Accelerating the deployment of storage chip business, SMIC Microelectronics plans to invest 160 million yuan to increase its capital in Zhuhai Boya.

Recently, Microchip Semiconductor (688380.SH) announced that, due to strategic planning considerations and the company’s need to accelerate the development of its storage chip business, it plans to invest 160 million yuan of its own funds to increase its stake in Zhuhai Boya Technology Co., Ltd. (hereinafter referred to as “Zhuhai Boya” or “Target Company”). After the transaction is completed, the company will hold a 20% stake in Zhuhai Boya. However, Zhuhai Boya has been in a loss-making state for three consecutive years with a gross profit margin below the industry average, which has also attracted market attention to this investment.

Microchip Semiconductor is a chip design company centered on MCUs (Microcontroller Units), dedicated to providing one-stop integrated solutions for intelligent control fields. Earlier this year, Microchip released its first SPI NOR Flash, officially entering the storage product market. The company stated that this investment in Zhuhai Boya is part of its efforts to further improve and enhance its industrial layout, aligning with its overall development strategy, and will help optimize its business structure and industry synergy.

Regarding the transaction pricing, according to the announcement, the valuation method and result for this deal were negotiated between the target company and the current round of investors, considering the current investment environment in the semiconductor primary market. The valuation also took into account the previous financing round’s valuation (pre-money valuation of 2 billion yuan), as well as the target company’s revenue, gross profit margin, and profit for three consecutive years from 2023 to 2025, along with forecasts for 2026, product R&D, and the synergistic benefits with the company. Based on these factors, the pre-investment valuation was set at 640 million yuan, with an investment of 160 million yuan for a 20% stake post-investment, resulting in a post-money valuation of 800 million yuan.

This also means that compared to the previous valuation, Zhuhai Boya’s pre-investment valuation has been discounted by as much as 68%. Regarding the reasons for the significant reduction in Zhuhai Boya’s valuation, a reporter from the Economic Information Daily contacted Microchip Semiconductor on March 23. An employee from the company’s securities department stated that these questions are not convenient to answer over the phone.

It is worth noting that Zhuhai Boya had applied for an IPO on the STAR Market in 2022. In March 2023, the company and its sponsor, China Merchants Securities, withdrew their application, and the Shanghai Stock Exchange terminated its review of the IPO. According to the prospectus and other application documents, institutional investors invested in Zhuhai Boya in August 2021. This was the last round of financing before its IPO, with a pre-investment valuation of about 2 billion yuan at that time.

The announcement shows that from 2023 to 2025, Zhuhai Boya’s product shipments are expected to be 692 million, 602 million, and 434 million units respectively, with corresponding revenues of 180 million yuan, 170 million yuan, and 197 million yuan. Its gross profit margins are -14.24%, 4.10%, and 12.39%, indicating ongoing losses. During the same period, the company’s operating cash flow was -64.93 million yuan, -46.78 million yuan, and -30.97 million yuan, while cash flows from financing activities were 16.62 million yuan, 52.19 million yuan, and 20.25 million yuan, mainly relying on financing to sustain daily operations. The company’s cash reserves continue to decline, and operational pressure remains high.

Despite the less optimistic financial data, Zhuhai Boya’s progress in technological accumulation and product structure optimization is still noteworthy. The announcement states that Zhuhai Boya was founded in 2014 by a team including overseas returnee PhDs. It specializes in R&D and design of storage chips such as NOR Flash (non-volatile flash memory). It is recognized as a national high-tech enterprise and a “Little Giant” enterprise specializing in niche and innovative technology. The founder, DI LI, previously worked at Micron Technology and FISO Semiconductor, and is a veteran expert in flash memory technology. The core technical team includes several professionals with over 10 years of experience in flash memory chip design, mass production, and marketing. Currently, the company has 118 employees, including 75 R&D personnel, accounting for 63.56%.

From a business perspective, Zhuhai Boya’s product structure has been continuously improving in recent years, with a decreasing proportion of mature process products and an increasing share of advanced process products. The proportion of 55nm/65nm products has decreased from 93.7% to 58.7%, while 50nm products increased from 6.3% to 35.9%. Starting in 2025, 40nm products will begin shipping, gradually shifting toward higher-end products. The company has also achieved breakthroughs in high-capacity products, successfully introducing 1Gb large-capacity products to the market, which have higher unit prices and gross margins. Additionally, inventory structure has improved, with high-priced inventory gradually cleared, helping to increase gross profit margins year by year.

Microchip Semiconductor stated in the announcement that by 2026, as the storage chip market recovers, Zhuhai Boya is expected to enter a period of rapid growth once it secures sufficient operating funds, with shipments, revenue, and gross profit margins likely to continue rising, achieving profitability.

However, Microchip also warned of the risks of investment not meeting expectations. The company indicated that if future industry changes, technological innovation, or product iteration fail to meet market demands, leading to a severe deterioration in the target company’s operations, it may need to recognize fair value loss under relevant accounting standards. Such losses would directly impact the company’s current profits.