[Industry Highlights] HG Semiconductors (06908. HK) has announced three strategic moves in a row. On March 24, 2022, it entered into a non-legally binding MoU with GUH Holdings Berhad (3247. KL), expanding its sales of fast-charging batteries and GaN products to Malaysia and Southeast Asia. Meanwhile, the Group entered into a strategic cooperation agreement with Cogobuy Group (00400. HK) that focused on domestic chip sales channels. On March 29, GSR Semiconductor, a wholly-owned subsidiary of HG Semiconductors, successfully launched a GaN field trial in the power infrastructure of an Internet Data Center (IDC) with GaN Systems Inc. (GaN Systems), achieving a major breakthrough in saving up to 20% of energy consumption for data center.

These strategic moves have underlined HG Semiconductors' ambition for refined development in two major approaches - first, leveraging domestic and foreign sales channels to enhance reputation and revenue; second, obtaining technical support and licensing by building reciprocal partnerships or making strategic investments, which in turn helps improve innovative manufacturing of the Group's products. As the global demand for semiconductors grows remarkably, China, the world's largest semiconductor market, is having more stringent requirements for independent innovation in semiconductor companies. In this context, can HG Semiconductor achieve its ambition and continue showing its value?

A hyped-up stock or a hidden gem?

HG Semiconductors threw its hat into the ring in early 2021 by making a full acquisition of Fast Charging, the Chinese IDM supplier of the third-generation semiconductor GaN chips. In addition to considerable investment in its science, R&D, factory, and consulting teams, as well as recent partnerships, HG Semiconductors welcomed aboard the first prize winner of the Lifetime Achievement Award from Semiconductor Equipment and Materials International, Dr. WANG David Nin-kou, as its Non-Executive Director, and the Founder and former CEO of Semiconductor Manufacturing International Corporation (SMIC), CHANG Ru Gin, as its Senior Consultant. These helped HG Semiconductors establish itself and become a hidden gem in the semiconductor industry.

China's third-generation semiconductor industry has been in full swing since 21st century. There are a number of players in the industry, including SMIC and Huahong Semiconductor which entered the industry at early stage, as well as some well-established pioneers like AccoTest and Zhonghuan Semiconductor. As a new player that only entered the field with great strides last year, it is too soon to tell whether this is the best time for HG Semiconductors to enter the market with uncertainties of the industry in future. Nevertheless, the actions taken by HG Semiconductor are visionary and have been productive. Although GaN and SiC technologies are still in early phases amidst the development of third-generation semiconductors, investors have been paying close attention to these technologies, for their rapid market availability. Under the domestic demands in the 5G and new energy sectors, HG Semiconductors should be able to catch the express train in the era of third-generation semiconductors.

Boosting presence in GaN industry as China achieves "Carbon Peak and Carbon Neutrality"

According to Qianzhan Industrial Research Institute, the GaN component market is expected to reach $42.3 billion by 2026 at a CAGR of about 13.5%. Though the development of GaN is still in its early phase, considering its merits of high power and light volume, the global market scale and material penetration rate of this technology are expected to increase continuously. HG Semiconductors' ambition in the GaN sector is evident from its recent cooperation with GUH and Cogobuy as well as its direct investments on the GaN industrial chain.

The field trial conducted by GSR Semiconductor and GaN Systems is a milestone for HG Semiconductors. In November 2021, HG Semiconductors announced an investment of approximately $2 million in GaN Systems Inc, a leader in GaN technology, leveraging the strengths of both sides to form , a global strategic partnership. Today, this strategic investment can be described as an "academic" success. There is a pressing demand for computing power in China, driven by the state project that channels computing resources from eastern areas to less-developed western regions and the convergence of next-generation IT applications. As a result, China's policy planning for data centers is clearer, in order to strike a balance between energy consumption and economic contribution. The breakthrough made by GaN Systems can save up to 20% of energy consumption, while at the same time reducing the carbon footprint of data centers. The field trial is also a critical step in promoting the technology to the globe, marking the wide application of GaN in IDC power infrastructure. What's more, the technology is significant to China with its aims to achieve carbon peak and carbon neutrality. This has accelerated HG Semiconductors' transformation to embrace third-generation semiconductors, while giving other companies in the GaN industry chain a boost.

In the capital market, many companies in the semiconductor field have made intensive efforts in the capital market in the past month. Semiconductor companies such as Tongguang Shares, Ferro Tec, and YEESTOR Microelectronics have announced their IPO plans one after another. Especially for Huahong Semiconductor, the wafer foundry, which is intended to be back on the A-share market. The rapid development in China's semiconductor industry will surely bring fierce competitions, and whether HG Semiconductors can really thrive, can only be verified by time. Yet, insiders agree that although GaN is a latecomer, it grows rapidly among others. The sooner the companies enter in GaN, the more development potentials they can accumulate. It is expected that these companies will develop rapidly in the era of third-generation semiconductor in the future.