IPO Pulse: When Numbers Make the News

March 10, 2020

On Wall Street, numbers rule. Investment bankers were very busy last week. And they have the numbers to prove it.

So let’s take a look at last week’s IPO traffic:

  • 10 companies announced new terms for their pending IPOs. (This is a sign a deal is starting to move from the inactive IPO pipeline to the active IPO calendar.)
  • 4 companies withdrew their plans to go public.
  • 4 companies filed plans to go public.
  • 2 IPOs were postponed.
  • 7 IPOs were priced.

That’s busy by any standard. On top of that, bankers placed another 15 IPOs on this week’s new-issues calendar. From all outward appearances, the IPO Express looks to be barreling down the tracks. But here is where it starts to get a little funky.

Last week’s IPO Graduating Class was a break-even bunch. It started to reflect an overall weakness in the underlying stock market. For the record, the Nasdaq Composite Index closed on Friday, Feb. 4, 2005, at 2,086.66, — DOWN 4.08 percent for the year.

Four of last week’s seven deals had their offering prices cut to get out the door. This resulted in a negative impact on their overall aftermarket performances. There is how the week ended:

  • Three IPOs closed ABOVE their initial offering prices.
  • Three IPOs closed BELOW their initial offering prices.
  • One IPO was unchanged from its initial offering price.
  • The average gain was 2.8 percent.

The sloppy aftermarket performance of last week’s IPOs prompted some people to raise an eyebrow.

Consider this: The Nasdaq Composite Index ran from its August 12, 2004, low for the year of 1,752.49, up to 2,178.34, its 2004 high, on Dec. 30, 2004. That’s a gain of 24.3 percent.

During that four-month run, bankers priced 99 of the year’s 238 deals. That averaged 25 IPOs a month, compared with an average of 17 IPOs for the previous eight months. The conclusion: IPOs swim with the tide, not against it. When the stock market rallies, here come the IPOs! When the stock market pulls back, where are the IPOs?

Since the Nasdaq Composite Index hit its recent high (on Dec. 30, 2004, at 2,178.34), it has slipped into what can be politely called “a period of consolidation.” To be labeled a bear market, the Nasdaq Composite would have to experience a sell-off of 20 percent. That would put the Nasdaq at 1,742.67. It got nowhere near there.

Here’s the reality. The Nasdaq hit its recent low of 2,008.70 on Jan. 24. That was down 7.79 percent from its recent high. It closed Friday, Feb. 4, at 2,086.66. That was still down on the year, but up 3.88 percent from its 2005 low.

This week’s new-issue calendar lists 15 IPOs. Another four IPOs are lined up for the week of Feb. 21, 2005. But don’t start reading negative thoughts into the apparent drop-off in the number of deals. The week of Feb. 21 is shortened by the Presidents Day holiday on Monday.

For the Last 100 (from Sept. 29, 2004)

Number of IPOs priced: 99 (*)

Number Up: 77

Number Down: 21

Number Unch: 1

Percentage Change From Issue Price: 21.60%

Percentage Change for The Nasdaq Composite from Sept. 29, 2004: 10.18%

(*) Three IPOs were priced on Sept. 29, 2004)


Analysts Corner

February 25, 2020

Semiconductor Manufacturing International Corporation

Stock symbol: NYSE:SMI

Average daily volume (recent IPO):

Stock price 3/17/04: $15.90

Common shares (3/17): 364,000,000*

52-week price range: recent IPO

Equity market capitalization: $6 billion

*ADS (American Depository Shares)

 

China-based semiconductor company providing integrated wafer manufacturing services

Address: 18 Zhang Jiang Road, Pudong New Area, Shanghai, F4, 201203, China
Telephone: 86-21-5080-2000
Web site: not available
State or other jurisdiction of incorporation or organization: China
Auditors: Deloitte & Touche Tohmatsu
Investor contact: Jenny Wang, CFO

 

