• Savings Directions
• June 21, 2025

Yiswei Material's Continuous Annual Losses

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On November 29, the Shanghai Stock Exchange reported that Xi’an Yiswei Materials Technology Co., Ltd., hereafter referred to as “Yiswei Materials,” has formally received approval for its listing application on the STAR Market. This development marks an important step for the semiconductor sector in China, particularly in the production of 12-inch silicon wafers, which are essential components in various electronic devices.

Yiswei Materials plans to issue a maximum of 538 million new shares, thereby increasing its total share capital to no more than 4.038 billion shares after the public offering. The funds raised, amounting to approximately 4.9 billion RMB (around 698 million USD), will be entirely allocated to the second phase project of the Xi’an Yiswei Silicon Industry Base. The company’s sponsor for this IPO is CITIC Securities, while KPMG Huazhen serves as the auditing firm.

However, it is critical to note that Yiswei Materials had not achieved profitability by the time of its IPO application and, as indicated in its prospectus, the company has experienced consecutive annual losses from 2021 through the third quarter of 2024, with the losses showing a worrying trend of expansion. This circumstance makes Yiswei Materials the first unprofitable company accepted by the Shanghai Stock Exchange under new regulations.

This situation raises pertinent questions about why Yiswei Materials is pursuing an IPO while facing significant financial losses and what challenges the company currently faces.

The Financial Burden of Heavy Asset Models

According to the disclosed prospectus, Yiswei Materials primarily engages in the R&D, production, and sale of 12-inch silicon wafers. Its products find applications across several categories of chips, including NAND Flash, DRAM, and Logic Chips, as well as CPU, GPU, smartphone SOC, and embedded MCU, among others. These components are crucial for the production of smartphones, personal computers, data centers, the Internet of Things, and smart vehicles.

As of the end of the third quarter of 2024, Yiswei Materials reported a consolidated production capacity of 650,000 wafers per month, amounting to approximately a 7% share of the global production at that time. According to SEMI statistics, the demand for 12-inch wafers is projected to exceed 10 million wafers per month by 2026, with demand in mainland China alone surpassing 3 million wafers per month. Through technological innovations and efficiency enhancements, the company has ramped up its initial factory production capacity from 500,000 to over 600,000 wafers monthly. By 2026, the combined capacity of the first and second factories is expected to reach 1.2 million wafers monthly, meeting about 40% of the projected demand in mainland China, and the company's global market share is anticipated to exceed 10%.

This ambitious growth trajectory, however, comes with a hefty price tag. Since 2019, Yiswei Materials has successfully completed at least five rounds of external financing, raising more than 10 billion RMB cumulatively. Notably, by July 2021, during its second capital increase (B-round financing), the registered capital was just 120.37 million RMB. As of April 7, 2023, KPMG confirmed that the issuer had received capital contributions from all shareholders equivalent to the net assets. Following several rounds of financing and corporate reform, the total equity as of the prospectus signing date stood at 3.5 billion RMB.

Despite this funding, the semiconductor silicon wafer industry is heavy on capital investment. The purchasing costs for equipment and raw materials are substantial. The company revealed that constructing its first plant required 11 billion RMB in investments, while the planned second factory requires even more – about 12.5 billion RMB. Furthermore, the production process encompasses a significant cost for direct materials and labor, totaling 520 million RMB in the first three quarters of 2024, which represents around 37% of the total operating costs.

In addition, the semiconductor sector continuously grapples with challenges associated with raw material turnover and inventory management. As Yiswei Materials scales production, its inventory levels have seen exponential growth. For instance, its inventory balance was just 204 million RMB in 2021 but soared to 1.119 billion RMB by the end of the third quarter of 2024, nearly a fivefold increase over a span of three years. Such extensive inventory can consume a considerable amount of cash, exacerbating the cash flow crunch.

The investment per unit of production for 12-inch silicon wafers ranks second only to that of wafer fabs within the semiconductor manufacturing supply chain. Despite Yiswei Materials having undergone numerous financing rounds, the funding gap remains immense. According to the company’s prospectus, “insufficient funds have become one of the main bottlenecks limiting the company's development,” highlighting the urgent need for financial support to expand production.

The heavy asset model consequently drives up the company's fixed asset values swiftly. By the end of 2021, Yiswei Materials’ combined fixed assets and construction in progress totaled 4.045 billion RMB, accounting for 55.88% of its total assets. By September 30, 2024, this figure had risen to 11.105 billion RMB, constituting 64.70% of its total assets.

The challenges posed by this capital-heavy model are reflected in the company's net profit and overall asset health.

