SMIC's Frustrations

Wang Ruichen in the past 9 years Smic (00981.HK) (hereinafter referred to as "SMIC") what exactly happened?　　Why would you go to "territory (200 million dollars in cash)" and the president out of the game today? Perhaps everyone is obscured by the surface of the core: high levels of expansion, continuous losses, and continuing lawsuits.　　In fact, there are other frustrations behind this. In fact, the development, experience and turbulence of SMIC in the past 9 years is a microcosm of the mainland's semiconductor industry.　　Although SMIC has passed "territory reparations" to settle the lawsuit, and Chang has resigned, but the development of the mainland semiconductor industry will not be calm. Vertical, Horizontal crazy expansion behind: Helpless choice from the IdM (that is, intelligent distribution management system) manufacturers of Texas Instruments out of the Chang, why the beginning of the choice of foundry mode?　　You know, when Huahong NEC was founded, it extended to the IDM model. Chang probably influenced by Chang, the old boss, TSMC's chairman. He thinks it is difficult for the mainland to take the IdM model, because the design, the product, the market is immature, the development cycle will be very long.　　At that time, there were only more than 80 mainland design companies, and no one had the scale effect, and to do the foundry, it was easier to get orders from overseas giants. The market seems to corroborate that judgment. Huahong NEC IDM mode after several twists and turns, now basically stranded.　　Only small companies such as Langley maintain the situation.　　However, the OEM mode of orders and technology transfer synchronization, almost equal to the "processing", easy to breed dependence, loss of initiative to innovate the independent ability. Take the memory chip foundry as an example. This product overseas blockade pine, technology evolution fast, short-term can enhance the process level, training staff.　　In just 9 years, it evolved to 65 nm. However, Chang realized that it was not possible to produce a wafer alone, otherwise it would be limited.　　The vertical integration of core in seal measurement, light cover (key material and equipment) and image sensor is the innovation of the industrial development mode of the mainland semiconductor generation. SMIC is one of the world's few light cover providers. Here's a story. There were 28 of them in the core, so they wanted to bypass the harsh technical restrictions and plan to do it themselves.　　The U.S. government, although verbally agreed to export equipment, but has been dragged on, about half a year later, SMIC found similar products in Sweden, the United States was helpless to release.　　But vertical layout action, it is easy to dilute by the horizontal expansion of the core, especially in Shanghai, Beijing, Tianjin, Shenzhen, Wuhan, Chengdu as the basis of the "diamond layout." In fact, this is not pure capacity expansion, but local resource integration. Chang said that, for example, Chengdu has water resources, talent advantages, surrounded by more than 80 design enterprises, close to customers. And Beijing, Tianjin, nearly 100, Shenzhen has about 100.　　But 9 years to open 5 factory, also brought depreciation pressure, dispersed talent and management resources. Sources say Chang is not without a rethink of horizontal expansion pressures. For example, he had been thinking for a long time before setting up a 12-inch plant in Beijing. At that time, Shanghai, Tianjin plant to make money, investmentBeijing may lose money, but there is no future without a vote.　　In fact, when the Shenzhen factory announced, many places such as Shandong, Heilongjiang and other areas are still trying to woo Smic to invest, but Chang that capacity is enough to not agree.　　Holding hands Datang: The long and long interests of the pain in the game core another embarrassment is that 9 years, investors have not made any money, including the real body is also "uncorrupted." When it landed in 2000, SMIC's shareholders included local governments, Taiwanese people, VC, and investment banking such as Goldman Sachs. The data obtained from CBN show that the first round, the investors injected 1.1 billion U.S. dollars, including the real, Beida Jade Bird and Zhangjiang Group about 140 million U.S. dollars; second round, the Beijing University microelectronics Hong Kong listed companies have a small amount of capital injection.　　This allowed SMIC to increase its initial capital to $1.4 billion trillion, plus 450 million of billions of dollars in loans, which soon built three plants in Shanghai. But after the IPO, the SMIC has been losing money, and the expansion has been too fast and capital pressure has been higher.　　