On December 8, the Star Daily reported (reporter Ao Jin) that another star semiconductor project is set to be acquired.

Recently, Shenzhen Goodix Technology announced that it intends to acquire 100% of the shares of Yunyinggu Technology through the issuance of shares and cash payment, meanwhile the listed company plans to issue shares to no more than 35 specific investors to raise matching funds, with stocks resuming trading on December 9.

The acquisition target of Shenzhen Goodix Technology, Yunyinggu Technology, is a unicorn project in the primary market. According to public information, this display driver chip design company was established in 2012 and has completed nine rounds of financing to date, attracting numerous well-known investors including Xiaomi, Haibo, and BOE, with a current valuation of 8.5 billion yuan.

From an operational perspective, Yunyinggu Technology has also demonstrated strong market competitiveness. Third-party data shows that in the mobile AMOLED display driver chip sector, in 2023, Yunyinggu's total AMOLED display driver chip sales ranked fifth globally and first among suppliers in mainland China.

It is worth mentioning that in January 2023, Yunyinggu Technology made a push for an IPO and completed the listing guidance filing. However, no further listing-related updates have been reported since then, until now when the listed company announced it would be 'selling itself'.

A sudden 'sell-off'?

Shenzhen Goodix Technology first announced its intention to acquire Yunyinggu Technology on November 22.

At that time, shenzhen goodix technology stated that it had signed a "Share Acquisition Intent Agreement" with trading parties Gu Jing, Shenzhen Yishi No. 1 Enterprise Management Center (Limited Partnership), Shenzhen Yisheng No. 1 Enterprise Management Center (Limited Partnership), and Shenzhen Yisheng No. 2 Enterprise Management Center (Limited Partnership).

Gu Jing is the founder and actual controller of Yunying Valley Technology, while the aforementioned limited partnerships serve as the shareholding platforms for the founding team of Yunying Valley Technology. Public information shows that Gu Jing obtained both a bachelor's and master's degree from Tsinghua University and a doctoral degree from Harvard University. During the time spent in the U.S., he mainly engaged in ultra-high-resolution signal processing research; he returned to China in 2012 to establish Yunying Valley Technology and ventured into display driver chip entrepreneurship.

From the financing records, Yunying Valley Technology is quite favored by investors in the primary market. Since its establishment, Yunying Valley Technology has completed a total of 9 rounds of financing, with notable investors including Sequoia China, Qiming Venture Partners, and Aurora Mobile, as well as industry capital including Xiaomi Industrial Investment, Hubble Investment, Semiconductor Manufacturing International Corporation, BOE Technology Group and Qualcomm China. Additionally, investment platforms such as Guangdong Semiconductor and Integrated Circuit Investment Fund, National Development Bank's Science Innovation Fund, Shenzhen High-tech Investment, and Ceyuan Capital have participated in the financing of Yunying Valley Technology.

It is worth mentioning that Yunying Valley Technology officially announced that it completed its latest round of financing earlier in September this year, with Chengdu State-owned Capital Ceyuan Capital and Xiangfeng Investment being the investors in this round. The company's previous financing round was in May 2022.

According to a person close to Yunying Valley Technology interviewed by the Science and Technology Innovation Board Daily, external institutional shareholders were not informed in advance about the news that Yunying Valley Technology was about to be acquired, "They only learned about it when shenzhen goodix technology issued the announcement, which was quite sudden."

An investor in semiconductors expressed to the reporter that for new shareholders Xiangfeng Investment and Ceyuan Capital, the news of Yunying Valley Technology about to be "acquired" is not good news. "On the one hand, there is a significant time cost wasted during the investment process; on the other hand, from the perspective of investment returns, it would already be considered good if the last round of investors could recover their costs." They stated that if they had been informed of the company's intention to be acquired, the investment institutions would not have chosen to invest in the recent financing.

Another person in the semiconductor industry told the Science and Technology Innovation Board Daily reporter that mergers and acquisitions involving listed companies require information disclosure. If the symbol communicates with all shareholders in advance, it is easy to leak the message. "Moreover, in the case of a sudden acquisition like this, generally, the seller may hold some relevant contractual clauses, such as terms involving entrusted authorization, meaning that the company's valuation must reach a certain level to sell, requiring the shareholder's signature for consent."

From the latest announcement released by shenzhen goodix technology, it can be seen that this acquisition transaction involving Yunying Valley Technology involves a total of 56 shareholders behind the target company. The Science and Technology Innovation Board Daily reporter's incomplete statistics show that there are over 40 external institutional shareholders that have participated in multiple rounds of financing. Among the external institutional shareholders, Sequoia China and Qiming Venture Partners rank at the top in terms of shareholding.

A reporter from the Star Daily inquired about the specifics of the acquisition transaction from one of the external institutional shareholders of Aurora Mobile, but the other party declined the interview, citing being an insider information informant.

The competitive landscape of the industry is fragmented, with revenue increasing but profits not.

According to the announcement from Shenzhen Goodix Technology, Aurora Mobile's main business focuses on the research and development of display technology, specializing in the R&D, design, and sales of OLED display driver chips (DDIC).

In addition to receiving attention from numerous investors in the capital markets, becoming a unicorn valued at 8.5 billion yuan, Aurora Mobile has also achieved good results in its business.

According to CINNO Research data, in the field of mobile AMOLED display driver chips, Aurora Mobile ranked fifth globally in overall AMOLED display driver chip sales in 2023, ranking first among suppliers in mainland China. Additionally, it is expected that in 2024, the company will ship 55 million to 60 million OLED driver chips for brand mobile phones.

