Against the background of the whole country's efforts to overcome the chip jam, the semiconductor IPO track has been hot in the past few years, but this trend has changed recently.

Since last year, the Shanghai Stock Exchange Science and Technology Innovation Board and Shenzhen GEM have terminated more than 20 semiconductor IPOs, involving an amount of approximately RMB 25 billion. For more companies applying for IPOs in 2023, the listing progress has been stalled in the inquiry stage for more than half a year.

Analysts believe that as regulations tighten on IPOs and as the semiconductor business cycle declines, IPOs on this track will become increasingly strict in the future.

Since the United States increased sanctions on Chinese chips in 2019, concepts such as the concept of independent and controllable domestic semiconductor technology and domestic substitution have been frequently proposed, making semiconductors the darling of the primary and secondary markets. The period from 2020 to 2023 can be called a boom in A-share semiconductor listings, mainly concentrated on the Science and Technology Innovation Board and GEM. There will be 21, 43 and 27 semiconductor companies listed in 2020, 2022 and 2023 respectively.

Since 2024, there are currently only three listed companies in the semiconductor industry: Shengjing Micro, Shanghai Hejing and Chengdu Huawei. According to incomplete statistics from China Business News, many semiconductor IPOs have been terminated so far this year, including the IPOs of three semiconductor companies that were originally planned to be listed on the GEM, including Han's IC, Hantong Integration, and Huimang Micro, all of which were terminated in January.

According to the report, three semiconductor IPOs were terminated one after another in the same month, which is rare in recent years, and also verifies the phased slowdown of IPOs. Most of the withdrawn semiconductor IPOs are stuck in the inquiry process, and regulatory authorities mainly focus on issues such as core technology and intellectual property, technological advancement, and equity structure.

The main reasons are as follows:

1. Related to the prosperity of the semiconductor industry. 

The key turning point in the industry's prosperity will occur in the second half of 2022. The semiconductor industry has experienced a shortage of chips at the beginning, which has caused tension in the industry chain, and then a cold wave of saturated production capacity, inventory backlog, and falling prices. Consumer electronics has suffered a cold spell, the chip shortage in automobiles has also been alleviated, and the industry’s investment highlights have disappeared instantly.

In addition, with the structural differentiation of downstream demand for semiconductors, weak demand in the consumer electronics industry, and the slow digestion of inventory in the industry chain, the semiconductor cycle is in the bottoming stage in 2023.

2. Related to the tightening of regulations on IPOs. 

On August 27 last year, the China Securities Regulatory Commission announced a phased tightening of the pace of IPOs, saying that based on recent market conditions, the pace of IPOs would be tightened in phases to promote a dynamic balance at both ends of investment and financing, and to further strengthen the review and supervision of IPOs. The above-mentioned policies also mean that we must pay attention to the profitability of the company, and regulatory authorities will be more stringent in reviewing IPOs.

3. Related to the pressure on the performance of semiconductor companies themselves. 

36Kr quoted Li Zhanmeng, the founding partner of Xinpai Capital, as saying that (industry) involution is serious, the performance of most semiconductor companies is under pressure, corporate operating pressure has increased sharply, and performance indicators and revenue growth cannot meet regulatory standards. Therefore, the Withdrew.

4. To be wary of the phenomenon of unfinished semiconductors such as Wuhan Hongxin. 

Wuhan Hongxin, which was established in 2017, claimed to have invested RMB 128 billion at the time. It was selected as a major project in Hubei Province twice in 2018 and 2019. However, due to financial difficulties and heavy debts, no results were achieved.

Although large projects have converged after Wuhan Hongxin, the small, chaotic and fragmented market has not changed. Under the wave of import substitution and localization, some low-end chip tracks have been involuntarily upgraded, with prices competing for price and patents competing for patents. The phenomenon of replacing domestic products with domestic products is widespread, resulting in low-end and mid-range chips being in a red ocean of vicious competition.

And these fragile companies cannot withstand the test when the economic downturn comes, which also discourages investors. And this is directly reflected in the IPO.

Based on the above, domestic semiconductor investment in the past was no longer a wave of enthusiasm for investment across the country. Instead, it was replaced by a cold wave after cooling off. Excessive localization and import substitution only caused industry involution. How to find new strategies for semiconductor development under US sanctions? Might be a priority.

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