Semiconductor Stock Frenzy Continues as Money-Losing Firm’s Shares Triple

Beijing’s drive for semiconductor self-sufficiency has propelled another money-losing company onto China’s stock market, with VeriSilicon Microelectronics Shanghai Co. Ltd. trading at over triple its offering price Thursday after listing earlier this week.

The Shanghai-based company’s shares were down 13% at end of trading on the city’s Nasdaq-like STAR Market Thursday, but the closing price of 128 yuan ($18.51) was up 232% on its offering price on continued strong investor interest.

That sentiment has been a boon for the dozens of semiconductor companies that have recently listed on the STAR Market. Two of the most high profile companies to ride this wave so far are Semiconductor Manufacturing International Corp. and Cambricon Technologies, both of which made strong debuts last month.

Like with VeriSilicon, Cambricon’s money-losing track record didn’t seem to worry investors, with its shares more than tripling in their first trading day. In 2019, Cambricon lost 1.2 billion yuan, up from 380 million yuan in 2017.

Founded in 2001, VeriSilicon makes money by selling chip designs to third party manufacturers, similar to U.K.-based giant Arm Ltd. While the British company has a 40.8% global market share, VeriSilicon is the seventh largest player with a 1.8% share, behind U.S. companies Synopsys and Cadence, which have 18.2% and 5.9% shares, respectively.

Over the three years to 2019, VeriSilicon reported annual revenues of over 1 billion yuan. However, amid heavy spending on research and development, the company lost money each year, though the losses did narrow as the period went on. It reported losses of 41 million yuan in 2019, down from 128 million yuan in 2017.

Due to the impact of Covid-19, the company predicted its net losses after deducting non-recurring gains and losses would come to up to 103 million yuan for the first six months, according to the prospectus it filed to Shanghai Stock Exchange.

Major VeriSilicon’s clients include NXP Semiconductors NV, Robert Bosch AB and Facebook Inc., according to its prospectus. Currently, a firm controlled by VeriSilicon’s founder Dai Weimin is the company’s largest shareholder with a 16% stake. VeriSilicon’s other investors include a fund affiliated to smartphone-maker Xiaomi Inc. and U.S. chipmaker Intel Inc.

Investor interest in VeriSilicon, despite its poor financials and lagging technology compared to global rivals, comes as they are betting that current industry trends will favor Chinese companies. Beijing is seeking to bolster the domestic industry and create new national champions in the face of growing U.S. semiconductor export restrictions, like those that threaten to bring Huawei Technologies Co. Ltd. to its knees.

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Companies in the sector are also feeling the benefit of China’s stock market, as the year-old STAR Market is the only board in the country that does not require profitability from listed companies.

Contact reporter Mo Yelin (yelinmo@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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