Chinese Chipmaker, Cambricon Technologies, recorded a 358% surge from its IPO to stay at 295 yuan at the Star Market, on Monday.
Cambricon, backed by Alibaba Group Holding among others, is the second high-profile chip maker to list on the domestic market in less than a week. China’s biggest chip manufacturer, Semiconductor Manufacturing International Corp (SMIC), listed Thursday on Star with 53 billion yuan ($7.58 billion), marking the biggest IPO in China in a decade according to SCMP.
Cambricon Technologies Corporation Limited develops and distributes software products. The Company produces terminal intelligent processors, cloud intelligent chips, accelerator cards, intelligent computing cluster systems, and other products. Cambricon Technologies also produces computer peripheral products.
Cambricon’s gain on Monday puts its capitalization 85 billion yuan, while SMIC has a capitalization of 587.1 billion yuan. The duo are pushing to bring Chinese semiconductor industry to the fore in the wake of a trade war between the United States and China that has impacted the global growth of Chinese telecom companies.
Cambricon was founded in 2016 by two brothers, Chen Yunji, 37, and Chen Tianshi 35, to produce AI chips for smartphones. The company has since become a big name in the semiconductor industry, producing chips used in millions of smartphones.
Huawei and Alibaba are its major clients, spurring the company to a potential competition with SMIC.
But analysts believe the growth is expected to slow in the near future due to increasing research and production cost. Yan Fan, an analyst at China Merchant Securities, said expenditure will erode the company’s earnings in three years.
According to the brokerage, it is expected that the chipmaker will lose about 482 million this year and 380 million yuan in 2021. It posted a 1.18 billion yuan loss in 2019, according to the IPO prospectus. But that was before the recent push by the Chinese government for more semiconductor manufacturing.
The US trade relationship with China has deteriorated that companies from the South Asian country have been denied rights to purchase US made chips.
Huawei, which leads the global 5G rollout was ousted from the United States last year on national security concerns. Against the backdrop, the Chinese company had the capacity to lead other companies in the business of 5G deployment until the United States government announced in May, that semiconductors in the US, including TSMC will no longer sell chips to Huawei.
The development is leading many countries who initially had stood up to the US pressure to boycott Huawei to reconsider their stand. It is also paving the way for Sweden’s Ericsson and Finland’s Nokia to lead the way in 5G technology.
On Tuesday last week, the UK government announced that it is dropping Huawei from its 5G plans, citing the US ‘chips ban.’ Without access to the US semiconductor market, it will be difficult for the company to live up to its 5G obligation.
The Chinese government has been working to minimize its dependence on foreign semiconductors, and to limit the impact such bans would have on its telcos. At the wake of the ban by the United States, Huawei employees had gone to produce alternatives to the American semiconductor parts. But that has not yielded the needed result because the semiconductor manufacturing takes time, and the US is ahead in the industry.
Christopher Ford, Assistant Secretary of State for International Security and non-proliferation, told reporters in May: “If one wants to be working in the area of the very best chips, the chips that have the most computing power packed into smallest space, it is necessary to use US design tools right now because we have a commanding comparative advantage in that area.”
Chinese companies could no longer use US design tools due to the trade agreement the two countries signed earlier in the year, which forbids China from stealing technology ideas from the US. Therefore, the situation has left Huawei’s survival hanging on the ability of China’s semiconductor companies to produce enough of the 5G infrastructural components.
China has a $1.4 trillion New Infrastructure initiative, designed to see a Chinese company lead globally in 5G roll out, and Huawei is at the center of it.
Recent apathy toward China sees the initiative falling apart and Huawei has been at the center of the controversy. As the US pressures its Western allies to cripple China’s 5G global leadership, as it would impact Western influence around the world, Huawei may find success in developing countries if the Chinese semiconductor industry ups its game.