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"Chip" Dream of "Color TV" Giant: How far can Konka Semiconductor go?

2022-08-29

On August 24, Konka Group released its performance report for the first half of 2022. In the first half of 2022, Konka Group achieved an operating revenue of 16.895 billion yuan, down 22.53% over the same period of the previous year; The net profit attributable to the parent company was about 172 million yuan, an increase of 102.25% over the same period of the previous year; The net profit after deducting non profits was about -742 billion yuan, down 4.54% year on year.

It is worth noting that in the first half of the year, the revenue of Konka Semiconductor business was only 50.9161 million yuan, accounting for only 0.3% of the operating revenue. In this regard, Konka explained that the R&D investment in semiconductor business is large, and Micro LED business has entered the mass production stage, with no revenue for the time being. However, compared with previous data, this figure was 1.11% in the same period of last year, and the semiconductor business revenue of Konka in 2021 was 320 million yuan, accounting for 0.66% of the total revenue. This achievement makes people wonder whether the semiconductor transformation of this once famous color TV giant is successful.

In 2018, Konka Group announced on its 38th anniversary celebration that it would launch strategic transformation and enter the semiconductor field. At that time, Zhou Bin, president of Konka Group, said at the celebration: "We will spend 5-10 years to become one of the world's outstanding semiconductor companies, with an annual revenue of more than 10 billion yuan." Now it is half the time, but Konka is still far from this goal.


01 Transformation still on the way

Like many other enterprises that have invested in the semiconductor field in recent years, Konka had high hopes for semiconductor, hoping to promote its own development. In 2018, Konka Group officially established the semiconductor technology business unit. However, instead of entering into projects with huge investment and high technical barriers such as wafer manufacturing, Konka Group cautiously chose to develop in two fields: semiconductor storage and photoelectric display. Among them, the storage field mainly focuses on the design and sales of storage master chips, and the packaging and testing of storage products; In the field of optoelectronics, it mainly conducts research and development of micro LED related products.

In the opinion of Zhang Xiaorong, President of the Institute of Deep Science and Technology, this is undoubtedly a visionary strategic transformation. He said to SCIEC, "The future is an intelligent society. Home appliances are highly intelligent, and chips are the core of intelligent home appliances. In an extremely complex competitive environment, building an independent and controllable supply chain and mastering the market voice will help to have a place in the future." In his view, it is precisely because of this logic that Kangjiacai is not satisfied with playing the role of an installation factory, and has begun to retroactively produce upstream core parts.

In the storage field, Konka has successively established Hefei Kangxinwei, Konka Xinying Semiconductor, Konka Core Cloud Semiconductor and other companies. Hefei Kangxinwei's first eMMC5.1 memory master chip with independent intellectual property rights has been mass produced; Konka Xinying Semiconductor focuses on the packaging and testing capabilities of storage products; Konka Core Cloud Semiconductor Technology (Yancheng) Co., Ltd. began large-scale production of memory chips.

Konka's layout in the field of photoelectric display is concentrated in Chongqing, focusing on micro LED related products and technologies. This is a kind of LED miniaturization and matrix technology. Through thin-film, miniaturization and array of LED backlight, it is possible to make a single LED unit smaller, and each pixel can drive light independently. Micro LED has the advantages of high resolution, high brightness, high contrast, fast response and low power consumption. These characteristics make its application prospects huge, and it is considered to be a better next generation technology direction than OLED technology.

To this end, Konka Group will invest 30 billion in the construction of Chongqing Konka Semiconductor Optoelectronic Technology Industrial Park in 2019. In September of that year, Konka invested 1.5 billion yuan to establish Chongqing Konka Optoelectronics Technology Research Institute Co., Ltd. (hereinafter referred to as Chongqing Optoelectronics). An interesting episode is that in 2020, Chongqing Optoelectronics also stepped on the gallium nitride of the fire. At that time, when replying to the concern letter of Shenzhen Stock Exchange, Shenzhen Konka A said that its holding subsidiary Chongqing Optoelectronics was mainly engaged in the research, development, production and sales of products related to MicroLED. Among them, the blue and green MicroLED light-emitting chip project involves gallium nitride. Shenzhen Konka A replied: "The establishment of Chongqing Konka Optoelectronics Research Institute is to carry out the research and development of GaN and other compound semiconductor technologies and applications represented by MicroLED products."

Although stepping on the air outlet accurately, it is an indisputable fact that the development of Micro LED is still at a very early stage, even the definition is not clear. In the industry, Micro LED and Mini LED often appear alternately, and the distinction between them is not strict. According to Li Hongtao, vice president of Konka Group and chairman of Chongqing Optoelectronics, Konka calls those within 50 microns Micro LED and those larger than 50 microns Mini LED. However, Li Hongtao also mentioned that at present, Konka "calls the technology to be developed Micro LED and the marketed Mini LED".