Business (see glossary at the end). Fabricates semiconductors based on customers’ own or third parties’
integrated circuit designs
. Developed leading edge integrated wafer manufacturing services, including
copper interconnects capabilities, within three years after founding in April 2000
. One of the leading semiconductor foundries in the worldIndustry trendsCompound annual growth rate
> The worldwide sales compound annual growth rate of the semiconductor foundry industry
. Is projected to be 21.8% from 1998 to 2008
. Compared to 9.5% for the semiconductor industry as a whole for the same period
according to IC Insights, a leading semiconductor industry publicationSemiconductor foundries are key partners to…> Fabless semiconductor companies, which have expanded geographic reach and worldwide sales
> Integrated device manufacturers, which have outsourced manufacturing requirements for complex
semiconductor devices to become more cost competitiveWell positionedSMI believes it is well positioned to benefit from
. Fabless semiconductor company growth and
. Integrated device manufacturer outsourcing

China emerges

> The China domestic market for electronic information products in China
. Grew from US$20.2 billion in 1999 to US$77.1 billion in 2002
. According to China’s Ministry of Information Industry
> SMI believes its position as a leading foundry in China
. Allows it to meet Chinese semiconductor sourcing demand
. And to meet electronic products for export demand

Industry recognition

. SMI’s Fab 1 facility in Shanghai was selected as one of the two “Top Fabs of 2003” by
Semiconductor International, a leading industry publication.
. Ranked second in a readers’ poll of top global foundries of 2003 conducted by Silicon Strategies,
another leading semiconductor industry publication.

Current capacity

. SMI believes it is the only semiconductor foundry to have reached capacity in excess of 40,000
8-inch wafers per month
. Had an aggregate capacity as of December 31, 2003 of 49,000 8-inch wafers per month for wafer
fabrication and 9,000 wafers per month for copper interconnects
. Operates an 8-inch wafer fabrication facilities in the Zhangjiang High-Tech Park in Shanghai,
China and, as a result of a recent (Motorola) acquisition, an 8-inch wafer fab in Tianjin, China.

Capacity expansion

. Currently constructing 12-inch wafer fabrication facilities in Beijing
. SMI believes it will be the first 12-inch fabrication facility in China.

Manufacturing & service focus

Manufacturing
> Semiconductor fabrication services using 0.35 micron to 0.13 micron process technology for
. Logic technologies
(including standard logic, mixed-signal, radio frequency and high voltage circuits)
. Memory technologies
(including dynamic random access memory, static random access memory, flash, electronically
erasable programmable read-only memory and mask read-only memory)
. Specialty technologies
(including liquid crystal on silicon, complementary metal oxide silicon image sensor and
system-on-chip)

Services
> In addition to wafer fabrication, SMI service offerings include libraries and circuit design blocks,
design support, mask-making and wafer probing.
> Also works with partners to provide assembly and testing services.

Customers and concentration

Customers
. Integrated device manufacturers (IDMs): Fujitsu Limited, Infineon Technologies AG, Samsung
Electronics., STMicroelectronics and Texas Instruments
. Fabless semiconductor companies: Broadcom, Elite Semiconductor Memory Technology, Marvell
Semiconductor
(Note: customer list “is not intended to identify top customers, but rather to provide a representative
sampling of SMI’s customer base”)

Customer concentration
. For the year ended December 31, 2003, SMI’s five largest customers accounted for 57^ of sales
. Sales are dependent upon a small number of customers

No backlog, high fixed costs, cyclical business

No backlog
. Customers purchase orders are not placed very far in advance of shipping dates
. Because expenses have high fixed cost components — costs can’t be adjusted quickly to
compensate for shortfalls in sales
. The semiconductor manufacturing business is notoriously cyclical
Designed-in products result in long sales cycle
. Sales cycle can last a year or more
. Sales cycles to IDM (integrated device manufacturers) customers can take longer

Competition

Dedicated foundry service providers
. SMI’s competitors and potential competitors include TSMC, UMC and Chartered Semiconductor.
(TSMC = Taiwan Semiconductor Manufacturing Company, UMC = United Microelectronics Corp)
. TSMC, UMC and Chartered Semiconductor had market shares of 53%, 24% and 7%, respectively,
in the semiconductor foundry industry in 2003, according to IC Insights
. Both TSMC and UMC have announced plans to build and acquire fabs in mainland China in order
to compete for the growing domestic market in China.
Semiconductor companies — Integrated Device Manufacturers (IDMs)
. IDMs that have established their own foundry capabilities.
. Include Fujitsu Limited, Hynix, IBM, Samsung Electronics Co., Ltd. and Toshiba.
. IDMs are primarily dedicated to fabricating integrated circuits for the end products of their
respective affiliates

Basis of competition

. Rather than competing solely on price, SMI intends to compete on process technology,
performance, quality and service
. In more advanced technologies, the competition tends to be greater

Patent lawsuit

SMI is currently the subject of a lawsuit in the United States brought by TSMC in December 2003
. Relating to alleged infringement of five U.S. patents and
. Misappropriation of alleged technical and operational trade secrets relating to methods for
conducting semiconductor fab operations and manufacturing integrated circuits.

