Editing by Li Panpan

Chinese state-owned fund dedicated to semiconductors known as The Big Fund is reportedly planning to invest RMB600 million ($95 million) in a 12-inch fab project of Silan Microelectronics, which led to a skyrocketing increase in its stock price.

On February 22, Silan Microelectronics(士兰微) released an announcement on jointly increasing the capital for its subsidiary Silan Microchip(士兰集科) with China’s National IC Industry Investment Fund Phase II after signing an agreement about the deal.

Silan’s stock price increased 11% at RMB55.39 ($8.77) on the morning of February 24, giving it a market capitalization of RMB80.1 billion ($12.68).

It’s reported that Silan Microelectronics will invest RMB285 million ($45.12 million), and Big Fund II will invest RMB600 million ($95 million). After that, the registered capital of Silan Microchip will increase from around RMB3 billion ($474.98 million) to RMB3.82 billion ($604.81 million).

The new investment will go into Silan Microchip, its joint venture with Xiamen of southeastern Fujian Province. It is still under construction with no primary business income in 2020, losing RMB119.31 million in the first nine months of 2021. It launched its first 12-inch fab in May 2021, with an expansion project of an annual output of 240,000 pieces of 12-inch high-voltage and power IC.

The added capital will accelerate the construction and operation of the 12-inch line and benefit its parent company’s development.

It is noticeable that the construction of the 12-inch fab costs significant funding, heavy assets, high technical barriers, and a long payback period. To ensure competitiveness, Silan Microchip needs to continue to invest in product R&D and manufacturing processes, equipment updates and maintenance, and talent training.

At the same time, the 12-inch fab might be affected by market changes. So Silan Microelectronics needs to adjust investment pace to avoid possible problems and seize the opportunity to expand production, strengthen management, develop new products and sales channels, and enhance anti-risk capabilities, according to analysts.

The National IC Industry Investment Fund (国家集成电路产业投资基金股份有限公司) was set up in 2014 by China’s Ministry of Finance and China Development Bank Capital to boost up the country’s chip industry. Phase II was officially incorporated in October 2019. Compared to Phase I, it is twice as big at 204.15 billion yuan ($28.9 billion).

The Big Fund Phase I, which invested in 23 semiconductor companies, resulted in multiple mergers, acquisitions, and IPOs.