Source: Times Business Research Institute

Author: Sun Huaqiu

Edited by Han Xun

[Introduction].

On the evening of March 25, Fudan Microelectronics (688385. SH) disclosed its 2024 annual report. The annual report shows that in 2024, Fudan Microelectronics' operating income will increase slightly by 1.53% year-on-year, and the net profit attributable to the parent company will decrease by 20.42% year-on-year, showing a trend of increasing revenue but not increasing profits.

Fudan Microelectronics said in its annual report that in 2024, the company's product lines faced fierce market competition, and the company adjusted the sales prices of some products in a timely manner to consolidate or expand market share, and the sales volume and operating income increased, but the gross profit margin declined.

In addition, in 2024, due to the increase in accounts receivable and the impairment of inventory decline, the total credit impairment loss and asset impairment loss of Fudan Microelectronics increased by more than 67 million yuan year-on-year, further eroding profit margins.

From March 24th to 25th, on product price adjustment, accounts receivable bad debt risk and other related issues, Times Business Research Institute sent a letter to Fudan Microelectronics and called to inquire, and the staff said on the phone that the relevant information can be paid attention to the company's annual report.

[Summary].

1. The price war is heating up and profitability is declining. In 2024, despite the overall recovery of the semiconductor industry, Fudan Microelectronics' performance is not satisfactory, and the net profit attributable to the parent company will decline by 20.42% year-on-year. Affected by the decline in prices and changes in product sales structure, the gross profit margin of many of Fudan Microelectronics' main products declined year-on-year.

2. Accounts receivable increased by more than 60% year-on-year, and we should be alert to the risk of bad debts. At the end of 2024, the total balance of accounts receivable and notes receivable of Fudan Microelectronics reached 1.867 billion yuan, accounting for 52.01% of the current operating income, an increase of 13.78 percentage points from 38.23% at the end of 2023. Among them, the balance of accounts receivable of Fudan Microelectronics was 1.561 billion yuan, a year-on-year increase of 63.74%, far exceeding the revenue growth rate in the same period.

3. Pay attention to the volume of new products and explore new growth paths. In the recovery stage of the semiconductor industry, Fudan Microelectronics is seeking to continue to deepen its cultivation in cutting-edge fields such as digital economy, artificial intelligence, and new energy vehicles through the two-wheel drive strategy of "technological breakthrough + scenario penetration", so as to create a new performance growth pole. At present, Fudan Microelectronics' 1xnm FPGA high-end chip products have achieved small-scale mass production, and accelerated the deployment of AI converged architecture chips and automotive chips. It is recommended that investors continue to pay attention to the mass production progress of Fudan Microelectronics' 1xnm chip products, the introduction of AI converged architecture chip customers, and the expansion of the new energy vehicle supply chain.

[Text].

First, the pressure of the price war is prominent, and the increase in revenue does not increase profits

In the semiconductor industry, Fudan Microelectronics focuses on integrated circuit design in the Fabless mode, and has built a rich and diversified product line, covering security and identification chips, non-volatile memory, smart meter chips, FPGA chips and other fields, and occupies a place in the market with its extensive product coverage.

In 2024, after nearly two years of adjustment, the semiconductor industry will usher in a strong recovery, and many listed semiconductor companies, including industry giants, have issued announcements on the performance of their annual reports. For example, GigaDevice (603986. SH) is expected to increase revenue by 27.57% year-on-year in 2024, and net profit attributable to the parent company will increase by 576.43% year-on-year; Weir shares (603501. SH) is expected to increase revenue by 20.87%~22.78% year-on-year in 2024, and net profit attributable to the parent company will increase by 467.88%~503.88% year-on-year.

From the perspective of the development of the chip design industry, according to the data of the China Semiconductor Industry Association, the industry-wide sales of China's chip design industry are expected to reach 646.04 billion yuan in 2024, a year-on-year increase of 11.9%.

However, in a favorable industry environment, Fudan Microelectronics has delivered an unsatisfactory answer.

According to the annual report, in 2024, Fudan Microelectronics' operating income will be 3.590 billion yuan, a slight increase of 1.53% year-on-year; The net profit attributable to the parent company was 573 million yuan, a year-on-year decrease of 20.42%.

It is worth mentioning that this is the second consecutive year that the net profit attributable to Fudan Microelectronics has fallen by more than 20% year-on-year.

Looking back at 2022, Fudan Microelectronics' net profit attributable to the parent company hit a record high, reaching 1.077 billion yuan. Subsequently, in 2023, affected by the downturn in the industry's prosperity, Fudan Microelectronics' net profit attributable to the parent company fell sharply to 719 million yuan, a year-on-year decrease of 33.18%.

In the annual report, Fudan Microelectronics explained that in 2024, the company's various product lines are facing fierce market competition, the company actively expands new products and new markets, and adjusts the sales prices of some products in a timely manner according to the market situation to consolidate or expand market share, and the sales volume and operating income have increased. However, due to the decline in product sales prices and the adjustment of product structure, the company's comprehensive gross profit margin decreased by 5.26 percentage points year-on-year to 55.95% during the reporting period.

Specifically, in 2024, the sales volume of Fudan Microelectronics' security and identification chips will increase by 29.26% year-on-year, the sales volume of memory chips will increase by 55.85% year-on-year, the sales volume of smart meter chips will increase by 72% year-on-year, and the sales volume of FPGA and other products will increase by 37.1% year-on-year.

