Typesetting/Mung bean soup under the stars

On April 11, the China Semiconductor Industry Association issued a notice on the rules for the identification of the "country of origin" of semiconductor products, indicating that the place of tape-out is recognized as the country of origin. In the context of superimposed tariffs, the cost advantage of domestic chips is highlighted.

In the secondary market, the domestic chip sector collectively rose sharply. On April 11, NOVOSENSE (688052) and Siruipu (688536) both had a 20cm daily limit.

NOVOSENSE and SRP are both leading companies in the analog chip track. A few days ago, NOVOSENSE has just released its 2024 annual report, showing a significant increase of 49.53% in revenue, which is far better than SRP. However, whether it is NOVOSENSE or Siruipu, both increase revenue but not profits. Operate at a loss and be overwhelmed.

First, the peak of the industry has passed, and growth has been hindered

Founded in 2012, SRP focuses on analog chip design, adopts the Fabless business model (fabless model), and its products are mainly signal chain analog chips, and gradually expand to power management analog chips.

Signal chain analog chip refers to an integrated circuit that has the ability to transmit, receive, convert, amplify, and filter analog signals.

Power management analog chips are commonly used in the management, monitoring and distribution of power supplies for electronic devices, and their functions generally include: voltage conversion, current control, low dropout voltage regulation, power supply selection, dynamic voltage regulation, power switch timing control, etc.

According to the data of SRP's 2024 semi-annual report, signal chain analog chips accounted for 82.54% of its total revenue, and power supply analog chips accounted for 17.45%.

Source: Straight Flush-SRP 2024 semi-annual report data

Founded in 2013, NOVOSENSE is also based on the R&D and design of chips, wafer manufacturing, packaging and most of the testing are completed by outsourced manufacturers, and the packaging and testing of a small number of products are undertaken by the subsidiary Naxi Micro.

NOVOSENSE's main products cover three major product directions: signal chain, power management, and sensors, and its revenue in 2024 will account for 49.14%, 35.87%, and 13.98% respectively.

Source: Flush-NOVOSENSE 2024 annual report data

Downstream, SRP mainly covers information and communication, industrial control, security monitoring, automotive electronics and other fields.

NOVOSENSE is mainly for the fields of automobiles, pan-energy, and consumer electronics. Among them, the pan-energy field mainly refers to industrial applications around the energy system, including photovoltaic energy storage, modular power supply, industrial control, power electronics, white electricity, etc., accounting for about 50%.

Source: NOVOSENSE 2024 annual report

Around 2020, 5G entered the peak period of infrastructure construction, followed by the outbreak of new energy vehicles and photovoltaic industries. However, under the high prosperity, production capacity expansion and inventory backlog. The downturn in the industry also followed.

According to the data, in 2023, the revenue of SRP and NOVOSENSE will decrease sharply by -38.68% and -21.52% year-on-year respectively.

2024 will improve slightly, but not by much. According to the performance report, in 2024, SRP's revenue is expected to increase by 11.52% year-on-year to 1.219 billion, which is still far lower than the 1.783 billion in 2022.

Source: Straight Flush, SRP (left) and NOVOSENSE (right).

In contrast, NOVOSENSE has rebounded amazingly. In 2024, it will achieve revenue of 1.96 billion, a year-on-year increase of 49.53%, a record high. It's just that behind the high growth, it comes at the expense of profits.

Second, the inventory pressure has increased sharply, and the gross profit margin has declined

Since the market has cooled down in 2023, the inventory pressure of NOVOSENSE and SRP has increased significantly. In horizontal comparison, the inventory pressure of NOVOSENSE is significantly greater.

The inventory highs of NOVOSENSE and SRP both occurred in the third quarter of 2023, and as of the end of the period, the inventory of SRP was 429 million, while NOVOSENSE had reached 889 million.

Source: Straight Flush-Sirip

Source: Straight Flush-NOVOSENSE

There is not much difference in the revenue scale of NOVOSENSE and SRP. In 2022, NOVOSENSE's revenue will be 1.670 billion, which is even slightly lower than the 1.783 billion of SRP, but the inventory scale of NOVOSENSE is 2 times that of SRP, which shows the inventory pressure.

From the following data changes, it can also be seen that NOVOSENSE has indeed increased its efforts to clean up inventory. On the one hand, inventory decline, revenue growth (the decline in 2023 is not as large as SRP); On the other hand, gross profit margin has declined sharply.

In the context of destocking, the gross profit margin of SRP has also decreased from 58.61% in 2022 to 51.79% in 2023, and further decreased to 49.46% in the first three quarters of 2024.

The decline of NOVOSENSE is significantly greater. In 2022, the gross profit margin of NOVOSENSE will be 50.01%. As of 2024, the gross profit margin has dropped to 32.70%.

Source: Straight Flush-NOVOSENSE

So far, although NOVOSENSE has a higher revenue, its gross profit margin has been nearly 17 percentage points less than that of SRP.

3. High R&D investment, making ends meet

Overall, the industry is cold, SRP's revenue has shrunk, and the gross profit margin of NOVOSENSE has declined sharply. Although the performance was different, it produced a common result, a loss.

SRP and NOVOSENSE are chip design companies, and R&D level is the core competitiveness.

With the shrinking revenue, in 2023, the R&D expense ratio of SRP has reached 50%. In 2024, the revenue increased slightly, and the R&D expense ratio decreased slightly, but it was still as high as 46.43% in the first three quarters of 2024, resulting in a net profit margin of -11.64%.

As for NOVOSENSE, although with the growth of revenue, the R&D expense ratio has dropped to 27.55% in 2024. However, the gross profit margin is only 32.70%, which will cover R&D investment, and the overall net profit margin is -20.55%, which is seriously beyond its means.

Source: iFinD, SRP (left) and NOVOSENSE (right).

In essence, the downstream of SRP and NOVOSENSE are closely related to the prosperity of the communications, industry and automotive industries. Obviously, these industries have gone through the explosive growth stage from 0 to 1. This also means that it is difficult to reproduce the explosive growth in previous years.

However, from a positive point of view, the overall downstream market size is expanding, and the market demand for chips is increasing. Moreover, the semiconductor industry has recovered significantly in 2024 after experiencing overall weakness in 2023. Referring to NOVOSENSE's 2024 data, thanks to the increase in the market demand for automotive electronics and consumer electronics, the sales volume of its signal chain and power management products has increased significantly (the consolidated range of sensor products has changed, which is not comparable).

Source: NOVOSENSE 2024 annual report

But at the same time, there are two things to be aware of:

First, semiconductors are a typical cyclical industry, and now it has been nearly two years since the rebound, and we are wary of another cyclical downturn in 2025.

Source: iFinD

Second, although there is incremental demand in the downstream, the industrial chain has entered a very volatile stage. The gross profit margin of SRP and NOVOSENSE has fallen again and again, which is the most direct performance. With shrinking profit margins, R&D has become a big burden.

Note: This article does not constitute any investment advice. The stock market is risky, and you need to be cautious when entering the market. There is no harm in buying and selling.

Personal opinion, for reference only