GigaDevice eyes Hong Kong IPO as internal and external challenges bite

The Shanghai-listed chip designer is applying for a second listing in Hong Kong, following a recent trend for Chinese companies to make such dual listings

Key Takeaways:

• GigaDevice has filed for a Hong Kong IPO, reporting its net profit surged in 2024 but is still well below the level from 2022
• The chip maker’s valuation is higher than its global peers, but its operations could be affected by U.S. export restrictions on chip design software

By Bai Xinrui

A rush of Mainland China-listed companies onto the Hong Kong Stock Exchange, starting with home appliance maker Midea Group last September and culminating with the $4.5 billion listing for EV battery giant CATL, has sparked a goldrush among similar wannabes looking to hit up Hong Kong-based investors for cash. One of the latest to join that crowd is GigaDevice Semiconductor Inc. (603986.SH), which submitted its listing application earlier this month, and is also part of a growing tide of semiconductor firms with Hong Kong in its sights.

Founded in 2005 by Zhu Yiming and nurtured in the Beijing Tus Business Incubator, GigaDevice focuses on specialized memory and microcontroller unit (MCU) chips. It was restructured into a joint-stock company in December 2012 and brought in Hong Kong-based InfoGrid as a shareholder, before making its first listing in Shanghai in 2016. Currently, Zhu is the company’s largest shareholder with a 6.89% stake, followed by Hong Kong InfoGrid, controlled by Shu Qingming, a former company director, with 1.97%.

Boom-bust cycles

Integrated circuits, as microchips are often called, have benefited in recent years from the rapid rise of AI and electric vehicles. As that happened, the global IC market grew from $356.2 billion in 2020 to $515.3 billion in 2024, averaging nearly 10% annual growth, according to third-party data in GigaDevice’s listing document. As AI and other intelligent applications gain popularity and sophistication, the IC market is expected to reach $900.3 billion in 2029.

But while the broader IC sector continues to grow, certain segments are doing better than others. Notably, the memory chips that are GigaDevice’s focus are a highly cyclical business, typically going through boom-bust cycles every four years over the last two decades.

Weakening demand from the consumer electronics market since 2022, coupled with an ongoing buildup in memory chip capacity in 2023 and a slowdown in global economic growth, have driven memory prices to rock bottom lately. Only rising demand from AI applications began to revive the market last year, kicking off a new growth phase as investors began to return to the sector.

GigaDevice’s primary revenue drivers are specialized memory chips and MCUs, accounting for 70.6% and 23% of its revenue last year, respectively. They also contributed 79.7% and 23.6% of its 2024 gross profit. Specialized memory chips, including flash and niche DRAM, are used in areas such as consumer electronics, industrial applications, communications, and automotive electronics, responsible for data memory. MCUs, which integrate memory, timers, and other functional circuits onto a single chip, offer capabilities similar to central processing units (CPU) in personal computers.

Riding a growing wave of AI applications and recovering smartphone demand, GigaDevice’s revenue rose 27.7% last year to 7.36 billion yuan ($1.03 billion). Revenue from specialized memory chips, which contributed 70% of the total, increased 27.4% to 5.20 billion yuan. That increase, together with a 7.3 percentage point year-on-year jump in that segment’s gross profit margin to 40.3%, caused GigaDevice’s net profit to surge nearly sevenfold to 1.10 billion yuan last year.

Declining chip prices

Despite last year’s sharp profit rise, the figure is still 46.3% lower than the company’s 2.05 billion yuan profit for 2022. What’s more, the average selling prices of GigaDevice’s two main businesses continued to decline. The average price of specialized memory chips dropped 31.8% from 2.14 yuan in 2022 to 1.46 yuan in 2024, while the price of MCUs over that time fell by nearly half from 8.22 yuan to 4.13 yuan.

It’s also worth noting that GigaDevice’s business is highly vulnerable to recent U.S. actions to stifle China’s technology ambitions. The company relies heavily on imported electronic design automation (EDA) software in particular, since domestic alternatives remain relatively low quality. Global leaders in that space are U.S.-based Cadence, Synopsys, and Mentor Graphics, a U.S. subsidiary of Siemens, which hold 46%, 32%, and 14% of the global EDA market, respectively, or 92% collectively.

In discussing the risk factors it faces, GigaDevice disclosed that EDA software suppliers were recently told by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) to stop supplying EDA software to China, which could negatively impact GigaDevice’s design capabilities.

While GigaDevice mostly operates in the memory chip market, one of its biggest drawbacks is its inability to produce the high-bandwidth memory (HBM) that AI chip giant Nvidia (NVDA.US) requires most urgently. That is leaving it out in the cold in supplying to the rapid expansion and growth of data centers used to power AI applications. Instead, GigaDevice’s memory chips are mostly used in consumer electronics and automotive electronics, which are highly susceptible to industry cycles.

The global memory chip market is currently led by South Korea’s SK Hynix (000660.KS) and Samsung Electronics (005930.KS), which trade at forward price-to-earnings (P/E) ratios of approximately 6 times and 12 times, respectively. By comparison, GigaDevice’s Shanghai-listed stock currently trades at a much higher forward P/E ratio of 50 times, which seems disproportionately high compared to its much larger and stronger global peers.

A Hong Kong listing at such a high valuation seems unlikely, at least not without some major breakthroughs by the company. Unless GigaDevice can break into the high-end memory chips its valuation is likely to come under pressure in its Hong Kong IPO.

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