On September 7, Zhuhai Zhirong Technology Co., Ltd. (hereinafter referred to as "Zhirong Technology") withdrew its application for IPO of the Science and Technology Innovation Board after two rounds of inquiries.

The main products of Zhirong Technology are high integration, multi-channel intelligent power management chips, including lithium battery fast charging and discharging management chips, multi port output dynamic power regulation chips and fast charging protocol chips. Although compared with comparable companies at home and abroad, Zhirong Technology does not have advantages in scale and product categories. However, the compound growth rate of revenue of Zhirong Technology in the past three years has reached 111.71%, which has become one of the important domestic substitutes for power management chips.

In the wave of domestic substitution in the power management chip industry, Zhirong Technology is working with friends to break the monopoly of international giants. However, with the explosive development of the semiconductor industry in China in recent years, Zhirong Technology is also facing competition from its friends on the front battlefield.

At the critical moment of IPO, Zhirong Technology was sued by Yingjixin, a listed company in the same industry, and the internal volume of the industry has a trend of upgrading.

However, the IPO fundraising plan was terminated. Under the pressure of market competition, it was more difficult for Zhirong Technology to consolidate its core competitiveness.

Peer lawsuits and claims, 27 patents are requested to declare invalid

The biggest variable in the IPO process of Zhirong Technology may come from the prosecution of Yingjixin.

The application for the IPO of Zhirong Technology Innovation Board was accepted on April 15 in recent years. Since then, Yingjixin has successively initiated three rounds of infringement lawsuits against Zhirong Technology:

On May 11, Yingjixin filed a lawsuit, claiming that Zhirong Technology's SW6206 product infringed its invention patent "Multi port charging control circuit and method, charging chip and power supply equipment" (ZL202011064256.0), produced, sold and promised to sell patent infringing products, and claimed RMB 33091928.

On May 13, Yingjixin sued Zhirong Technology again, claiming that the product SW6208 of Zhirong Technology infringed its exclusive right of integrated circuit layout design "IP5328" (BS.175531811), and demanded Zhirong Technology and a terminal seller to stop the infringement, and claimed 330017495 yuan.

On June 6, Yingjixin filed a lawsuit again, claiming that the product SW3515S of Zhirong Technology infringed on its utility model patent "a fast charging switching circuit with multiple output ports" (ZL202020590921.9), and demanded that the manufacturer and seller of Zhirong Technology and the terminal products involved in the case stop infringing, and claimed RMB 3338226.

In the above three lawsuits, Zhirong Technology was claimed by the friend Yingjixin for a total amount of 66093700 yuan. According to the reply of Zhirong Technology in the second round of review inquiry letter, a lawyer has been hired to defend non infringement. According to the reply to the inquiry letter, Zhirong Technology believes that the products involved in the above intellectual property disputes are independently researched and developed by the company, which is different from the relevant products of Yingjixin or the product mass production time is earlier than the patent application time of Yingjixin.

It is worth noting that since May 16, the 27 invention patents owned by Zhirong Technology have been filed invalid declaration requests in succession, and have received the Notice of Acceptance of Invalid Declaration Requests. At present, all patent disputes have been examined by the State Intellectual Property Office, and some of them have been notified that oral hearing will be held on September 21. The prospectus shows that Zhirong Technology has obtained 27 invention patents.

The prospectus shows that the accumulated R&D investment in the last three years is 57.974 million yuan, accounting for 14.85% of the operating revenue. By the end of 2021, the proportion of R&D personnel is 45.74%. Since its establishment, Zhirong Technology has developed more than 40 power management chip products based on core technology. According to the evaluation criteria for the attributes of the Science and Technology Innovation Board, Zhirong Technology basically meets the requirements.

However, the risk of infringement disputes and patent invalidity will inevitably be questioned by the outside world for Zhirong Technology, which was originally planned to impact the science and technology innovation board.

Capital assisted domestic substitution, and the founding shareholder took the opportunity to cash out 50 million yuan

As an important component in consumer electronics, household appliances, communications, industrial control and new energy vehicles, the continuous expansion of downstream demand has driven the continuous development of China's power management chip industry. Since 2018, Sino US trade frictions and chip "choke points" have caused domestic industries to attach importance to the independence of chips, and China's power management chip industry has entered a stage of rapid development.

In terms of performance, in 2019, 2020, 2021 and the first half of 2022, Smart Finance Technology achieved revenue of RMB 52.0706 million, 112 million, 226 million and 111 million respectively. Although the wafer supply chain is tight in the first half of 2022, and is subject to weak terminal demand in the consumer electronics and power bank fields, the performance of Zhirong Technology is still up 36.5% year on year.

Under the wave of domestic substitution, since 2019, many power management chip enterprises have landed in the capital market, and Zhirong Technology is also popular in the capital market.

