Some Chinese Semiconductor Unicorns Are Overvalued, Investor Says
China’s booming semiconductor industry has created golden opportunities for private equity and venture capital investors, but some unicorns are significantly overvalued and don’t have any investment value, a private equity investor said.
Some semiconductor unicorns – startups worth more than $1 billion – have sky-high valuations based on PowerPoint presentations without any product, said Chen Datong, chairman of the investment committee of Suzhou Oriza Holdings Corp., Thursday at the 19th annual China Equity Investment Forum.
Investing in such companies is like pouring money into a trap, Chen said. He didn’t identify which startups he was referring to.
The booming industry benefits from China’s vast market, Chen said. China’s integrated circuit (IC) production soared to $37 billion in 2018 from less than $100 million in 2000, and is expected to grow to $45 billion in 2019.
But domestic production is far from enough to meet demand. IC production in China accounted for only 15.3% of the domestic market of $155 billion in 2018, according to market research firm IC Insights.
China has created an ambitious plan to produce 40% of the semiconductors it uses by 2020 and 70% by 2025. The plan has resulted in massive investment by the central government and spurred an enthusiastic response from private equity and venture capital investors.
China has said it plans to invest more than $160 billion over 10 years in boosting its domestic semiconductor production. The government established the China Integrated Circuit Industry Investment Fund, known as the “Big Fund,” in September 2014 to invest in and promote mergers and acquisitions in the semiconductor industry.
The Big Fund has helped the industry in two aspects that may be hard to achieve using private capital: the expansion of semiconductor processing capacity and the development of semiconductor memory, Chen said.
“In particular, long-term and high-investment projects, such as building factories, require state support and are difficult to rely on private funds alone,” Chen said. “Additionally, the Big Fund has also brought M&A opportunities both at home and abroad.”
Chen warned that semiconductor investment is a “deep water” area, with many risks. “Let the government to what governments do and the market do what markets do,” he suggested. For example, the government is good at building factories, so private investors should not get involved, he said.
Contact reporter Denise Jia (firstname.lastname@example.org)
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