Exchange rate risk

> SMI financial statements are prepared in U.S. dollars
. SMI sales are denominated in U.S. dollars
. Operating expenses & capital expenditures are denominated in U.S. dollars, Japanese Yen, Euros
and Renminbi Yuan (conversion rate set by the People’s Bank of China)
> If the dollar falls against the other denominations, then costs increase in US$ terms
> If China were to devalue its currency relative to the US dollar
. Then sales expressed in US$ would decline and SMI products would become more expensive
(in terms of US$)
. The Chinese government remains under international pressure to allow the Renminbi rate to float

Very capital intensive, requires additional financing

SMI expects capital expenditures in 2004 and 2005 to total US$1,950 million and US$1,373 million
. For expansion of operations in Shanghai and Tianjin and
. To complete the construction, equipping and ramp-up of Fab 4, Fab 5 and Fab 6C in Beijing.
. Operating cash flows are insufficient to meet capital expenditure requirements.

Use of IPO proceeds

> $1 billion to SMI
. US$403.0 million of the net proceeds for constructing and ramping up Beijing fabs
. US$600 million of the net proceeds for upgrading the technology and increasing the capacity at
Shanghai and Tianjin fabs.
> $679 mm to selling 55 shareholders, including Motorola* (will own 7.8% post IPO, down from
11.4% pre IPO), Singapore government (less than 1% pre IPO), General Motors (less than 1%
pre IPO) and 52 others
*SMI acquired a fabrication plan from Motorola in January 2004

 

 

Shareholder Profile

(Post March 11, 2004  IPO)

 

Shanghai Industrial Holdings Limited

10%

Motorola, Inc. and Motorola (China) Electronics Limited

7.8%

Global Growth Fund and International Equity Income Fund

5.8%

Beijing Beida Jade Bird Software System Company

4.8%

All directors and executive officers as a group (17 persons)

45%

 

Note: This table depicts beneficial ownership as determined in accordance with the rules of the SEC; some of the shares may be double counted.

 

 

Balance Sheet on December 31, 2003

(in $000s)

 

Cash & equivalents

445

Notes payable

250

Other current assets

236

Current liabilities

325

Total current assets

680

Long term liabilities

480

Property & equipment, net

1,523

Total liabilities

4,25

Other assets, net

87

Shareholders’ equity

1,485

Total assets

2,290

Total liabilities & equity

2,290

 

After the March 11 IPO the company received $1 billion, $400 million for ramping up the Beijing fabs; $600 for upgrading the technology and increasing the capacity at the Shanghai and Tianjin fabs

 

Operating Results
and valuation ratios

 

December 31 fiscal  

2001

 

2002

 

2003

Mkt

Gross Revenues (mm)

0.0

50

366

Cap (mm)

Gross Margin %

n/a

-54.9%

2.3%

$6,006

R&D

9.3

38

32

@$16.5

Net Income

-2.7

-103

-66

Net Income %

n/a

-204%

-18%

Last 4 quarters  

March

 

June

 

Sept

 

Dec

Revenues (mm)

38

75

107

145

Gross Margin %

-65.2%

-17.9%

9.7%

21.2%

Net Income

-38.3

-27.9

-11.1

 

4.6

Net Income %

-100%

-37%

-10.4%

3.2%

Business Mix %
Memory Wafers

72%

53%

34%

25%

Logic Wafers

24%

43%

60%

 

72%

Notice the increased Logic Wafer trend
VALUATION RATIOS  

Mrkt

 

Price /

 

Price /

 

Price /

 

Price /

 

Cap (mm)

 

Sales

 

Earnings

 

BookValue

 

TangibleBV

SemiconductorMfgSMI

6006

10.4

326

2.1

2.2

 

(sales and earnings ratios based on annualizing the most recent quarter’s results