According to the prospectus, in 2021, manufacturing expenses represented about 72.73% of its main business structure with costs amounting to 300 million RMB. This ratio surged to 79.15% in the first three quarters of 2024, with depreciation costs severely eroding the company's net profit margins. As a pioneer in large-scale sales of 12-inch silicon wafers in China, similar experiences have been reported by competitors like Shanghai Silicon Industry, which reported a net loss of 537 million RMB in the first three quarters of 2024, largely attributing the loss to skyrocketing depreciation costs.

Additionally, since the company is still ramping up its production capacity, the unit fixed costs for its products remain high. Combined with the inherent volatility within the semiconductor market, this has resulted in significant inventory impairment losses from 2021 to 2024.

The Challenges of Late Market Entry

Another defining characteristic of the semiconductor silicon wafer industry is its oligopolistic nature. The top five global players in the 12-inch silicon wafer market are well-established foreign companies, accounting for over 85% of global shipment totals in 2023.

The combination of a heavy asset investment model and an oligopoly presents Yiswei Materials with an inherent disadvantage as a new entrant.

Firstly, the company lacks strong bargaining power across its supply chain. The prospectus indicates that approximately 50% of the materials required can be sourced from local suppliers, while more than 40% of the necessary equipment can also be procured domestically. However, a significant portion of the raw materials still relies on international suppliers, which poses a risk in terms of pricing and availability.

Among the most significant inputs, the global market for electronic-grade polysilicon is dominated by only four to five manufacturers with mature technology and an adequate production capacity. This causes Yiswei to have limited leverage in negotiations, often resulting in the necessity for advanced payment arrangements, leading to increased inventories and the associated risk of impairment. The company disclosed a long-term supply agreement with a certain electronic-grade polysilicon manufacturer that outlines price guidance and sets minimum purchasing quantities for the years 2024 through 2026, necessitating prepayment of a ratio of procurement costs. These prepayments are non-refundable, unconditional, and irrevocable, and the company must be cautious against failing to meet minimum purchase obligations.

As of late September 2024, the company’s outstanding prepayments to this supplier amounted to approximately 76.3 million RMB, highlighting the cash tied up with suppliers and raising potential concerns about inventory buildup that could adversely impact its financial health.

On the downstream side, Yiswei Materials knows well about the high market concentration in the 12-inch wafer industry. The major players, including TSMC and Samsung Electronics, have been in collaboration with leading foundries for more than 15 years, establishing stable partnerships that often involve exclusive involvement in the research and development of advanced wafer processing technologies. As a newcomer, Yiswei faces steep barriers to entry.

Moreover, the company’s lack of maturity in various aspects limits its competitive edge in the market.

Technologically, as a new entrant, Yiswei Materials is burdened with the most pressing need to expedite equipment debugging, ramp up capacity, enhance yield rates, and optimize costs, all while synchronizing with clients' evolving technological trajectories. This includes continued investment into core manufacturing processes such as crystal growth, shaping, polishing, cleaning, and epitaxy. In contrast, established international players enjoy more stable production processes and better yield rates, supported by their long-standing theoretical research and technological foundations, resulting in significant patent protection that creates barriers for newcomers.

From a pricing standpoint, the high depreciation costs seriously impact the company’s net profit, which at the same time curtails the potential for establishing competitive pricing in the market. International competitors, having long since amortized their high initial investments, operate under much less fixed cost pressure.

Additionally, silicon wafer production operates on economies of scale, and Yiswei's first factory is currently operating at around 90% capacity, still not fully utilized, while construction of the second factory is ongoing. This limited capacity utilization complicates establishing price competitiveness through economies of scale.

Other comparative advantages that require time to build include product diversity, brand influence, patent barriers, and long-standing relationships with suppliers and customers.

Unfortunately, the current performance indicators of Yiswei Materials do not paint an optimistic picture.

Over the years, consecutive losses have been progressively worsening. The company reported a net profit of -348 million RMB, -416 million RMB, -692 million RMB, and -606 million RMB during the years 2021-2023 and the first three quarters of 2024 post-nonrecurring gains and losses.

The volatility in gross profit margin has resulted in instances of negative margins. The gross margin for core operations during this period adjusted for inventory depreciation amounted to -100.67%, 9.85%, 0.66%, and 3.89% respectively, starkly contrasting with the overseas peers' average gross margin exceeding 20%.

Moreover, the company’s inventory turnover ratio has persistently declined, with this metric being a cornerstone of operational efficiency evaluation within the semiconductor industry. From 2021 to 2023, Yiswei had turnover rates of 2.02, 2.03, and 1.59, which lag behind comparable domestic companies and international counterparts, whose turnover ratios generally exceed 3.

The combination of a heavy asset model and the disadvantages of being a latecomer poses numerous challenges for Yiswei Materials. Learning from both domestic and international competitors, new entrants often endure a protracted period losing money—typically around four to six years—before they can attain profitability. Whether investors are adequately prepared to support Yiswei's growth in this challenging landscape remains an open question.