However, because of the high cash flow, coupled with factory and equipment collateral, there are many syndicated "buy". But the 2007 situation has changed: SMIC's main business memory chip collapse, then give up, resulting in almost broken cash flow.　　This gives foreign private equity a chance to see the benefits. CBN has reported that at least 5 private-equity firms have looked for Chang, hoping to win half or all of their shares, and then return to the city to restructure and reopen the IPO.　　For a while, they kept a lookout overseas, saying that the equity ratio would be around 35%. Sources said Chang not willing to give private placement. They can help the SMIC in the short term, but it will lead to corporate unrest in the long run.　　Modacan, a semiconductor industry expert, says that if private equity gets a majority stake, SMIC faces a "color" change problem. But private-equity bids were high, and with SMIC Rising, overseas shareholders lobbied.　　If promised, shareholders could make short-term money but would bring down the industry, the person said. SMIC has not given up on seeking government support. At that time, CEC intended to inject capital.　　But when close to finalization, the United States was unreasonable to claim that CEC was related to the military, or restrictions on export licensing, resulting in CEC out. China Resources and Datang Holdings were involved. China Resources hopes to rename the core "Shanghai Huarun", the core does not agree, instead focus on and Datang talk. Datang in the upstream accumulation of TD, is a potential customer, in line with Chang adhere to the long-term strategic cooperation planning. Shanghai has also been trying to support SMIC. But local enterprises such as HUAHONG, macro-force itself needs to be integrated to reverse the adverse.　　In addition to the substantial shareholder in the adjustment period, not directly involved in the new capital injection. The talks with Datang dragged on for 9 months, with SMIC falling below HK $0.4 from HK $1. This led to the real transaction price is too low, datang at the cost of less than 200 million dollars in the core of nearly 17% of the shares.　　Some shareholders are said to have complained.　　Although the core has not sacrificed long-term interests, but the equity is still very dispersed. "Territory Indemnity" settlement agreement the short-term effect of industrial layout, strategy of the long-term strategy of capital, can not conceal the weakness of core technology, TSMC to its two consecutiveIt is not accidental. CBN has received an indictment from TSMC. Many of the details show the passivity of the SMIC.　　Although it has taken many counter measures to effectively expose rivals ' business strategy, it has not really reversed the passive situation.　　The final "territory reparations" towards reconciliation, but is an unexpected outcome.　　The source said that, in order to prove their innocence, SMIC has been a one-time material to TSMC every six months, but TSMC did not announce the details of the 2005 settlement agreement. SMIC believes that it has been cheated, in the US counterclaim, said the core executives look at the contract, found that the opponent has changed it, one of the last signed after the change has been changed two times. CBN obtained part of the trial record, the original charge of the SMIC is to the method of the long forgery instrument. SMIC has said to the CBN that there is evidence that the company believes the win is very good, but when it comes to stating favorable conditions, it is blocked by the courts. The reason is to sue later, the first to finish the current lawsuit. In fact, after losing a lawsuit, if you continue to counterclaim, at least until next spring.　　The executives say the "political climate" in the US has affected California's ruling. In fact, TSMC has no qualms about the central-core counterclaim, and it has been releasing a willingness to reconcile.　　Prior to the formal settlement, Goldman Sachs Gao issued a report saying that Chang said the mainland order has accounted for 3% of the company's income, hoping to settle the lawsuit peacefully.　　As for Chang's departure, the source said, in fact, three months ago, he was disheartened, initiation intention. TSMC has now changed its tone, saying Chang has made a contribution to the mainland semiconductor industry. The source revealed that, in fact, Chang still very much appreciate the old subordinate Chang, has been hoping that he will be effective for TSMC.　　CBN reporter learned that 10 years ago, when Chang still in Germany, the current TSMC acting CEO Zeng even sent him an invitation. Chang may find it hard to embark on a semiconductor foundry again. A few days ago, he disclosed to CBN that he was expected to make new energy.