re: 1193.HK (HK listed) - China Resources Logic - HK$0.77
PRC SEMICONDUCTOR MAKER - PART #4
SBU - SEMICONDUCTOR
Company history
CR Logic's Semiconductor Business commenced its operation in 1983. It has production facilities located in both Hong Kong and Mainland China for product design and development, fabrication, testing and packaging of 4-inch wafer-based IC. Equipped with an annual production capacity of approximately 360,000 pieces of silicon wafers, the Group produces ICs which are commonly used by manufacturers to make consumer-oriented products such as home appliances, audio visual products, watches, toys and calculators. At present, Hong Kong and Mainland China are the key markets of CR Logic.
China Resources Microelectronics (Holdings) Limited ("CRMHL"), a high-tech enterprise under CR Logic, is the holding company responsible for planning and developing the Semiconductor Business of the Group. Under the auspices of CRMHL are HuaKe Microelectronics (Shen Zhen) Company Limited, China Resources Semiconductor Company Limited, Shenzhen CRC & DAS Smartech Company Limited, Semicon Microelectronics (Shen Zhen) Company Limited and Shen Zhen Kope Microelectronics Company Limited.
On 27 February 2002 CR Logic acquired a 55% equity interest in Wuxi China Resources Semico Microelectronics Company Limited ("Semico"). Semico is one of the four largest fabless I.C. design houses in the PRC and its business focuses on consumer and telecommunication ICs, which is in line with CR Logic's semiconductor business strategy.
Product/ service
CR Logic is engaged principally in the production of 4-inch wafer-based ICs commonly used to make consumer-oriented chips used for watches, toys and calculators. In particular, the Group focuses on the development of CMOS and BIPOLAR product lines and the provision of consumer-oriented chips in Hong Kong and Mainland China.
Market/ market positioning
In 2000, semiconductor sales revenue in China's IC market surged 78% to US$11.7 billion, representing 6.9% of the world's sales revenue. It is noteworthy, at present, the domestic semiconductor industry only supplies less than 5% of the total demand in Mainland China and accounts for below 1% of the world's semiconductor supply. It is expected that the domestic semiconductor market would grow at 30% for the next few years when PRC will be the Asia Pacific's largest market for semiconductors, after the US.
Competitive advantage
CR Logic's Semiconductor Business, with its core competence in producing 4-inch wafer-based ICs, coupled with its strong connections and CRH's support, represents one of the strongest candidates for partnership with global players wishing to enter the PRC's semi-conductor industry. Although 4-inch wafer-based ICs are not considered top end products in process technology, CR Logic will benefit from different perspectives:
· The semiconductor sector is a capital intensive industry with high output and the lack of economies of scale would be a major hindrance in promoting its development. With strong governmental support at both national and provincial level, complemented by a series of preferential policies to encourage the development of the electronics industry, CR Logic is well positioned to capture the promising opportunities as they present themselves.
· CR Logic's stringent cost control measures and the relatively low depreciation of 4-inch wafer production line have enabled the Group to achieve a respectable profit margin. Compared with other market players, the Group faces less margin pressure and competition in the niche market of 4-inch wafer production with a capacity utilization rate of above 80%.
· With a strong team of experienced engineers, the Group is capable of entering the areas of IC design and advanced fabrication. Running a semiconductor company enriches CR Logic with valuable experience of semiconductor fab management, semiconductor marketing channels, and products.
· IC design is potentially another fast-growing area for CR Logic. Dataquest says IC design in China will grow at over 30% CARG from 2001 to 2005. To capture the enormous growth potential, CR Logic, starting with low-end consumer IC design, is gradually moving to the higher-end range.
Future development
Despite the volatility experienced in the global IC market, there is a growing demand for ICs in Mainland China, in particular consumer ICs. CR Logic is determined to become one of the leading IC design and manufacturing companies in the region. With this ample room for growth, fueled with experienced engineers who are capable of entering the areas of IC design and advanced fabrication, the Semiconductor Business is bound to contribute substantially to CR Logic's overall profit in the years to come. |