Affected by the decline in prices and changes in product sales structure, the gross profit margins of Fudan Microelectronics' security and identification chips, smart meter chips, FPGAs and other products decreased by 5.27, 3.33 and 9.09 percentage points year-on-year, respectively. However, the gross profit margin of memory chips increased slightly by 0.87 percentage points year-on-year.

At the same time, at the end of 2024, the carrying value of Fudan Microelectronics' inventory was as high as 3.134 billion yuan, and due to the impact of price competition, the net realizable value of some products in the inventory declined, and Fudan Microelectronics recorded an asset impairment loss of 169 million yuan at the end of the period, an increase of 35.2486 million yuan year-on-year, and the increase in the balance of accounts receivable from customers in the highly reliable field also caused Fudan Microelectronics to provide credit impairment losses of 45.6763 million yuan, an increase of 32.0457 million yuan year-on-year. The double increase in asset impairment and credit impairment losses further compressed the profit margin of Fudan Microelectronics.

It can be seen that in the fierce competitive environment of the industry price war, Fudan Microelectronics adopted a price reduction strategy in exchange for scale expansion. Although this move has increased Fudan Microelectronics' revenue, its profitability has also come under pressure.

It should be noted that the rapid rise in accounts receivable has also brought new challenges to Fudan Microelectronics.

According to the financial report, at the end of 2024, the total balance of accounts receivable and notes receivable of Fudan Microelectronics reached 1.867 billion yuan, accounting for 52.01% of the current operating income, an increase of 13.78 percentage points from 38.23% at the end of 2023. Among them, the balance of accounts receivable of Fudan Microelectronics was 1.561 billion yuan, a year-on-year increase of 63.74%, far exceeding the revenue growth rate in the same period.

At a time when profitability is declining, Fudan Microelectronics' accounts receivable have risen sharply, indicating that its sales collection is under pressure. This not only pushes up the capital turnover cost of Fudan Microelectronics, but also hides the risk of bad debts, which will have a certain adverse impact on its financial health.

2. Pay attention to the volume of new products and explore new growth paths

In the recovery stage of the semiconductor industry, Fudan Microelectronics is seeking to continue to deepen its cultivation in cutting-edge fields such as digital economy, artificial intelligence, and new energy vehicles through the two-wheel drive strategy of "technological breakthrough + scenario penetration", so as to create a new performance growth pole.

Fudan Microelectronics said in its 2024 annual report that in the volatile market environment, the company has maintained a slight increase in revenue in 2024, and will actively embrace changes and continue to optimize its strategic layout in 2025.

In terms of R&D, in 2024, Fudan Microelectronics' R&D investment will be 1.142 billion yuan, accounting for 31.80% of revenue, and the funds will be mainly used for the development of advanced process products such as FPGA chips and artificial intelligence reconfigurable chips (FPAI), as well as diversified process layout, aiming to enrich product types, meet more application fields, and effectively expand the application boundaries of Fudan Microelectronics' products.

As a leading company in the field of FPGA in China, Fudan Microelectronics is facing the technical blockade and price competition of the overseas giant Xilinx. However, thanks to the continuous high R&D investment, Fudan Microelectronics has been able to launch four series of products, including FPGA chips at the gate level of 10 million, gate at the gate level and at the gate level of 1 billion, as well as embedded programmable device chips (PSoC), which are widely used in many key fields such as communications, industrial control, and data centers.

It is worth mentioning that Fudan Microelectronics' 1xnm FPGA high-end chip products have achieved small-scale mass production and are expected to contribute incremental revenue in 2025.

According to the research announcement in February, Fudan Microelectronics has completed sample testing of the new generation of FPGA chip products and intelligent reconfigurable chip products based on the advanced process of 1xnmFinFET, and has been sold in small batches to some customers, and simultaneously promoted yield improvement and product pedigree.

In response to the impact of the price increase of overseas FPGA manufacturers, Fudan Microelectronics said that some products of overseas FPGA manufacturers represented by Xilinx have indeed increased in price, but at present, the prices of domestic FPGA manufacturers are generally stable, and the company is mainly used in high-reliability fields, and the correlation with the price changes of overseas manufacturers' products is weak.

Talking about the application of FPGA series products in the field of AI, Fudan Microelectronics revealed to the research institutions that PSoC using CPU+FPGA+AI, CPU+FPGA+GPU+AI, CPU+FPGA+ADC and other converged architectures will become an important development direction for the industry. Among the company's existing products, PSoC, an embedded programmable device using 28nm CMOS process, has good applications in application scenarios such as video, industrial control, security, AI, and high reliability. The company's reconfigurable chips for artificial intelligence applications that converge field programmable (FPGA) and artificial intelligence have also been shipped.

In addition, with the rapid development of the new energy vehicle industry, the scale of the automotive chip market continues to expand, and Fudan Microelectronics is also making efforts in this field.

According to the annual report, in 2024, Fudan Microelectronics' new generation of automotive-grade MCUs will complete tape-out and assessment, and a number of customers will complete the fixed-point and start small-scale mass production. At the same time, in the second half of 2024, Fudan Microelectronics also obtained automotive ASIL-B certification for two product series. Thanks to its early layout in the field of automotive electronics, Fudan Microelectronics' shipments of automotive MCUs will increase significantly in 2024, and its sales volume in the field of automotive electronics has exceeded 10 million.

Times Business Research Institute believes that Fudan Microelectronics has consolidated its advantages in FPGA technology through high R&D investment, and at the same time accelerated the layout of AI converged architecture chips and automotive specification chips. It is recommended that investors continue to pay attention to the mass production progress of 1xnm products, the introduction of AI fusion architecture chip customers, and the expansion of the new energy vehicle supply chain.

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