With so many competitors in the large-size silicon wafer market, can Musk stand out?

In recent years, with the continuous improvement of semiconductor production technology, silicon wafers have generally developed towards larger sizes. The size of silicon wafers has developed from the early 2 inches, 4 inches, and 6 inches to the current 6 inches, 8 inches, and 12 inches. Currently, 8-inch and 12-inch silicon wafers have become the mainstream products of semiconductor silicon wafers.

The evolution of silicon wafers to larger sizes has also had a significant impact on Maxco, which mainly operates in small and medium-sized silicon wafers. In the article "With insufficient product competitiveness and the market being "swallowed" by competitors, what will support Maxco's future performance?", the author pointed out that as market competition intensified, Maxco's product prices continued to decline, causing its revenue to fluctuate and decline, and its net profit fell by more than 60%.

In addition, Maxke also faces problems such as high customer concentration and competitors being large customers. At the same time, it plans to raise funds to build a large-size silicon wafer project to enhance its own competitiveness. However, in the context of foreign manufacturers monopolizing the market and domestic companies continuing to expand production, even if Maxke's fundraising and investment projects are put into production as scheduled, the competition it faces in its subsequent development cannot be underestimated.

High customer concentration Competitors are major customers

According to information, Maxke is mainly engaged in the research and development, production and sales of semiconductor silicon wafers. Its current products are mainly 4-inch, 5-inch and 6-inch semiconductor silicon polished wafers.

From 2018 to 2020, Maxke's sales to its top five customers (calculated on a consolidated basis under the same control) were RMB 392 million, RMB 292 million and RMB 315 million, respectively, accounting for 77.48%, 77.30% and 75.83% of its main business income, respectively, all exceeding 75%, and its customer concentration was significantly high.

From the perspective of the top five customers, except for the fifth largest customer which has changed, Maxke's top four customers are relatively stable, namely China Electronics Technology Group Corporation, Hanlei Advanced Investment Holding Co., Ltd., Hangzhou Silan Microelectronics Co., Ltd. and Shanghai Simao Technology Co., Ltd.

Among them, Maxk’s largest customer, China Electronics Technology Group Corporation (hereinafter referred to as: CETC), is a central enterprise whose actual controller is the State-owned Assets Supervision and Administration Commission. From 2018 to 2020, its sales to CETC were RMB 2.11 billion, RMB 156 million and RMB 162 million, respectively, accounting for 41.67%, 41.15% and 39.12% of its main business income in the current period, respectively, all of which accounted for more than 40%, and there is a certain degree of dependence on large customers.

It is worth mentioning that among Maxco’s shareholders, the Henan local government background is quite important. The prospectus shows that Maxco’s controlling shareholder is Luodan Group, which is an enterprise controlled by the Henan State-owned Assets Supervision and Administration Commission and directly holds 112 million shares, accounting for 74.73% of the company’s total share capital. In addition, Henan Assets and Luoyang State-owned Assets Company also have state-owned backgrounds, holding 11.11% and 5.27% of the shares respectively. It can be seen that both Maxco and China Electronics Technology Group Corporation have state-owned backgrounds, and China Electronics Technology Group Corporation has played a prominent role in Maxco’s past performance.

In addition to the above situation, the author also found that Maxke actually cooperated with a competitor, and this competitor was its fourth largest customer, Shanghai Sim Ao Technology Co., Ltd. (hereinafter referred to as: Sim Ao Technology). The company's main products include 4-8 inch SOI wafers, SOI epitaxial wafers, silicon epitaxial wafers, etc.

From 2018 to 2020, Maxke's sales revenue to Simao Technology was RMB 45.2022 million, RMB 32.6778 million, and RMB 30.2479 million, respectively, accounting for 8.93%, 8.64%, and 7.29% of the main business income in the current period, respectively, making it its fourth largest customer.

However, what is surprising is that Maxker disclosed the types of its main competitors and the basic information of representative enterprises in its prospectus, and Shanghai Silicon Industry was among them. According to Tianyancha, Shanghai Silicon Industry holds 89.19% of Simao Technology's shares and is its actual controller.

It can be seen that Simgui Technology is not only Maxco's fourth largest customer, but also its main competitor. So why would Maxco cooperate with its competitor? If Simgui Technology no longer purchases Maxco's products, will it have an impact on its operations?

