Caixin
Jun 29, 2021 08:41 PM
BUSINESS & TECH

Chinese CPU Designer Loongson Wants to Raise $500 Million in STAR Market IPO

Home-made chip Godson 3 on display at the second Fuzhou Digital China Construction Achievement Exhibition on May 7, 2019. Photo: VCG
Home-made chip Godson 3 on display at the second Fuzhou Digital China Construction Achievement Exhibition on May 7, 2019. Photo: VCG

Loongson Technology Corp. Ltd. filed Monday for an IPO on Shanghai’s Nasdaq-style STAR Market, as the central processing unit (CPU) designer looks to raise 3.5 billion yuan ($544 million) amid a government drive to cut reliance on overseas technology suppliers.

The proceeds from the IPO will be used for the research and development of chips and graphics processing units and for replenishing its working capital, according to the company’s prospectus (link in Chinese).

Companies in China’s semiconductor sector are benefiting from the government’s goal of technological self-reliance in the wake of U.S. sanctions that have imperiled the nation’s access to certain high-tech imports.

Loongson’s prospectus claims its newest CPU, unveiled in late 2020, is gaining ground on those produced by global giants Intel Corp. and Advanced Micro Devices, Inc. (AMD). The privately-owned company’s products are being used by large state-owned enterprises, government departments and research institutions in areas including public services, energy and telecommunication, it said.

In 2020, the Shanghai-based firm’s operating revenue was 1.1 billion yuan, more than twice that in the previous year, while net profit attributable to shareholders dropped to 72 million yuan from 193 million in 2019.

Loongson is one of the few domestic CPU designers with independent knowhow, it said in the prospectus. The Chinese CPU market is dominated by Intel and AMD, and domestic CPUs are used in less than 0.5% of the country's servers and PCs, Geng Junjun, an analyst at Guoyuan Securities Co. Ltd. wrote in a note last month, citing data from think tank EqualOcean Intelligence.

Other major domestic CPU designers include Phytium Technology Co. Ltd. and Huawei-backed HiSilicon Technologies Co. Ltd.

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The Chinese government has been supporting Loongson through subsidies, tax breaks and state purchases as part of a suite of policies to boost the domestic semiconductor industry. In 2019 and 2020, subsidies included in current income were 91.9 million yuan and 28.8 million yuan respectively, accounting for 44.9% and 29.9% of the total profit each year, according to the prospectus.

In 2018, Beijing announced (link in Chinese) that government offices would buy PCs and servers equipped with Loongson CPUs.

Analysts expect an increasing number of government computers to be equipped with domestic hardware and software, expanding the market for Chinese enterprises. In 2018, Ni Guangnan, an academician of Chinese Academy of Engineering, estimated (link in Chinese) that all of the approximately 20 million computers used by the Chinese government will eventually be equipped with domestic CPUs and operating systems.

Part of computers used by Chinese customs that handle sensitive tasks are already equipped with domestic CPUs and operating systems, a customs official in South China’s Guangdong province told Caixin. Their performance isn’t great, the official said.

Loongson must now await a green light from the Shanghai bourse as its application is reviewed.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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