From the perspective of financial data, the information disclosed in the announcement from Shenzhen Goodix Technology indicates that Aurora Mobile has seen significant revenue increases in recent years, with total revenues of 0.552 billion yuan, 0.721 billion yuan, and 0.704 billion yuan respectively from 2022 to the first three quarters of this year. However, the company faces a situation of increasing revenue but not increasing profits, as the net income in the same period was -0.101 billion yuan, -0.258 billion yuan, and -0.162 billion yuan, indicating an expansion of losses.

An insider in the semiconductor industry stated to a reporter from the Star Daily that, in terms of scale, Aurora Mobile is a leading project in the niche field of display driver chips, but further added that the market structure in this field is quite fragmented, and the differences between companies are not obvious. "Domestic companies making DDIC have differences at a micro level, such as having OLED or LCD, but these are not essential differences, and there are quite a few manufacturers capable of producing these. There are already 5 or 6 companies in the market that have reached a certain scale. However, there are currently no domestic manufacturers capable of fully achieving high-end DDIC."

In the face of scattered competition from domestic and international peers, aggressive pricing has become a common strategy for manufacturers to seize the market, which may also explain why Aurora Mobile has experienced years of increasing revenue but not increasing profits. In fact, Gu Jing mentioned in a public speech their views on aggressive low pricing, stating that 'cheap' is a 'pseudo-issue' in the semiconductor industry, 'If there is volume, costs cannot be low; it may be sold cheaply, but selling cheaply means thin profits, and thin profits mean insufficient R&D investment; chips need to be developed generation after generation.'

Why did the star company give up its independent listing?

Whether it’s from the founding team’s background, valuation, or market position, Yunyin Valley Technology can certainly be considered a star project. The choice of a star project to abandon its independent listing and instead sell itself to a listed company undoubtedly raises curiosity in the market and many interpretations.

An industry insider in the semiconductor field told the Star Daily that under the current policy guidance, the chances of Yunyin Valley Technology achieving independent listing are quite small. "The current regulatory attitude is relatively clear, one is to change the fixed mindset that companies must aim for an IPO, and the second is that the secondary market is not very welcoming to inwardly competitive enterprises, even if these enterprises have good financial indicators."

Yunyin Valley Technology had also initiated a push for an IPO. In January 2023, the Securities Regulatory Commission disclosed the China International Capital Corporation's mentoring report on Yunyin Valley's initial public offering and listing. However, after that, there have been no new developments concerning Yunyin Valley Technology's IPO journey.

It is worth mentioning that during the same period, another star DDIC manufacturer, Jichuang North, had its IPO terminated. In March of that year, the company voluntarily withdrew its IPO application. Four months later, the Shanghai Stock Exchange issued three fines to Jichuang North, revealing that Jichuang North and its actual controller had committed violations such as false sales during the IPO application process.

From Gu Jing's public speech five years ago, it can be seen that the process of founding Yunyin Valley Technology went through many twists and turns. Initially, Yunyin Valley Technology was in the IP business. In Gu Jing's own words: "At first, after graduating from Harvard, I developed a technology, and I wanted to see if it could be brought to industry, whether in a company form or in a cooperative form, etc. all were possible." In 2016, Yunyin Valley Technology shifted from patent licensing to chip design.

Gu Jing also admitted in this public speech that at the beginning, there was no single-minded focus on entrepreneurship, "If I had been thinking about entrepreneurship from the start, I probably would have given up after doing it for two to three years because starting a business is not easy, especially for companies like ours that are B2B and are working with larger firms; it easily becomes exhausting. So it wasn’t really the goal at first. But precisely because I didn’t position myself at a very high level, or insist on how big we had to be, it allowed me to gradually improve, step by step manage the company better, communicate more effectively with clients, and progressively refine myself."

For Shenzhen Goodix Technology, acquiring Yunyin Valley Technology would help broaden its technology and product layout. Shenzhen Goodix Technology is a platform-based chip R&D and design company primarily focused on touch chips and fingerprint chips. The aforementioned semiconductor industry insider told the Star Daily that fingerprint recognition chips and driving chips are well matched, "one could even say they have strong synergy."

Shenzhen Goodix Technology stated in an announcement that with the advantage of Cloud Yinggu Technology in the field of Micro-OLED independent display driver chips, the company can achieve further coverage of global strategic customers and make proactive layouts in the AR/VR industry. Earlier, Gu Jing had mentioned that Cloud Yinggu Technology is working on a high-precision chip, "a very small chip, the entire screen is a chip, and this chip will be used in glasses in the future."

Currently, Shenzhen Goodix Technology has not yet determined the acquisition price of Cloud Yinggu Technology. An insider from the semiconductor industry told the Star Daily reporter that under the current market conditions, buyers in M&A transactions often push the price down significantly, which is a major reason why mergers and acquisitions are difficult to advance in practice. "There are actually quite a few negotiations, but very few are successfully concluded, primarily due to price issues."

He further stated that in recent years, there have indeed been cases of overvalued semiconductor projects in the primary market, "but there are also situations where buyers excessively push down prices. Listed companies hope to spend a few hundred million to acquire a symbol that would significantly raise the company's market cap by 20 to 3 billion yuan."

Compared to selling at a high stock price, external institutional shareholders behind semiconductor projects have expressed that achieving an exit through mergers and acquisitions is quite difficult. A person from a leading semiconductor industry investment firm told the Star Daily reporter, "Our attitude is very open; being able to exit is great, at least it allows us to recoup our costs with an annual yield. Everyone wants to exit now; no one is willing to wait for uncertain outcomes."