In addition, as the development has just started, the Micro LED industry is also faced with technological bottlenecks such as chip microminiaturization, drive and repair, which require collaborative innovation in technology, materials, equipment, panels and other links, testing the enterprise's horizontal integration of technology, materials, equipment and vertical integration between upstream and downstream links. These all require a lot of money and time investment. What's more, Konka is not the only one aiming at this industry. Many enterprises such as Huacan Optoelectronics, Vogel Optoelectronics, Shenzhen Tianma Optoelectronics and San'an Optoelectronics have set foot in relevant fields. Whether Konka can get a share in this industry depends on the future development decision.

Bu Rixin, the general manager of Chuangdao Investment Consulting, said in an interview with Kegong Power that although Konka's strategic expansion is in areas with potential, it is difficult to see results in these areas in the short term. "The semiconductor has a long cycle, and Micro LED is still a long way from industrialization, which doomed Konka to bear great pressure on its financial performance," he said.

In addition to the storage and photoelectric fields, Konka Group also takes PCB industry and new energy field as one of the key development directions. Konka Group established PCB Industry Business Unit in 2019, and prepared to establish "Shenzhen Konka Circuit Co., Ltd." as a unified management platform for PCB business. At present, it has several holding business companies under its jurisdiction.

On the evening of September 10, 2021, Konka Group released its trading plan, saying that it planned to purchase 100% of the equity of Minggao from 11 counterparties including Minggao Holding by issuing shares; It is proposed to purchase 100% of the equity of Haisida Power from 33 counterparties including Haisida Group by issuing shares and paying cash, including 70% of the equity of Haisida Power by issuing shares and the remaining 30% by paying cash.

Among them, Ming Hi Tech is mainly engaged in the R&D, production and sales of flexible circuit boards, soft and hard composite boards, and surface mount technology (SMT), which is widely used in consumer electronics, automotive electronics and other fields. If the acquisition of Minghi Technology can be completed, Konka Group's PCB business will form a series of PCB product portfolio covering rigid circuit boards, flexible circuit boards, etc., PCB product structure and industrial layout will be further enriched, and PCB product customization level will be enhanced.

Haisida Power is located in the hot new energy track in recent years, mainly engaged in the R&D, production and sales of lithium-ion battery products, and its products are widely used in electric tools and smart home appliances. The acquisition of Haisida Power Supply is an important step for Konka Group to extend the industrial chain upward, which is conducive to Konka Group to enhance the depth of the industrial chain.

However, these two transactions failed to be concluded. On the evening of March 6, 2022, Konka Group announced that it would stop acquiring shares of Minghi Technology and Haisida Power. As for the reasons for the termination, Konka Group said that since the disclosure of the transaction plan, the company and relevant parties have orderly promoted and implemented the work of this transaction. However, since the company and the shareholders of Histar Power failed to reach an agreement on some of the core terms of this transaction, it decided to terminate the transaction from the perspective of safeguarding the interests of all shareholders, especially the minority shareholders and the company. This statement also indicates that the idea of Konka Group to strengthen PCB business and enter the new energy industry field cannot be implemented in the short term.


02 Main business in jeopardy

Behind Konka's eagerness to expand the semiconductor field is its declining operating income. In the first half of 2022, Konka Group achieved an operating revenue of 16.895 billion yuan, down 22.53% over the same period of the previous year; The net profit after deducting non profits was about -742 billion yuan, down 4.54% year on year. In the previous 2021 annual performance report, Kangjia deducted a non net profit loss of 3.251 billion yuan. The overall growth rate of revenue is also slowing down. According to the previous financial report of Konka, the growth rate of the company's revenue in the last five years has dropped from 53.84% in 2017 to a negative value of -8.65% in 2020, and this negative growth trend has continued in 2021, which is -2.47%.

Faced with this achievement, Konka Group explained that due to the impact of the epidemic, the supply of energy and bulk commodities was tight, logistics and commodity transactions were partially stagnant, consumer demand continued to be sluggish, market competition became increasingly fierce, and the company's operating performance declined. It is understood that Konka's main business involves industry and trade, consumer electronics, environmental protection, semiconductor and other fields. Among them, industry and trade business is the main source of revenue in recent years, with a long-term stable scale of about 30 billion yuan, accounting for 60% of revenue. This business focuses on the procurement, processing and distribution of materials such as IC chip storage and LCD screen involved in Konka's traditional main business. The operating profit comes from processing fees and the difference between upstream procurement and downstream sales.

However, the price of copper, iron ore, plastics and other raw materials will rise in 2021, which will increase the procurement cost of industrial and trade businesses and erode their meager profits. The financial report of Konka in 2021 shows that the gross profit margin of industrial and trade business is only 0.57%. In addition, the growth rate of industry and trade business is also slowing down. In the past five years, the growth rate of Konka industry and trade has plummeted from 489.03% in 2017 to -2.63% in 2021, a drop of up to 491.66%. In the latest semi annual report, Konka's industrial and trade business income was only 10.171 billion yuan. Although the figure dropped significantly, it still accounted for 60% of the operating income.