Compare and contrast:
The last companies from this industry sector (Standard Industrial Classification Code: 3674)
to go public are listed below, and the underlying industry index:
AMIS Holdgs (AMIS)  

Mrkt

 

Price /

 

Price /

 

Price /

 

Price /

Price

 

Cap (mm)

 

Sales

 

Earnings

 

BookValue

 

TangibleBV

3-5-04

1430

2.9

105

7.5

8.7

17.50

AMIS Holdings (Nasdaq: AMIS), a Pocatello, Idaho-based
manufacturer of integrated mixed signal semiconductor products,
priced its IPO at $20 a share on Sept. 23, 2004. The stock closed
on Friday March 5, 2004 at $17.50 a share — down 12.55 percent
from its initial offering price.
The Stock: Estimated Consensus EPS:
52-week Price Range: Dec./2004E: $0.69
High: $21.85 Low: $16.42 Recent: $17.50 Dec./2005E: $0.92
Number of brokers following the company: 7 Dec./2006E: $0.87
Average rating: “Buy”
Average price target: $25 a share
Atheros Comm ATHR  

Mrkt

 

Price /

 

Price /

 

Price /

 

Price /

Price

 

Cap (mm)

 

Sales

 

Earnings

 

BookValue

 

TangibleBV

3-5-04

851

5.7

-942

6.2

6.2

18.73

Atheros Communications (Nasdaq: ATHR), a Sunnyvale,
California-based developer of semiconductor system solutions
for wireless communications products, priced its IPO at $14 a
share on Feb. 11, 2004. The stock closed on Friday March 5, 2004,
at $18.73 a share — up 33.8 percent from its initial offering price.
The Stock: ATHR is in its 40-day quiet period
52-week Price Range:
High: $19.48 Low: $17 Recent: $18.73
Number of brokers following the company: None
StaktekHldgs(STAK)*  

Mrkt

 

Price /

 

Price /

 

Price /

 

Price /

Price

 

Cap (mm)

 

Sales

 

Earnings

 

BookValue

 

TangibleBV

3-5-04

690

11

22

5.8

11.6

13.69

* STAK: exclude $14.7 in amortization of compensation and acquisition expense for the Dec quarter,
and uses a 33% tax rate (the average os 2001 and 2002)
Staktex Holdings (Nasdaq: STAK), an Austin, Texas-based
provider of memory stacking solutions, priced its IPO at $13
a share on Feb. 5, 2004. The stock closed on Friday March 5, 2004,
at $13.69 a share — up 5.3 percent from its initial offering price.
The Stock: STAK is in its 40-day quiet period
52-week Price Range:
High: $15.61 Low: $12.37 Recent: $13.69
Number of brokers following the company: None
Ratio comparison summary — based on annualizing last reported quarter’s results
NAME/symbol  

Mrkt

 

Price /

 

Price /

 

Price /

 

Price /

Price

 

Cap (mm)

 

Sales

 

Earnings

 

BookValue

 

TangibleBV

3-5-04

AMIS Holdgs (AMIS)

1430

2.9

105

7.5

8.7

17.50

Atheros Comm ATHR

851

5.7

-942

6.2

6.2

18.73

StaktekHoldgs(STAK)*

690

11

22

5.8

11.6

13.69

Semicndctr MfgSMI  

6006

 

10.4

 

326

 

2.1

 

2.2

 

24%

* STAK: exclude $14.7 in amortization of compensation and acquisition expense for the Dec quarter,
and uses a 33% tax rate (the average os 2001 and 2002)
Notice that SMI is slightly profitable and sells at the lowest price-to-book ratio
Ratio comparison summary — based on annualizing last reported quarter’s results
verus the major publicly held semiconductor foundries
NAME/symbol  

Mrkt

 

Price /

 

Price /

 

Price /

 

Price /

 

Cap (mm)

 

Sales

 

Earnings

 

BookValue

 

TangibleBV

CharteredSemi (CHRT)

2470

3.4

-88

1.4

1.4

Taiwan Semi (TSM)

43530

8.4

81

4.6

6.0

United Micro (UMC)

17730

6

36

1.8

2.6

Semicndctr MfgSMI  

6006

 

10.4

 

326

 

2.1

 

