On September 4, CoreLink Integration announced its intention to acquire the remaining 72.33% stake in its subsidiary CoreLink Yuezhou for RMB 5.897 billion, resulting in 100% ownership of CoreLink Yuezhou upon completion. This move could set a record for the largest secondary market semiconductor acquisition in the year.

CoreLink Integration is already the largest foundry for automotive-grade IGBT chips and modules in China. Meanwhile, CoreLink Yuezhou holds the country's first 8-inch SiC MOSFET production line. If the acquisition succeeds, CoreLink Integration's strength in the automotive-grade chip sector will undoubtedly increase significantly.

The new energy vehicle industry is booming, consumer electronics are rapidly recovering with the aid of AI, and renewable energy storage offers limitless potential. If this transaction is successfully completed, CoreLink Integration will be on the verge of turning a profit.

[Seizing the Right Opportunity]

Currently, the chip industry is in a differentiated stage of cyclical adjustment.

Even Intel, once the king of the PC era, has had to face a net loss of US$1.6 billion in the second quarter due to missing out on the mobile and AI waves, with its share price plummeting by 60% since the beginning of the year. In contrast, AI newcomer NVIDIA remains strong, raking in US$16.6 billion in profit in its second fiscal quarter.

Driven by AI, the memory chip market, which had fallen into a downturn, is seeing new opportunities. High-performance, high-capacity HBM, DDR5, and eSSD (enterprise-class solid-state drives) are experiencing robust recoveries. Samsung Electronics' NAND Flash and DRAM revenues and profits rebounded strongly in the second quarter.

Within the same industry, there are varying degrees of warmth and coldness, and the underlying difference lies in whether a company can use "technology to smooth out cycles."

Amid cyclical fluctuations, CoreLink Integration, which has only been established for six years, has not followed the market trends but instead demonstrated its "technology-driven growth" capabilities.

In the first half of 2024, the company's operating revenue reached RMB 2.88 billion, a year-on-year increase of 14.27%. After deducting annual depreciation and amortization of RMB 2.046 billion, the company achieved EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of RMB 1.123 billion, a year-on-year increase of 176%. The EBITDA margin reached 39%, setting a new record for the same period since the company's inception.

In the first half of the year, the company invested nearly RMB 900 million in research and development, a year-on-year increase of over 33%, accounting for over 31% of revenue. Of course, due to depreciation and long-term, high-intensity R&D investments, the company's net profit attributable to shareholders in the first half of the year was still a loss of RMB 471 million, but this was a reduction of RMB 638 million year-on-year, representing a 57.53% decrease in losses.

This performance is attributed to the company's strategic positioning in industries like new energy vehicles, as well as its ability to capitalize on these opportunities.

CoreLink Integration is already China's largest foundry for automotive-grade IGBT chips and modules, providing silicon carbide chip foundry services to leading new energy vehicle companies such as XPeng.

Silicon carbide (SiC) high-voltage platforms have become standard in flagship new energy vehicles, attracting significant investments from international giants like STMicroelectronics and Infineon.

CoreLink Integration is the first domestic manufacturer to achieve mass production of SiC MOSFETs for main drive inverters, leveraging its first-mover advantage to rank first in Asia in SiC MOS shipments.

Positioned at the forefront of these trends, CoreLink Integration's SiC MOSFET business revenue tripled year-on-year in the first half of the year, with automotive products accounting for nearly half of its main business. The company expects its full-year SiC business revenue to reach RMB 1 billion.

In terms of technology, CoreLink Integration is unfazed by competition. Its 1.7th-generation products reach international first-class standards, with a CP yield exceeding 85%. Moreover, the company is the first in China and the second globally to achieve mass production of 8-inch SiC wafers, starting wafer production in April this year with plans for mass production next year.

In the era of gasoline-powered vehicles, no Chinese automakers ranked among the global top 10, but in the new energy vehicle era, six of the global top 10 (2023) are domestic automakers. The rise of China's new energy vehicle supply chain has created fertile ground for CoreLink Integration.

Compared to companies like Samsung, NVIDIA, and Texas Instruments, China's integrated circuit industry is still catching up. Thanks to the leapfrog development of new energy vehicles, it is not impossible for a world-class enterprise to emerge in the automotive electronics sector. Looking ahead, the company aims to capture a 30% market share in the global SiC sector.

In the first half of the year, the company accelerated the overseas expansion of its automotive power module products, securing designated procurement contracts from renowned European automakers, with installed capacity growing by over five times year-on-year and market share reaching nearly 10%.

Furthermore, benefiting from the recovery of consumer electronics in the first half of the year, the company's consumer business segment revenue increased by 107% year-on-year, with 12-inch silicon-based wafer production line revenue growing by over seven times.

As SiC production ramps up, more projects are being introduced through collaborations between OEMs and Tier 1 suppliers, and with efforts in AI data centers, renewable energy storage, and analog ICs, CoreLink Integration is poised for continued growth and strength.

[Innovative Transformation]

CoreLink Integration's breakthrough growth is not merely the result of product substitution but stems from its unique methodology.

Simple domestic product substitution cannot build a deep moat and is likely to be replaced by new products or competitors from international giants.

Since its spin-off from SMIC in 2018, CoreLink Integration has aspired to become a "system solution provider," collaborating with downstream customers on R&D to enhance customer stickiness.