According to the prospectus, in 2021, Zhirong Technology will make multiple capital increases and equity transfers, and 15 new institutional investors will be introduced. It is worth noting that some investors will continuously participate in the capital increase and share expansion of Zhirong Technology in July and August 2021, raising the pre investment valuation from 1 billion yuan to 2 billion yuan within one month.

In July 2021, Li Xin, the actual controller and one of the founders, transferred 1.952% of the equity of Zhirong Technology to Dongxibo No.5, an external stock, at a transfer price of 87.62 yuan per capital contribution, which was higher than the capital increase price in the same period, and obtained a transfer price of 20 million yuan.

According to the prospectus, the main reason for Li Xin to transfer part of his capital contribution was to improve his life and other personal capital needs. Xibo No.5 was optimistic about the company's development prospects, so he transferred this part of his capital contribution.

In August 2021, the shareholders of Zhirong Technology, Deng Qin, Xiong Fugui, Min Zichen, Xie Jingdong, etc., agreed with the financial investors to transfer part of their shares at a discount of 9.8% of the pre investment valuation of 2 billion yuan due to personal capital needs such as improving their lives. The transfer price was 159.23 yuan/capital contribution, and the total transfer amount was 33.7509 million yuan.

To sum up, in July and August 2021, the five founder shareholders of Zhirong Technology realized a total of 53.7509 million yuan through equity transfer.

The industry is seriously involved. How does Zhirong Technology build its core competitiveness

The global power management chip market share is mainly occupied by international well-known integrated circuit companies such as TI, PI, Cypress, MPS, etc. The domestic power management chip industry started late, and the product category, competitiveness and market share are far behind the international well-known manufacturers.

However, China's power management chip market is an important part of the global market. According to the statistics of China Semiconductor Association, it will account for more than 30% of the global market in 2020. Therefore, under the domestic substitution, power management chip manufacturers such as Zhirong Technology have the opportunity to seize a larger market space.

By 2021, TI has more than 80000 products, which can hardly be matched by domestic manufacturers. The leading products in the field of power management chips in China, such as Simbond and Microelectronics, are 3800 and 1200 models, respectively, and Zhirong Technology has only 50 models.

In the face of the gap with international manufacturers, domestic manufacturers currently mainly adopt the strategy of vertical deepening development, that is, to conduct in-depth independent research and development in a certain segment area and form a strong competitiveness, and then expand to other segments.

From the perspective of the product layout of Zhirong Technology, among the 12 subdivisions of power management chips, the products of Zhirong Technology are concentrated in USB power transmission chips and multi-channel/multi-function PMICs. In the AC-DC and DC-DC fields, Zhirong Technology has projects under research. It is expected to achieve mass production this year, which will become another performance growth point of Zhirong Technology.

With fewer product categories, the corresponding R&D investment scale will be smaller, and the supply of existing products will be more concentrated. At present, Zhirong Technology focuses its production capacity on high integration, high power, "multi port" and "fast charging" products, which have higher unit price and gross profit margin in the subdivided fields, further improving the profitability of Zhirong Technology. The prospectus shows that from 2019 to 2021, the gross profit margin of the main business of Zhirong Technology will be 41.99%, 46.96% and 53.04% respectively; The net profits attributable to the parent company were 10.7363 million yuan, 27.2383 million yuan and 70.8126 million yuan respectively.

At this stage, the scale of Zhirong Technology is still small. According to the revenue in 2021, the market share of Zhirong Technology in the domestic power management chip industry is only 0.27%.

In the process of domestic power management chip manufacturers planning to break through the blockade of international giants, internal competition is also fierce. Zhirong Technology was sued by Yingjixin one after another, and Yingjixin was also involved in intellectual property disputes. According to the prospectus of Yingjixin, in 2021, Fuman Electronics and related parties will file a lawsuit against Yingjixin against the issuer for reasons such as intellectual property rights and contract disputes. After negotiation, both parties agree to shelve the dispute and reach a settlement. However, Yingjixin needs to pay Fuman Electronics 52 million yuan in three years.

The chip industry is a technology intensive industry

Under the barrier, domestic manufacturers choose differentiated products to break through, and the requirements for technology and innovation ability are getting higher and higher. In order to compete for the market share of similar products, the probability of friction between friends will also become greater and greater.

It is reported that the chip products of Zhirong Technology can be used for mobile power supply and fast charging power adapter. These two fields are in the terminal consumer market. Zhirong Technology has entered the supply chain of mainstream manufacturers such as Romance, Beibeidian, Qiaowei, Beisi, Lvlian, Pinsheng and Anke, as well as the shared charging brands Street, Soudian, Shudian and Cloud Charging Bar. The application scenario of the smart phone fast charging protocol chip is the original fast charging charger for smart phones. Since the research and development started late, it has not entered the original supply chain of mainstream smart phone brands.