Luxshare Precision is under US 337 investigation; the back-end packaging and testing equipment market is experiencing an explosive growth period

This week, the most watched event in the secondary market was the U.S. International Trade Commission (ITC) voting to launch a 337 investigation into certain electrical connectors and cages, their components and downstream products, including Luxshare Precision, which has a market value of 300 billion yuan in the A-share market. Coincidentally, the ITC decided to launch the investigation on the second day after U.S. President Biden took office.

At the same time, we have noticed that many semiconductor industry chain manufacturers have released their performance results, and most companies have performed outstandingly. Judging from the performance forecast, the profitability of most semiconductor industry chain companies has achieved a relatively high growth; in addition, after entering 2021, the situation of supply and demand in the semiconductor industry chain packaging and testing equipment has further expanded, and the back-end packaging and testing equipment market has ushered in an explosive period.

Luxshare Precision is under US Section 337 investigation

On January 21, the U.S. International Trade Commission (ITC) voted to initiate a 337 investigation into certain electrical connectors and retainers, their components, and downstream products (investigation code: 337-TA-1241). Luxshare Precision Industry Co., Ltd. of Guangdong, China, Luxshare Precision Industry Co., Ltd. of Dongguan, Guangdong, China, Luxshare Limited of Hong Kong, China, and Luxshare-ICT Inc., Milipitas, CA of the United States are listed as defendants. Coincidentally, the ITC decided to initiate the investigation on the second day of U.S. President Biden's inauguration.

The investigation began on December 18, 2020, when Amphenol Corp. of Wallingford, CT, filed a case with the ITC. The company claimed that Luxshare Precision's specific electrical connectors and cages, their components and downstream products infringed its patent rights (U.S. registered patent numbers 7,371,117, 8,371,875, 8,864,521, 9,705,255, 10,381,767), and requested the U.S. ITC to issue a limited exclusion order and a cease and desist order.

Founded in 1932 and headquartered in Connecticut, USA, Amphenol Corporation is one of the world's largest connector manufacturers.

On December 22, Luxshare Precision issued an announcement in response to the incident. The announcement stated that after an internal review by Luxshare Precision, the company currently has a total of 5 US patents involved in this 337 investigation, involving conductive plastic technology and terminal horizontal injection molding technology, both of which were independently developed and designed by the company and applied to high-speed external IO connector products.

The announcement stated that after learning about the incident, the company has set up a special working group and hired American lawyers to actively respond to the 337 investigation. So far, the company has not received any formal legal documents. According to preliminary judgment, the 337 investigation will not have a substantial impact on the company's current production and operations.

Many companies in the industry chain have expected good performance

Despite the complex and ever-changing international trade relations and the multiple impacts of the epidemic, domestic semiconductor industry chain companies generally expected an increase in performance last year.

On January 18, Will Semiconductor released an announcement on the increase in annual performance in 2020. The company expects the net profit attributable to shareholders of the listed company to increase by 1.984 billion yuan to 2.484 billion yuan in 2020 compared with the same period last year, an increase of 426.17% to 533.55% year-on-year. Will Semiconductor stated that during the reporting period, driven by market demand and the continuous launch of new products, the company's profitability achieved a high growth.

On the same day, CR Microelectronics expects to achieve a net profit attributable to shareholders of listed companies of RMB 921,737,700 to RMB 961,938,700 in 2020, an increase of RMB 520,982,200 to RMB 561,183,200 compared with the same period last year, a year-on-year increase of 130.00% to 140.03%. CR Microelectronics stated that the company has received a relatively full order, the overall capacity utilization rate is high, the overall performance is significantly better than the same period last year, and the operating income and gross profit margin have increased year-on-year.

At the same time, Hongda Electronics released its performance forecast, and the company's net profit attributable to shareholders of listed companies was 454 million yuan to 513 million yuan, a year-on-year increase of 55% to 75%. Hongda Electronics said that during the reporting period, the company's downstream high-reliability customers had strong demand and orders continued to grow. While the company's main tantalum capacitor business continued to maintain its dominant position in the industry, some subsidiaries' new product businesses were further developed under the demand, and both orders and revenues achieved significant growth.

