Willsemi Will Build A Bright Future In The Chip Market
Seeking Alpha Analyst Since 2018
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- Under the tide of chip shortage, Willsemi has reported good news in the market such as automotive CIS chips, VR/AR, etc., so it is enthusiastically praised by the market.
- In the current environment of large tuyere caused by insufficient production capacity of all kinds of vehicle chips, the good news of Willsemi in the vehicle CIS market has been.
- Willsemi's future market imagination is very good, but it still needs to be cautious to prevent falling into the pit.
Recently, the collective strength of A-share semiconductor sector is due to the positive driving effect of the collective rise of U.S. semiconductor stocks overnight, on the other hand, because Will Semiconductor Co.,Ltd. Shanghai(Willsemi) released more positive information than expected at the exchange meeting the day before yesterday, and the market chose to vote with its feet
1、Willsemi achieves counterattack through mergers and acquisitions
When it comes to Willsemi, what impresses the market most is the story of its counterattack through mergers and acquisitions.
Founded in 2007, Willsemi is mainly engaged in semiconductor design business such as power discrete devices, power supply IC and so on. In the three years from 2013 to 2015, the company has successively expanded its semiconductor distribution business, satellite live broadcast chip design business and RF chip business through acquisitions.
Four years later, the company completed the acquisition of companies such as OmniVision and Superpix, and began to enter the CIS business, which became the most important turning point in the history of Willsemi enterprises.
2016 is known as the first year of post-double photography in the industry. Since this year, due to the increasing demand for mobile photography, the number of cameras on mobile phones has also begun to increase, which in turn has boosted the demand for CIS (also known as CMOS image sensor).
CIS chip is the highest cost of mobile phone camera, accounting for about 52%. The cost of CIS chips continues to rise after the market trend for multi-camera cameras in smartphones.
Frost & Sullivan data show that the size and growth rate of the global CIS market have increased rapidly since 2016. In 2016, the market was only $9.42 billion, a growth rate of only 4.6%. By 2019, the market reached $16.54 billion, a growth rate of 29%.
Seeing this hot market, Willsemi bought OmniVision, a foreign company doing CIS business, for 16 billion yuan at that time, and took advantage of the situation to become the third company in the global market share of CIS at that time, second only to SONY and Samsung. Taking advantage of OmniVision’s advantages in the international market, Willsemi has also won the contract manufacturing of high-end phones such as Huawei Mate40E and Xiaomi 10 Supreme Commemorative Edition.
The acquisition was a classic example of “snake swallowing elephants” in the capital markets at the time, because Willsemi and OmniVision were not of the same order of magnitude in terms of total assets or net assets.
But by making up for its technical deficiencies through acquisitions, Willsemi caught on to the trend and changed its fate.
Looking at the company’s performance over the past few years, it is clear that Willsemi’s revenue has exploded since 2019. In 2019, the company achieved a revenue of 13.632 billion yuan, a year-on-year increase of 243.93%, and a net profit of 466 million yuan, a year-on-year increase of 235.46%.
Among them, the CMOS image sensor product business contributed 9.779 billion yuan in revenue and 3.014 billion yuan in operating profit, accounting for 71.94% of the company’s total revenue and 81.22% of the total operating profit respectively.
Previously, Willsemi’s main source of revenue was the semiconductor distribution business, but the semiconductor distribution business’s gross margin of about 20 per cent was dwarfed by the gross margin of more than 30 per cent of CMOS’s image sensor business.
CIS image sensor business allows Willsemi to achieve rapid growth, at the same time, the company’s share price skyrocketed. Rising from a low in 2019 to a high this year, Willsemi has gained more than 990%, making it a hot semiconductor star stock.
2、The second growth curve of Willsemi
The high growth of CIS business mainly depends on the high volume of smart phones. However, in recent years, smartphone shipments have slowed down significantly. Willsemi also needs to find new increments, which are new areas such as automobiles, VR/AR, security, and medical care.
Especially in the hot field of new energy electric vehicles, intelligence has become a future trend, and the demand for optical cameras is increasing. For example, there are as many as eight cameras on Tesla’s Model3. Everbright Securities predicts that bicycles will need to carry 11–15 cameras in the future.
With the increase of the penetration of new energy electric vehicles, the car camera market is likely to become a larger incremental market than smartphone cameras. Guosheng Securities predicts that the global automotive CIS market will grow at an average annual compound growth rate of 18% from 2020 to 2025.
In the automobile CIS market, the advantage of OmniVision is more obvious. In 2019, OmniVision had a market share of 29 per cent, second only to ON Semiconductor, which had a market share of 60 per cent. In addition, this market concentration is very high, the competition barrier is also high, it is difficult for foreign players to enter.
There is news that at the exchange meeting the day before yesterday, Willsemi revealed the progress in the automotive CIS market: with the great advantages of the supply chain and customers, the automotive CIS accounts for about 35% of the world this year, more than 45% next year, and 60–70% in 23 and 24 years, forming a crushing advantage.
At the same time, the company expects the gross profit of the automobile business to overtake mobile phones to become the largest in 2022, with revenue of $400 million in 2021 and $8 billion to $1 billion in 2022, with a gross profit margin of 50% and a net profit of more than 2 billion.
In the current environment of large tuyere caused by insufficient production capacity of all kinds of vehicle chips, the good news of Willsemi in the vehicle CIS market has been released, which has undoubtedly played a great role in boosting the stock price.
In addition, it is also reported that Willsemi has participated in the VR/AR track, which has recently resurfaced due to the concept of meta-universe. The application of CIS chip in VR/AR head display device also makes the market full of expectations for Willsemi.
However, last night, Willsemi issued a notice clarifying that the company’s production and operations are normal and that there is no significant change in the fourth-quarter results compared with the third-quarter results. At the same time, he clarified that the production cycle of the whole vehicle is relatively long, which takes about six months to a year or so. Due to the influence of the development of the end customer market, the introduction time of new products and the mass production cycle of the introduction plan, there is uncertainty about the sales scale of the company’s products in the automobile market. Generally speaking, the company’s vehicle image sensor products are not greatly affected by the seasonal fluctuation of vehicle sales scale.
Under the spring tide of chip shortage, Willsemi, as the leader in the field of smartphone CIS chips in China, has spread good news in the car CIS chip, VR/AR and other markets, so it is popular in the market.
In the early years, through “snake swallowing elephant” mergers and acquisitions, the exchange of capital for technology can also be regarded as an indirect means of rescue. After the trade relations between China and the United States became more and more tense, it is rare to see such cross-border mergers and acquisitions as Willsemi to acquire chip technology. It can be said that Willsemi is the lucky guy of the times.
However, many large-scale mergers and acquisitions have also brought certain hidden dangers to the financial affairs of Willsemi. Goodwill, which has soared since 2019, has not yet been calculated and extracted by Willsemi. As of the third quarter of this year, the goodwill totaled 3.005 billion yuan.
For investors, Willsemi’s future market imagination is very good, but it still needs to be cautious to prevent falling into the pit.
Analyst's Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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