2.2

DJ Semiconductors Index: 52-Week Percentage Change:
52-week high: 1,608.08 (1/12/04) Semiconductors Index: up 82.4 percent
52-week low: 754.57 (3/11/03) Nasdaq Composite: up 57.2 percent
Dec. 31, 2002: 758.77
Dec. 31, 2003: 1,471.32
Recent: 1,430.25 (3/5/04)

 

Management


Richard Ru Gin Chang
founded the company in April 2000 and is currently the Chairman of our Board, President and Chief Executive Officer. Dr. Chang is also a director of SMIC Shanghai, SMIC Beijing and SMIC Tianjin. Dr. Chang has over 25 years of semiconductor experience in foundry operations, wafer fabrication and research and development. From 1998 to 1999, Dr. Chang was President of Worldwide Semiconductor Manufacturing Corp., or WSMC, after joining the company in 1997. Prior to joining WSMC, Dr. Chang worked for 20 years at Texas Instruments Incorporated, where he helped build and manage the technology development and operations of ten semiconductor fabs and integrated circuit operations in the United States, Japan, Singapore, Italy and Taiwan. Dr. Chang received a PhD in Electrical Engineering from Southern Methodist University and a master’s degree in Engineering Science from the State University of New York. In December 2003, Dr. Chang was selected by the China Center of Information Development as one of the ten “China IT Economic People of 2003” for his role in influencing and contributing to the development of China’s information technology industry.

Jenny Wang joined as Chief Financial Officer and Chief Accounting Officer in January 2004. Ms. Wang has over 25 years of experience in the investment and finance field, more than 10 of which were spent in the information technology industry. Before joining our company, Ms. Wang worked at Motorola, where she was Corporate Vice President and Vice President and Director of Corporate Finance of Motorola China. Prior to that, she held the position of Chief Representative of Motorola China with responsibilities that included strategic planning, corporate governance, communication and public affairs for Motorola China. She is a member of the American Institute of Certified Public Accountants (AICPA) and the Texas Society of Certified Public Accountants (TSCPA). Ms. Wang obtained an M.S. in Accountancy from the University of Houston.

Marco Mora joined in 2000 as Vice President of Operations and since November 2003 has been Chief Operating Officer. Mr. Mora has more than 18 years of experience in the semiconductor industry. Prior to joining, Mr. Mora held management positions with STMicroelectronics N.V., Texas Instruments Italia S.p.A, Micron Technology Italia S.p.A and WSMC. Mr. Mora received a master’s degree in Physics from the University of Milan.

Toshiaki Ikoma joined as Chief Technology Officer in January 2004. Dr. Ikoma has extensive semiconductor experience in both academia and industry. Dr. Ikoma was the President of Texas Instruments Japan, Inc. for five years and, prior to that position, served as a professor of Electronics at the Institute of Industrial Science at the University of Tokyo from 1968 to 1994. Prior to joining, he was a professor of Technology Management at the Graduate School of International Corporate Strategy of Hitotsubashi University, Tokyo, beginning in 2002. Dr. Ikoma received a PhD in Electronics from the University of Tokyo.

Akio Kawabata joined in 2002 and is currently our Vice President of Marketing. Mr. Kawabata has over 32 years of experience in the semiconductor industry. Prior to joining, Mr. Kawabata held various management positions with Toshiba Corporation, including General Manager of Toshiba’s International Division, President of Toshiba Electronics Europe GmbH and Managing Director of Toshiba Asia Pacific. Mr. Kawabata received a master’s degree in Electrical Engineering from Stanford University.

Jason Ting Chih Hsien joined in January 2002 and became our Vice President for Human Resources and General Affairs in January 2004. He previously served as our Senior Director of sales and marketing. Prior to joining, Dr. Ting served as a Director of Walsin Lihwa Corporation in Taiwan. Dr. Ting received a PhD in Material Science from the University of Illinois.

Glossary

Integrated circuit
An electronic circuit where all the elements of the circuit are integrated together on a single
semiconductor substrate.

Logic device
A device that contains digital integrated circuits that perform a function rather than store information.

Memory
A device that can store information for later retrieval

Semiconductor
An element with an electrical resistivity within the range of an insulator and a conductor. A
semiconductor can conduct or block the flow of electric current depending on the direction and
magnitude of applied electrical biases.

System-on-chip
A chip that incorporates functions usually performed by several different devices and therefore
generally offers better performance and lower cost.

Wafer
A thin, round, flat piece of silicon that is the base of most integrated circuits