In its performance forecast, Laibao Hi-Tech pointed out that the net profit attributable to shareholders of the listed company in 2020 is expected to be 423 million yuan to 451 million yuan, a year-on-year increase of 50% to 60%. Regarding performance changes, Laibao Hi-Tech stated that in 2020, the company's medium and large-sized capacitive touch screen products were in strong demand. The company fully tapped the production capacity potential of medium and large-sized capacitive touch screen products. The sales volume and sales revenue of medium and large-sized capacitive touch screen full-lamination products increased significantly compared with the same period last year, and the gross profit of product sales increased significantly.

On January 21, Fuman Electronics released its earnings forecast, saying that the company expects the net profit attributable to shareholders of the listed company in 2020 to be 102 million yuan to 108 million yuan, a year-on-year increase of 176.79% to 193.08%. Fuman Electronics said that thanks to the impact of the company's new products, both sales and net profit have increased significantly. At the same time, the company's business strategy is appropriate, the product structure is continuously optimized, and the market share and gross profit margin are steadily increasing.

 On the evening of January 22, Changdian Technology released its 2020 performance forecast: the net profit attributable to shareholders of the listed company for the year was about 1.23 billion yuan, an increase of about 1,287.27% year-on-year. Regarding the growth in performance, it said that during the reporting period, the company actively seized market opportunities and increased its expansion efforts. The demand for orders from key international and domestic customers was strong, and the company's revenue increased significantly year-on-year; the company's factories continued to increase cost control and operating expense control, adjusted product structure, and promoted profitability.

Behind the positive performance forecast of the industrial chain, companies in the industrial chain are also actively making plans to expand production capacity to meet market demand.

Back-end packaging and testing equipment market is experiencing explosive growth

As chip companies actively deploy their products, the demand for equipment has surged. After entering 2021, the shortage of semiconductor packaging and testing equipment has further expanded, and the back-end packaging and testing equipment market has ushered in an explosive period.

Professor Wei Shaojun pointed out that the average annual compound growth rate of China's integrated circuit packaging and testing industry over the past 15 years was 15.23%, and its overall scale was second only to the chip design industry.

In terms of the back-end test and packaging equipment market, SEMI expects the test equipment market to continue to grow by 13% in 2020 and maintain this growth momentum in 2021. The demand growth is mainly due to the promotion of 5G to the entire industry. It is expected that packaging equipment will grow by 10% and 8% in 2020 and 2021 respectively, and the driving force for growth mainly comes from the construction of advanced packaging capacity.

In terms of packaging and testing capacity construction, by the end of December 2020, Qingdao Semiconductor invested a total of 1 billion yuan to build a high-end packaging and testing project, using the world's leading high-end packaging technology to package rapidly growing application chips such as 5G and artificial intelligence.

Changdian Technology, a leading domestic packaging and testing company, is also increasing its packaging and testing capacity. It previously disclosed a plan for a private placement of A-shares, with the total amount of funds to be raised not exceeding RMB 5 billion, all of which will be invested in projects with an annual output of 3.6 billion high-density integrated circuits and system-level packaging modules, and an annual output of 10 billion high-density hybrid integrated circuits and module packaging for communications.

Zheng Li, CEO of Changdian Technology, pointed out that the packaging and testing industry is the link in the entire integrated circuit industry that is most closely connected to the application market. As integrated circuits continue to develop towards high-precision and cutting-edge fields, integrated circuit packaging and testing technology is moving from the vaguely defined advanced packaging era to a new era of high-precision sealing and testing.

He believes that both design and packaging and testing technology will reach a higher ceiling. Especially under the current Sino-US trade situation, the further acceleration of the "domestic substitution" in the local semiconductor market will jointly promote the domestic back-end packaging and testing equipment market to enter a period of explosive growth.