Core views
The semiconductor industry has gradually recovered, the downstream customer inventory situation has improved markedly, the company's business situation has rapidly reversed, and the second-quarter results have improved significantly compared to the first quarter. The order order situation is good, and on-hand orders have remained high for three consecutive quarters. The company's three core processors, graphics processor IP, and video processors have been widely adopted by many well-known companies at home and abroad. The company continues to invest heavily in R&D to build competitive barriers, gradually advance Chiplet technology and industrialization, and bring flexible space for the company's future growth.
occurrences
The company released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 9.3.2 billion yuan, a year-on-year decrease of 21.27%, net profit to mother of 0.285 billion yuan, a year-on-year decrease of 1381.89%, after deducting non-net profit of 0.304 billion yuan, a year-on-year decrease of 14650.03%; 2024Q2 realized operating income of 0.614 billion yuan, a year-on-year increase of 92.96%, net profit to mother -0.078 billion yuan, down 182.95% year on year, up 62.40% month on month.
Brief review
The semiconductor industry gradually recovered, and Q2 performance improved significantly
Revenue of 0.614 billion yuan was achieved in Q2 2024, up 92.96% from the first quarter. Q2 The mass production business achieved revenue of 0.234 billion yuan, an increase of 125.00%; the chip design business achieved revenue of 0.193 billion yuan, an increase of 122.04% over the previous month; the intellectual property licensing fee business achieved operating income of 0.16 billion yuan, an increase of 60.60% over the previous month; and royalty revenue was 0.024 billion yuan, a decrease of 11.79% over the previous month. The new order situation is good. Ongoing orders have remained high for three consecutive quarters. At the end of the Q2 period, orders in hand were 22.7.1 billion yuan, and the conversion rate is expected to be about 81% within one year, providing a strong guarantee for the company's future revenue growth. Among them, new orders for the company's mass production business quickly recovered and remained at a high level. The total number of new orders signed in the past three quarters was 0.756 billion yuan, a sharp increase of more than 400% over the first three quarters of 2023, where the impact of the inventory removal cycle was obvious.
Computing power-related IP revenue is relatively high. The three types of core processor IPs are widely used. The company's IP series of processor products can meet diverse artificial intelligence computing needs. In the first half of the year, the company's intellectual property license revenue related to AI computing power was 1.2.2 billion yuan, accounting for 47.22% of intellectual product licensing fees. Among VeriSilicon's core processor IP-related revenue, graphics processor IP, neural network processor IP, and video processor IP accounted for relatively high revenue. The three types of IP will account for relatively high revenue in the first half of 2024 Semiconductor IP licensing accounts for about 70% of total revenue, and VeriSilicon's built-in GPU customer chips have shipped nearly 2 billion units worldwide; VeriSilicon Neural Network Processor (NPU) IP has been used by 72 customers in their 128 artificial intelligence chips, and artificial intelligence (AI) chips incorporating VeriSilicon NPUIP have shipped more than 0.1 billion globally; and VeriSilicon Video Processor (VPU) IP has been used by 3 of the top 5 Internet companies in China and the top 20 largest clouds in the world Adopted by 12 of the platform solution providers.
Continued high R&D investment creates competitive barriers, and gradually promotes Chiplet technology and industrialization companies to insist on continuous high R&D investment to create high competitive barriers to ensure that the company has leading chip design and technology R&D capabilities in the field of semiconductor IP and chip customization. The overall R&D investment from January to June 2024 was 0.569 billion yuan. R&D investment accounted for 61.03% of revenue, an increase of 23.71 percentage points over the same period last year. VeriSilicon has helped customers design high-end application processors based on the Chiplet architecture, using MCM advanced packaging technology to combine a high-performance SoC with multiple IPM memories; helped the customer design a 2.5 dCOWOS package for high-computing power AIGC chips; designed and developed a UCIE/Bow compatible physical layer interface for DietoDie connections; and has collaborated with Lan Yang Intelligence, an industry leader in Chiplet chip solutions, to provide them with a variety of cores including GPGPU, NPU, and VPU The original processor IP helped it deploy a high-performance artificial intelligence chip based on the Chiplet architecture. The chip targets applications such as data centers, high-performance computing, and automobiles. The company is also actively promoting the development of chip design platforms using the Chiplet architecture for AIGC and automotive advanced driver assistance system (ADAS) applications based on its own general-purpose graphics processor (GPGPU) IP, NPUIP, and UCIe physical layer (PHY) technologies.
The semiconductor industry gradually recovers, and the industrialization of computing power and Chiplet will bring flexible space. We expect 2024-2026 revenue of 2.5/3.2/4.192 billion yuan, a year-on-year increase of 6.93%, 28.00%, and 31.00%, net profit to mother -0.214/0.006/0.14 billion yuan, EPS is -0.43/0.01/0.28 yuan/share, corresponding to PS 6X in 2024. With the recovery of the semiconductor industry, the company's IP revenue related to computing power With the gradual increase, Chiplet has accelerated the implementation of the industry, and the company's Q2 revenue has improved markedly. Currently, PS is undervalued compared to similar overseas companies. Considering that VeriSilicon is the leader in domestic IP, the company's market share is low and future growth is obvious, so we gave it a “buy” rating.
Risk analysis
1. Risk of R&D failure or failure to obtain customer approval for products or services. Whether the company can successfully carry out R&D activities and form products or services that meet customer needs plays an important role in its normal operation and even achieving continuous profits in the future. The risks faced by the company's R&D activities mainly include the risk that the R&D direction is inconsistent with the future development direction of the industry, the risk of integrated circuit design and development, and the risk of technology upgrades and iterative risks.
2. Technology licensing risk and iteration risk. The company's semiconductor IP and EDA tool suppliers are mainly Synopsys and Kengteng Electronics. If these suppliers all stop licensing technology to the company due to drastic changes in the international political and economic situation or other force majeure factors, it will adversely affect the company's operations. The company may not be able to continuously obtain an advanced position in the development and application of new technology, or the application of a new technology will cause the company's existing technology to be replaced, which will lead to a decline in the company's industry position and market competitiveness, thereby adversely affecting the company's operations.