc.

In addition, Huafeng Measurement & Control's gross profit margin is quite impressive. In 2016, 2017, 2018 and January-March 2019, the company's comprehensive gross profit margin was 79.99%, 80.71%, 82.15% and 82.55% respectively. Huafeng Measurement & Control said that the company's products are highly competitive and have strong bargaining power.

With Huafeng Testing & Control's listing on the Science and Technology Innovation Board, financing channels will be opened, production capacity and technical level will be improved, brand awareness and market influence will be further expanded, and Changchuan Technology's performance will be further under pressure.