Recently, HKEx's official website shows that ENOPECO (Suzhou) Technology Co., Ltd. (hereinafter referred to as "ENOPECO") has submitted an IPO application, with China International Capital Corporation and CMB International serving as joint sponsors.
With the world's largest gallium nitride power semiconductor base, in 2023, ENOPECO's revenue ranks first among all gallium nitride power semiconductor companies in the world. As an industry leader, the company completed five rounds of financing before IPO, raised RMB 6 billion, valued at over RMB 20 billion. However, the financing cannot make up for the years of losses and huge R&D expenditures. Internally, ENOPECO urgently needs to expand its financing channels, and externally, the company also faces patent lawsuits from giants.
Valued at 23.5 billion yuan, more than 6 billion yuan in losses over the past three years.
Established in 2017, ENOPECO has the world's largest gallium nitride power semiconductor base, with a monthly capacity of 10,000 wafers. It is the world's first company to achieve mass production of 8-inch silicon-based gallium nitride wafers and the world's only company with industrial scale to provide full voltage spectrum of silicon-based gallium nitride semiconductor products.
Gallium nitride is a wide bandgap semiconductor with excellent switching performance, which can achieve smaller size, higher efficiency, and lower cost power systems. The products are applied in gallium nitride transistors for autos, datacenters, solar-powered motor drives, and consumer electronics products.
According to Frost & Sullivan, by revenue, ENOPECO ranks first among all gallium nitride power semiconductor companies in the world in 2023, accounting for 33.7% of the market share of the gallium nitride power semiconductor industry.
As an industry leader, ENOPECO has attracted many well-known capital investments, including Ningde Times Founder, Zeng Yuqun.
In January 2021, Ningde Times Founder, Zeng Yuqun, subscribed to ENOPECO's registered capital of RMB 75,045,400 with a personal investment of RMB 200 million. In April 2023, Zeng Yuqun transferred his registered capital to his spouse Hong Huacan without compensation. Currently, Hong Huacan owns a 1.78% stake.
It is worth mentioning that in 2023, Ningde Times became ENOPECO's largest customer, contributing RMB 190 million in revenue, accounting for 32.1% of the total revenue.
Since its establishment, ENOPECO has completed a total of five rounds of financing, with a total financing amount of RMB 6.034 billion. In April of this year, the company completed a Series E financing, and Wuhan Gaoke and Oriental Fortune Xing subscribed to 2.77% of the shares for RMB 650 million. The post-investment valuation of the company reached RMB 23.5 billion.
However, ENOPECO has not yet achieved profitability, and losses over the past three years have exceeded the total amount of the above five rounds of financing. The prospectus shows that from 2021 to 2023, ENOPECO recorded revenue of RMB 68.215 million, RMB 136 million, and RMB 593 million, respectively; and recorded net losses of RMB 3.399 billion, RMB 2.206 billion, and RMB 1.102 billion for each year.
For the reasons behind the continued losses, ENOPECO stated that they are mainly due to large depreciation of production equipment, huge R&D expenses, and continuous increase of sales and marketing expenses. During the reporting period, the company's sales and marketing expenses were RMB 28.4 million, RMB 69.3 million, and RMB 90.1 million, respectively; R&D expenses were RMB 662 million, RMB 581 million, and RMB 348 million, respectively.
ENOPECO stated that the decrease in R&D expenses is mainly due to the fact that ENOPECO progressed from the R&D stage to the large-scale production stage since the second quarter of 2022. During the reporting period, the company's production capacity utilization rates were 72.3%, 69.8%, and 71.8%, respectively.
In this IPO, ENOPECO plans to use 15% of the funds raised for R&D and expanding gallium nitride product portfolio; 50% of the funds raised for expanding 8-inch gallium nitride wafer production capacity; in addition, ENOPECO plans to expand distribution network, operation input, and other uses.
With years of losses and huge R&D expenditures, ENOPECO is facing significant funding pressure. As of the end of 2023, ENOPECO held cash and cash equivalents of RMB 329 million and outstanding loans of RMB 508 million.
Currently, ENOPECO's founder and chairman Luo Weiwei directly holds 5.9% of the shares and indirectly holds 23.1%, and through an agreement, controls an additional 5.47% of the shares held by the company's co-founders, totaling 34.48% of the company's shares.
Sued by Infineon and EPC for patent infringement, overseas business may be blocked.
The characteristic of the power semiconductor industry lies in the rapid development of technology and constant iteration. ENOPECO believes that its business depends on its patent protection.
By 2023, InnoSenTek has accumulated 213 patents, including 173 invention patents and 40 utility model patents, as well as 480 patent applications. Among the 15 main invention patents listed by InnoSenTek for the manufacturing and application of 8-inch gallium nitride wafers, the earliest authorization date was the end of 2021, and the latest will expire in January 2042.
InnoSenTek stated that due to the high cost and time-consuming nature of the application process, it cannot guarantee timely and cost-effective successful application for and acquisition of new intellectual property in the future. Although at present, InnoSenTek has no legal litigation involving any infringed intellectual property, it faces three lawsuits filed by competitors.
On March 14, 2024, Infineon's official website announced that it accused InnoSenTek of infringing on a US patent held by Infineon related to gallium nitride technology. The patent claims involve core aspects of gallium nitride power semiconductors, including innovative technologies that improve the reliability and performance of Infineon's proprietary gallium nitride devices.
Infineon stated that it will file a lawsuit against InnoSenTek and its affiliated companies through its subsidiaries. It has already filed a lawsuit with the Northern District Court of California and is seeking a permanent injunction.
According to the official website, Infineon was officially established in Munich, Germany on April 1, 1999, and its predecessor was the semiconductor department of Siemens Group. The company provides semiconductor and system solutions for automotive and industrial power devices, chip cards, and security applications. It is one of the world's leading semiconductor companies.
In October of last year, Infineon announced the completion of its acquisition of the gallium nitride system company GaN Systems Inc. The patent filed in this lawsuit may have come from the acquisition last year. At present, Infineon has 350 nitride-related same-family patents.
This is not the first time that InnoSenTek has encountered a patent lawsuit.
In May 2023, another GaN company, Efficient Power Conversion (EPC), filed lawsuits with the California District Court and the US International Trade Commission, requesting for compensation for infringement and hoping to prohibit InnoSenTek from selling GaN products that infringe on EPC's patents in the United States.
EPC accused InnoSenTek of infringing on its four patents, covering the core aspects of the design and mass production process of EPC's proprietary enhanced gallium nitride power semiconductor devices. EPC claimed that InnoSenTek's chief technology officer and sales director had worked for EPC before, and shortly after they joined InnoSenTek, InnoSenTek launched products with key performance indicators almost identical to EPC's. In addition, InnoSenTek also launched an aggressive marketing campaign, actively promoting its products to EPC's customers.
In response, InnoSenTek issued a statement on its official website, stating that there is a huge gap between EPC and InnoSenTek in terms of business scale, business scope and technological strength. The allegations of technical plagiarism imagined by a few employees who changed jobs were purely imaginative and had no factual basis.
Both Infineon and EPC lawsuits requested to prohibit InnoSenTek from selling relevant products in the United States. In the prospectus, InnoSenTek stated that if the judgment is unfavorable, it may face the risk of being prohibited from producing or selling involved products or being ordered to pay compensation.
At present, InnoSenTek's products are mainly sold in mainland China, but in recent years, the company has gradually expanded its overseas business. In 2023, the company's overseas sales revenue reached 58 million yuan, accounting for 9.8% of the total revenue in the same period.