At the same time, Shanghai Silicon Industry's customers include chip manufacturers such as GlobalFoundries, SMIC, Huahong Grace, Huali Microelectronics, China Resources Microelectronics, Yangtze Memory Technologies, NXP, and STMicroelectronics. Relatively speaking, among Maxker's customers, there are relatively few direct foundry or IDM companies, which is also closely related to its insufficient product technology level and low R&D investment.

The large silicon wafer market is crowded with competitors and the prospects of investment projects are worrying

The prospectus shows that from 2018 to 2020, Maxke's R&D expenses were RMB 20.682 million, RMB 18.007 million, and RMB 27.4517 million, respectively, accounting for 4.07%, 4.75%, and 6.55% of the operating income in the current period. Although the R&D expense rate has been rising year by year, it is significantly lower than that of its competitors.

During the above period, the R&D expense rates of comparable listed companies Shanghai Silicon Industry and Lianwei were 8.29%, 5.64%, 7.23% and 7.08%, 8.14%, 7.47% respectively, all higher than Maxco in the same period. Generally speaking, companies with smaller revenue scale have higher R&D expense rates, but the opposite is true for Maxco.

In addition to the low R&D expense rate, Maxek has a relatively small revenue scale and market share, which is far behind other semiconductor silicon wafer manufacturers, so its R&D investment is far less than that of its peers. In the past three years, the average revenues of Lianwei and Shanghai Silicon Industry were 1.306 billion yuan and 1.438 billion yuan respectively, while Maxek's average revenue was 435 million yuan, which is only about 1/3 of the above two companies. It can be seen that Maxek's R&D investment is far lower than that of its peers.

Due to the low investment in research and development, Maxk's technology level is relatively backward. Currently, its main products are still 4-6 inch silicon wafers. Currently, 8-inch and 12-inch silicon wafers have become the mainstream products of semiconductor silicon wafers. As silicon wafers as a whole develop towards larger sizes, the market for small-size silicon wafers has gradually shrunk. It can be seen that Maxk's operating performance has been impacted.

In order to keep up with the pace of market development and reverse the downward trend of performance, Maxek plans to use 1.562 billion yuan of funds to invest in 8-inch and 12-inch semiconductor silicon wafer production line construction projects, of which 750 million yuan is raised funds. The project construction period is 3 years. After completion, the company will add 200,000 8-inch pieces per month and 50,000 12-inch pieces per month of semiconductor silicon wafer production capacity.

However, in the large silicon wafer market, Maxek will face fierce market competition. Currently, the world's top five semiconductor silicon wafer companies have a combined market share of over 90%, while manufacturers such as GlobalWafers are still expanding their large silicon wafer production lines.

At the same time, domestic silicon wafer manufacturers have been expanding 8/12-inch silicon wafer projects in recent years. According to incomplete statistics from Jiwei.com, 15 companies have invested more than 130 billion yuan in semiconductor silicon wafer projects. After all of them are put into production, the total production capacity of 8-inch wafers will be 2.95 million pieces/month and the production capacity of 12-inch wafers will be 5.85 million pieces/month.

从上述国内企业来看，上海新昇（沪硅产业子公司）、超硅上海、中环领先、金瑞泓（立昂微子公司）、中欣晶圆等公司已投产。同时，今年以来，沪硅产业、立昂微纷纷大手笔募资扩增产能，而中欣晶圆也规划扩产。

Compared with the above companies, Maxek's 8- and 12-inch silicon wafers are still in the process of getting off the ground. On the one hand, it is affected by the company's listing process and the project construction cycle (3 years). On the other hand, the industry competition is intensifying due to the substantial expansion of production by companies in the same industry. It is questionable whether Maxek will be competitive by then.

In general, under the background of the decline in operating performance caused by the shrinking small-size silicon wafer market, Maxik raised funds to expand 8- and 12-inch silicon wafer products. However, with the release of production capacity of multiple domestic silicon wafer projects, the large silicon wafer field will also face fierce market competition. If Maxik's 8- and 12-inch silicon wafer projects do not develop as expected, its operating performance will be greatly impacted. It can be seen that the operating pressure faced by Maxik should not be underestimated. If it is not careful, it will be eliminated by the market. In the future, it will face more severe tests.