To this end, the company invests 20% to 35% of its sales revenue in R&D annually, ranking among the top in the industry.

In the era of "software-defined vehicles," the new energy vehicle supply chain ecosystem is evolving from a "chain-like relationship" to a "networked ecosystem," disrupting the traditional zero-to-one relationship.

Aligning with industry trends, the company does not focus solely on single chips but offers entire system solutions, participating in the design process from the current to the next generation. Its products are not just "PIN to PIN substitutions" for overseas giants but involve the entire product development chain.

The company's integrated solution combines four separate chips - MCU, power management chip, communication chip, and driver chip - into a single chip, significantly reducing the number of body control units from hundreds to just four. This enhances automakers' R&D efficiency, reduces costs, and improves competitiveness, and the solution has already entered mass production.

In the automotive device sector, the company pioneered the "design win" cooperation model, collaborating closely with automakers from the design stage to co-create the next-generation platform. This means CoreLink Integration has secured a foothold in automakers' supply chains early on, locking in future orders. The company has already secured over 20 "design win" projects and expects to supply half of the main drive SiC products in the Chinese market in the future.

CoreLink Yuezhou, which CoreLink Integration plans to acquire, has a monthly silicon-based wafer capacity of 70,000 pieces and a 6-inch SiC MOSFET capacity of 5,000 pieces per month. It has also made forward-looking investments in high-tech platforms like high-voltage analog ICs. Its 6-inch SiC MOSFET shipments rank first in China, and it holds the country's first 8-inch production line.

In the analog IC sector, domestic production mainly focuses on low-voltage BCD process technologies for consumer and industrial applications. CoreLink Yuezhou, however, possesses scarce high-voltage analog IC production capabilities, with less than 10% of this advanced capacity currently domesticated. It offers complete analog and power solutions with high voltage, high current, and high-density technologies for new energy vehicles and high-end industrial controls.

This acquisition is a crucial step in enhancing the company's core competitiveness, significantly bolstering its strengths in the highly promising SiC and analog IC sectors.

Simultaneously, it will enable unified management of 8-inch silicon-based wafer capacity, improving efficiency and further enhancing the company's innovative iteration advantages.

[Three Growth Curves]

In the global chip landscape, there are companies like Samsung and SK Hynix, which have established themselves in memory chips, and foundry giants like TSMC, which dominate with advanced process technologies. NVIDIA, on the other hand, has risen to prominence in AI through GPUs.

While the technology race in digital chips is intense, analog chips maintain a relatively low profile but stand firm in the unpredictable capital markets due to their steady approach.

In 2024, the market capitalizations of industry giants Texas Instruments (TI) and ADI reached all-time highs, surpassing that of Intel. With the proliferation of new energy vehicles, energy transitions, and AI, the market for analog ICs continues to expand.

Although China is the world's largest chip consumer market, unlike digital chips, analog ICs heavily rely on engineers' experience. China's analog IC self-sufficiency rate is below 15%, growing slowly and even lagging behind the overall chip self-sufficiency rate.

Moreover, production capacity is concentrated in low-end consumer electronics with lower technical barriers, while mid-to-high-end products heavily rely on imports. Autonomous development and domestic substitution are urgently needed.

Since its inception, CoreLink Integration has adhered to the principle of "taking one step forward, looking three steps ahead, and entering new technological domains each year." In 2017, it ventured into MEMS, expanded into silicon-based power devices in 2018, further developed module businesses in 2019, and entered high-voltage analog ICs, SiC, and LiDAR MCUs in 2020.

By entering new domains annually and continuously improving product quality through iterations within two to three years of entry, the company aims to reach international standards. This aligns with the current automotive industry's demands on the chip sector.

Currently, CoreLink Integration has established three growth curves: the first centered on 8-inch silicon-based chips and modules primarily featuring IGBT, MOSFET, and MEMS; the second focused on SiC MOSFET chips and modules; and the third on analog ICs featuring high-voltage, high-power BCD processes, covering diverse product areas and application directions.

In the first half of the year, these three growth curves worked in concert. Empowered by AI models, AI phones and PCs accelerated iterations, and the recovery of consumer electronics demand drove the company's consumer product performance.

The second growth curve, SiC MOSFETs, saw designated projects entering mass production successively, with production lines running at full capacity and revenue tripling year-on-year.

In the first half of the year, several integrated BCD process platforms filled domestic gaps, and analog ICs are expected to be the fastest-growing segment for the company from 2024 to 2026.

Concurrently, riding the AI wave, CoreLink Integration continues to expand its business boundaries, comprehensively deploying in the high-growth AI server sector. In the first half of the year, BCD process products for multi-phase power supplies in AI servers entered mass production, and the company can also provide complete power management chip and module foundry services for AI server power supplies and AI cluster communications.

Driven by the imperative of domestic substitution, empowered by advanced technologies, and fueled by systematic innovation, CoreLink Integration exemplifies China's chip rise.

Disclaimer

This article involves content related to listed companies and is based on personal analysis and judgment by the author based on information publicly disclosed by listed companies in accordance with legal requirements (including but not limited to interim announcements, periodic reports, and official interaction platforms). The information or opinions contained herein do not constitute any investment or other business advice. Market Value Observer shall not be held responsible for any actions taken as a result of adopting the content of this article.

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