Huahai Qingke’s 14nm machine is undergoing verification.Xinxi Dongxi reported on June 17 that today, Huahai Qingke Co., Ltd. (hereinafter referred to as "Huahai Qingke") passed the Shanghai Stock Exchange Science and Technology Innovation Board meeting. It can be seen from the meeting draft that Huahai Qingke’s main business is CMP (Chemical Mechanical Polishing) equipment, and it is currently the only domestic manufacturer that can provide 12-inch CMP commercial models for semiconductors. CMP equipment is a key process technology necessary for advanced integrated circuit manufacturing front-end processes, advanced packaging and other links. If the manufacturing of chips is compared to the construction of a house, then each floor must be very flat before another floor can be built on top. Otherwise, it will be uneven and affect the overall performance of the chip. The key to making the chip "building" flat is CMP technology, which is also the key to the transistor process reaching the nanometer level. Huahai Qingke's products can cover 8-inch (200mm) and 12-inch (300mm) wafer production lines. They are an important part of domestic substitution in the semiconductor supply chain. They have been used in the chip production lines of SMIC, Yangtze Memory, Huahong Group, Intel and other manufacturers. In this IPO, Huahai Qingke plans to raise 1 billion yuan, of which the CMP equipment industrialization project will account for 350 million yuan, the high-end semiconductor equipment research and development project plans to invest 200 million yuan to raise funds, the wafer regeneration expansion and upgrading project will occupy 150 million yuan, and the remaining 300 million yuan will supplement Huahai Qingke's liquidity. During the reporting period, Huahai Qingke's revenue grew rapidly, with total revenue in 2017 reaching 19.18 million yuan and reaching 386 million yuan in 2020. Currently, Tsinghua University is the actual controller of Huahai Qingke, accounting for 37.58% of the shares. The chairman is Lu Xinchun, a professor and doctoral supervisor at Tsinghua University. Tsinghua University also made a commitment in the meeting draft that as an administrative institution, it will not directly engage in business activities.

▲Huahai Qingke Equity Structure

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  01 .   Single-year revenue reached 386 million, and net profit turned loss into profit  

The meeting draft shows that from 2018 to 2020, Huahai Qingke’s revenue increased by more than 100 million yuan, and its net profit in 2020 was also close to 100 million yuan. Huahai Qingke’s total revenue from 2018 to 2020 was 35.66 million yuan, 211 million yuan and 386 million yuan respectively. In terms of net profit, Huahai Qingke’s net profits from 2018 to 2020 were -35.71 million yuan, -154 million yuan and 98 million yuan respectively.

▲Changes in Huahai Qingke’s revenue and net profit from 2018 to 2020

According to the official website of Huahai Qingke, the company was established on April 10, 2013; in March 2016, Huahai Qingke’s first 12-inch CMP equipment Universal-300 passed the acceptance of SMIC. The meeting draft mentioned that Huahai Qingke completed the development of the 8-inch CMP equipment Universal-200 in 2017 based on the 12-inch CMP equipment. In the same year, this model of equipment entered the client and completed acceptance. In 2020, Huahai Qingke successfully developed the 12-inch thinning equipment Versatile-GP300. Currently, Huahai Qingke’s equipment is mainly divided into 300 series and 200 series. The 300 series equipment is mainly used in 12-inch chip production lines, and the 200 series equipment is used in 8-inch production lines.  According to statistics, 300 series equipment is the main product of Huahai Qingke. In 2020, the sales amount of 300 series equipment accounted for 88.91% of total revenue, and the 200 series accounted for 2.64%. Materials and technical services accounted for 8.45%; from 2018 to 2020, the sales of 300 series equipment accounted for 89.01%, 92.39% and 88.91% of Huahai Qingke's revenue respectively.

▲Huahai Qingke’s business revenue share in 2020

  02 .   Breaking the monopoly of 12-inch CMP equipment by Appliance Materials and Ebara  

From the perspective of the global CMP equipment market, Applied Materials of the United States and Ebara of Japan are the leading players in the industry. According to data from the US market research company Gartner, the global CMP equipment market size will reach US$1.63 billion in 2020, and Applied Materials and Japan's Ebara companies account for about 90% of the market share. As far as domestic CMP equipment manufacturers are concerned, there are Huahai Qingke, Beijing Shuoke Jingwei Electronic Equipment Co., Ltd., and China Electronics Technology Group Corporation 45th Research Institute, etc. Currently, Huahai Qingke is the only equipment manufacturer to achieve mass production and sales of 12-inch series CMP equipment. In the domestic market, Huahai Qingke has begun to challenge the market shares of Applied Materials of the United States and Ebara of Japan.  According to data from the China International Tendering Network, Yangtze Storage, Huahong Wuxi, Shanghai Huali Phase I and II Projects and Shanghai Jita tendered for a total of 38 CMP equipment in 2019. Huahai Qingke won the bid for 8 units, accounting for 21.05%; 202 From January to September 2000, the above-mentioned projects and companies tendered for a total of 68 CMP equipment. Huahai Qingke won the bid for 28 units, accounting for 41.18%; the remaining 12-inch CMP equipment orders were obtained by Applied Materials of the United States and Ebara of Japan. In terms of customers, due to the technology-intensive and capital-intensive nature of the semiconductor industry, Huahai Qingke’s customers are relatively concentrated. In 2018, 2019 and 2020, Huahai Qingke's top five customers accounted for 99.09%, 94.96% and 85.71% respectively. Specifically, SMIC has been Huahai Qingke’s top five customers since 2017, and Huahong Group has been its top five customers since 2018. In 2020, Yangtze Memory's sales amounted to 128 million yuan, accounting for 33.22% of Huahai Qingke's revenue in the same period. Huahong Group, SMIC, Ruili Integrated Circuit Co., Ltd., and Zhejiang Chituo Technology Co., Ltd. are the remaining top five customers of Huahai Qingke.

