SMIC’s mass production of wafers is imminent, and preferred shares have been subscribed by major funds, Qualcomm, and other three parties.

China's largest wafer foundry, SMIC, recently announced that the company, together with the National Integrated Circuit Fund and Qualcomm, has collectively invested US$280 million in cash to subscribe for preferred shares of SMIC ChangElectronics (Cayman). The company stated that this subscription will help expand the wafer production capacity of its joint venture subsidiary in Jiangyin and accelerate the pace of construction. Analysts pointed out that global wafer production capacity is increasingly concentrating in mainland China.

Under the share purchase agreement, SMIC Changdian (Cayman) has agreed to issue 467 million shares of Series B preferred stock. Among them, SMIC International, the National Integrated Circuit Fund, and Qualcomm have subscribed for amounts totaling US$160 million, US$100 million, and US$20 million, respectively. In addition, the issue price for this offering is US$0.60 per share, compared to the issue price of US$0.50 per share for SMIC Changdian (Cayman) Series A preferred stock on October 17, 2014.

Regarding the premium for this issuance, SMIC stated that the primary consideration was to accelerate the progress of production at SMIC ChangElectronics (Jiangyin). According to the introduction, SMIC ChangElectronics (Jiangyin) is an indirectly wholly-owned subsidiary of SMIC ChangElectronics (Cayman), jointly established in 2014 by SMIC and ChangElectronics Technology. This venture marked the first time that a domestic integrated circuit design company has achieved a manufacturing process encompassing in-house wafer fabrication, mid-stream packaging, and back-end FC flip-chip assembly within China. Currently, SMIC ChangElectronics has completed the commissioning of its production processes and product certification procedures, and is expected to begin mass production early next year while simultaneously developing a 14-nanometer manufacturing process.

In September, SMIC ChangElectronics secured investment from SMIC International, the National Integrated Circuit Industry Investment Fund, and U.S. company Qualcomm to accelerate the construction of its 12-inch wafer production line. Upon completion of this transaction, SMIC International will hold a 56.06% stake in SMIC ChangElectronics (Cayman), while the National Integrated Circuit Fund, ChangElectronics Technology, and Qualcomm will hold stakes of 29.41%, 8.65%, and 5.88%, respectively. Currently, ChangElectronics Technology plans to acquire assets by issuing shares and has suspended trading as of December 7. In addition to SMIC ChangElectronics, Tongfu Microelectronics also entered into a strategic partnership last year with Shanghai HuaHong Macro Semiconductor and Shanghai HuaLi Microelectronics in the areas of chip design, manufacturing, and advanced packaging and testing technologies, aiming to provide one-stop services.

“The National Integrated Circuit Fund will increase investment in advanced manufacturing processes, focusing on the IDM (Integrated Device Manufacturer) model,” said Luo Yuansi, an electronics analyst at Guojin Securities, in an interview with a reporter from Securities Times·Lianhua Finance. He added that wafer fabrication has yet to experience overcapacity, and the main trend is that global production capacity will increasingly concentrate in mainland China.

Gu Wenjun, chief analyst at Xinyou Semiconductor, expressed concern to a reporter from Securities Times·Lianhua Finance about overcapacity, noting that overall investment has now begun to slow down.

Recently, TSMC, Taiwan’s leading wafer foundry, plans to invest 3 billion U.S. dollars in Nanjing to build a 12-inch wafer fab with a planned production capacity of 20,000 wafers per month. UMC is jointly building a 12-inch wafer fab in Xiamen, and mass production is expected to begin around the end of the third quarter of 2016. Intel, Samsung, SK Hynix, and other companies are also investing in the construction of 12-inch wafer fabs on the Chinese mainland.

Global market research firm TrendForce estimates that in 2015, the revenue scale of Asia’s major wafer foundries will exceed US$36 billion, accounting for over 80% of the global wafer fabrication output value. In 2016, the revenue scale of Asia’s major wafer foundries is expected to reach US$40 billion. Analysts point out that as smartphone growth slows and personal computer shipments remain flat, wafer foundries’ profits and capacity utilization rates could be affected. Overall demand next year may not be strong, but it will still be driven by demand from Apple and Chinese IC design firms.

As an upstream player, China’s IC design industry is steadily climbing higher in the global semiconductor industry rankings. Leading Chinese IC design firm Spreadtrum Communications is expected to generate revenues exceeding 9 billion yuan in 2015, marking three consecutive years of 20% growth. Next year, the company will also launch 14/16-nanometer products, positioning itself for the 4G and 5G eras.

According to reports, after Unisoc and RDA were successively acquired by Tsinghua Unigroup, the combined chip shipments of the two companies have risen to among the top three globally. In particular, in the first quarter of this year, Unisoc surpassed MediaTek and jumped to second place worldwide in the 3G baseband market share.