The consumer electronics business ranked second in Konka's revenue contribution, accounting for 20%~30%, but this business is worse. The traditional business of Konka, color TV, is the largest in this business. As the display industry moves towards the LCD era and even the intelligent era, Konka Color TV is not only less competitive than its old competitors Skyworth, TCL and Hisense, but also powerless when facing the Internet such as Xiaomi and Huawei. This also makes the proportion of revenue contributed by the color TV business to the company decrease all the way. In the first half of 2022, the revenue of Konka's consumer electronics business is 5.247 billion yuan, accounting for 31.06% of the operating revenue.

The decrease in revenue reflects that Konka Color TV is gradually marginalized in the domestic color TV market. According to the total sales promotion data of domestic color TV sets in 2021 released by Lotu Technology, Xiaomi ranks first in the domestic market with 9 million units shipped, followed by Hisense with nearly 7 million units shipped, TCL and Skyworth both shipped more than 5 million units, while Konka shipped less than 3 million units, ranking seventh.

To make matters worse, the color TV market as a whole has shrunk. According to the data of Ovi Cloud, in the last six years, the retail sales of China's color TV market reached the highest in 2016, 50.89 million sets, and the lowest in 2021, 38.35 million sets. At the same time, the retail sales of China's color TV market also shrank from 154.9 billion yuan in 2016 to 128.9 billion yuan in 2021.

Faced with the decline of color TV sets, Konka also tried to open a gap in other consumer electronics businesses. The merger and acquisition of the "Xinfei" brand is considered as an attempt by Konka Group to gain a foothold in the white electricity market. However, it is a pity that in this field, Midea, Haier and Gree have already established a tripartite pattern, and Konka, as a latecomer, has not opened up the situation.

Another major business of Konka is the environmental protection business, namely the recycling of renewable resources, which mainly involves recycling, sorting, processing, logistics and sales of renewable resources. The revenue is also decreasing year by year. The financial report shows that in the last three years, the revenue of Konka's environmental protection business is RMB 7.079 billion, RMB 4.824 billion and RMB 4.355 billion, respectively. In the first half of this year, this figure is only RMB 774 million. The growth rate is also declining. In addition to reaching a peak of 134.38% in 2019, the growth rate of the business in the following two years is negative, respectively - 31.86% and - 9.73%.


03 "Blood transfusion" can survive?

The main business is either making little money or losing money. In order to improve its financial situation, Konka, like many other enterprises, has to rely on "land sales" to make up for it. In 2017, 70% of Kangqiao Jiacheng's equity was auctioned at the Beijing Equity Exchange, and Longguang Real Estate sold the project for 6.98 billion yuan. Later, Kangjia successively transferred more than 10 companies' equity, including Kangjia Video, Kunshan Kangjia, Shenzhen Kangqiao Jiacheng and Chuzhou Kangjia Technology, in exchange for 9 billion yuan. In 2021, Konka will also transfer 70% and 11.70% of the equity of Yiping Network Technology Co., Ltd. and Yikang Technology Co., Ltd. respectively. According to statistics, Kangjia will generate investment income of 4.217 billion yuan by selling the equity of its subsidiaries in 2021.

On May 22 this year, Konka Group announced again that it planned to transfer 100% of the equity of Xi'an Huasheng Jiacheng Real Estate Co., Ltd. (hereinafter referred to as "Huasheng Jiacheng") held by Shenzhen Konka Electronic Technology Co., Ltd., a wholly-owned subsidiary. The main assets of Huasheng Jiacheng are 100% equity of its wholly-owned subsidiary Xi'an Feihe Real Estate Development Co., Ltd., that is, the platform company that won three residential lands of 304.581 mu in the Port Area last October. At that time, Konka said that this was to start its development model of "technology+industry+park" and pave the way for building an intelligent manufacturing industry cluster in Xi'an.

However, cash seems to be a better choice than the Science Park for Konka Group, which has weak growth in old businesses such as industry and trade and consumer electronics, and new businesses such as semiconductors need a lot of "blood transfusion". On June 28 this year, Konka announced the successful transfer of three residential land. According to the announcement, this transfer has brought Konka more than 100 million yuan in profits.

A series of transfers have highlighted Konka's dilemma: on the one hand, although it has dabbled in emerging hot businesses such as semiconductor and new energy, each of these businesses requires a large amount of capital investment; On the other hand, the industry, trade and consumer electronics in the hands are getting worse and worse, which makes it difficult to continue to "supply blood" for enterprises. It is actually a helpless move of Konka Group to rely on "selling" to raise funds.

The localization of chips is a general trend, and Konka's strategy of early layout of the semiconductor industry itself is no problem. However, at present, semiconductor has not become a business that can provide stable operating performance and long-term development. Under the situation that the development of main business is slowing down, how to make new businesses such as semiconductors come into being as soon as possible is a problem that Konka Group must think about on the way of transformation.