▲Top five customers of Huahai Qingke from 2018 to 2020

Among them, Yangtze Storage, Huahong Group and Huahai Qingke are related. Yangtze Memory is another company controlled by Tsinghua Holdings; Zhang Guoming, general manager of Huahai Tsingke, serves as an outside director at Huahong Group. In terms of raw material and device procurement, Beijing Jintongchang Precision Machinery Equipment Co., Ltd. has always been Huahai Qingke’s largest parts supplier. From January to June 2020, Huahai Qingke's purchase amount from the company was 41.6267 million yuan, accounting for 18.29% of the total purchase amount.

▲Top five suppliers of Huahai Qingke from 2018 to 2020

  03 .   135 million invested in 3 years, the chairman is the world’s top expert in CMP equipment  

A large part of the reason why Huahai Qingke has been favored by semiconductor manufacturers such as SMIC, Huahong Group, Yangtze Memory, and Dalian Intel is due to its relatively leading domestic technical strength. Huahai Qingke’s core technical personnel include 8 people including Chairman and Chief Scientist Lu Xinchun, Deputy General Manager Wang Tongqing, and a total of 125 R&D personnel, accounting for 32.98% of the company’s total employees. Lu Xinchun is the chief scientist of Huahai Qingke and the company’s leader in technology and product research and development. He has accumulated more than 100 authorized national invention patents and once took the lead in drafting a corporate product standard. As of December 31, 2020, Lu Xinchun has published 86 CMP-related SCI papers, with each article cited more than 10 times on average. He ranks among the top three technical experts in the field of CMP equipment in the world, and is also the expert with the most authorized patents for CMP equipment technology in the world.

▲Lu Xinchun, Chairman and Chief Scientist of Huahai Qingke

In the past three years, the company's R&D investment totaled 135 million yuan, accounting for 21.33% of its revenue in the same period. With such investment in R&D, Huahai Qingke has accumulated 173 authorized patents. According to the meeting draft, Huahai Qingke has many key core technologies such as nano-level polishing, nano-precision film thickness online detection, nano-particle ultra-clean cleaning, big data analysis and intelligent control, and ultra-precision thinning.

▲Evaluation of key technologies and level of Huahai Qingke products

In addition, Huahai Qingke also undertook the National Science and Technology 02 major project "Industrialization of 28-14nm Polishing Equipment, Processes, and Supporting Materials". Its "CMP Polishing System Research and Development and Whole Machine System Integration" project was successfully accepted in June 2020, and relevant scientific and technological achievements have been industrialized. At present, Huahai Qingke has the equipment to verify the 14nm production line on the client side, and may soon realize the domestic replacement of 28-14nm CMP equipment.  
  04 .   Tsinghua University is the actual controller  

According to the meeting draft, Tsinghua University is the actual controller of Huahai Qingke, holding 37.58% of the company's shares; Chongjin Houde is the second largest shareholder, owning 10.24% of the company's shares; Chairman Lu Xinchun is the third largest shareholder, holding 7.93% of the company's shares. Other shareholders holding more than 5% of Huahai Qingke include Kehai Investment and SDIC Fund, which hold 7.43% and 6.35% of the company's shares respectively.

▲Top 10 shareholders of Huahai Qingke

  05 .   Conclusion: Huahai Qingke’s listing may accelerate technological progress, but still needs to face fierce competition  

As the global semiconductor shortage becomes increasingly serious, countries such as Europe and the United States have regarded the semiconductor supply chain as an important part of national security. With the gradual advancement of the US Semiconductor Incentive Act, semiconductors have also become a major area of ​​national competition.

Against this background, it is of great significance to ensure the security and controllability of my country's semiconductor supply chain. Huahai Qingke has independent intellectual property rights for 12-inch CMP equipment. If it can be successfully launched, its research and development funds will be more abundant, which may accelerate its technological development. On the other hand, the CMP equipment of Applied Materials of the United States and Ebara of Japan has reached the 5nm process level, and its technology is ahead of Huahai Qingke. In the gradually consolidating semiconductor market, even if Huahai Qingke successfully goes public, it will still face greater competitive pressure. Whether it can break the monopoly of giants in the future remains to be seen.

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