By | Li Zhengcao
Image Source | Network
Key Highlights:
1. Computing chips are among the most challenging categories in chip sub-classifications, requiring a long time for technology accumulation and user feedback. As a domestic CPU developer, Guoxin Technology has filled the gap in key areas such as information security and industrial control with its self-developed CPUs, helping to establish an ecosystem for CPU domestic substitution and achieving a breakthrough from “0” to “1”. The company has realized over 40 CPU cores across 8 major series based on three instruction sets (“M*Core instruction set”, IBM licensed “PowerPC instruction set”, and open-source “RISC-V instruction set”), forming a deep reserve of embedded CPU IP, capable of rapid development of chips across various process nodes including 14nm, 28nm, 40nm, 65nm, 90nm, 130nm, and 180nm.
2. A rich and strong customer base. In automotive electronics, close cooperation has been established with Tier 1 automotive electronic module manufacturers such as Aitec and Kersida, and several domestic automotive manufacturers have begun to use them in bulk, including BYD, Changan, Great Wall, Chery, SAIC, and Dongfeng; application customers for IP licensing and chip customization services include subsidiaries of large state-owned enterprises such as the State Grid, Southern Power Grid, and China Electronics, as well as research institutes under the Chinese Academy of Sciences, Ministry of Public Security, National Core Password Research Units, and Tsinghua University.
3. Focused on national major needs, automotive electronics, and cloud security applications, laying out in high-growth tracks, continuously exploring markets and new customers, the future product pool is rich, and performance will continue to grow.
Part One: Overview of Guoxin Technology Company
The report from Jiwei Network states that Suzhou Guoxin Technology Co., Ltd. (stock abbreviation: Guoxin Technology, stock code: 688262) was established in 2001, funded by Shanghai Technology, Nanjing Sweet, and Shenzhou Information. In 2019, new investment institutions were introduced, and it was changed to a joint-stock company, subsequently listed on the Shanghai Stock Exchange’s Sci-Tech Innovation Board in 2022. The company has established a high-performance, low-power 32-bit RISC embedded CPU technology with independent intellectual property rights based on the Motorola licensed “M*Core instruction set”, IBM licensed “PowerPC instruction set”, and open-source “RISC-V instruction set”. After more than twenty years of R&D, innovation, and accumulation, the company has realized over 40 CPU cores across 8 major series based on the above three instruction sets, forming a deep reserve of embedded CPU IP, focusing on the R&D and industrial application of domestically controllable embedded CPU technology.
Figure 1: The three main development stages of Guoxin Technology
Guoxin Technology has no controlling shareholder; Qiyue Fund holds 13.38% of the shares, making it the largest shareholder, while Tibet Taida holds 10.79% as the second-largest shareholder, and the National Integrated Circuit Fund holds 8.63% as the third-largest shareholder. Zheng Zha, Xiao Zuonan, and Kuang Qihe directly hold 14.58% of the company’s equity and indirectly control 13.79% through Lianchuang Investment, Xisheng Investment, Xifeng Investment, Xixin Investment, and Xusheng Science and Technology Innovation, totaling 28.37% of the company’s equity, making them the actual controllers of the company.
Figure 2: Shareholding structure of Guoxin Technology
Zheng Zha, Xiao Zuonan, and Kuang Qihe are all experts with special allowances from the State Council, and the actual controllers are also the company’s management, all possessing relevant technical backgrounds, with work experience including chip design, software design, etc.
Zheng Zha, Chairman of Guoxin Technology, was formerly the head of Motorola’s Suzhou Integrated Circuit Design Center. During his four years at Motorola, he organized and led the design of system chips based on PDA and mobile phone applications at 0.18um-0.13um, expanding the design team to over a hundred people.
Xiao Zuonan, General Manager of Guoxin Technology, served as an engineer at China Huada Integrated Circuit Design Company from 1994 to 1998, and from 1998 to 2003 held various positions at Motorola (China) Electronics Co., Ltd. Suzhou Design Center, including engineer and department manager, and from 2003 to 2019 served as manager of the IC design department and general manager at Suzhou Guoxin Technology Co., Ltd.
Kuang Qihe, Deputy General Manager of Guoxin Technology, worked as an engineer and department manager at Wuxi Little Swan Co., Ltd. from 1994 to 1998, pursued a doctorate at Nanjing University of Aeronautics and Astronautics from 1999 to 2002, and served as department manager related to information security and IoT at Jiangsu Yiyuan Technology Co., Ltd. from 2002 to 2003, and from 2003 to 2019 held various positions at Suzhou Guoxin Technology Co., Ltd., including department manager and deputy general manager.
Part Two: What is an Embedded CPU?
Embedded CPU technology mainly involves CPU instruction sets, CPU cores, and SoC chips.
Figure 3: Embedded CPU chip technology
The Instruction Set Architecture (ISA) is a collection of instructions used for computing and controlling systems in a type of CPU, which can be divided into two major categories based on complexity: Complex Instruction Set Computer (CISC) and Reduced Instruction Set Computer (RISC). The embedded CPU instruction sets mainly include ARM, PowerPC, MIPS, and RISC-V, which are all RISC architectures.
X86, introduced by Intel, is a complex instruction set used to control the operation of chips and is widely used in the computer market. The X86 architecture first appeared in the Intel 8086 microprocessor launched in 1978, later adopted by IBM PC, becoming the standard platform for personal computers and the most successful CPU architecture ever; ARM is the most widely used and well-ecologized RISC architecture, which is still not open-source, posing certain supply chain risks and requiring high licensing fees; MIPS, RISC-V, and Power are all open-source RISC architectures, with Power architecture known for its high performance and widely used in high-performance and reliable servers and automotive fields.
Figure 4: Comparison of different mainstream instruction architectures
Implementing the instruction set architecture into physical circuits constitutes the microarchitecture of the processor, which is one of the core technologies of embedded CPUs, determining core indicators such as CPU core performance and power consumption. The CPU core is responsible for all calculations, receiving/storing commands, processing data, etc., and is the core of digital processing. Currently, the vast majority of chip design companies worldwide design chips by purchasing mature embedded CPU core licenses, while a few top international chip design companies like Qualcomm and Apple design embedded CPU cores themselves by obtaining instruction set licenses. Embedded CPU cores are usually provided to downstream chip design companies as Intellectual Property (IP).
SoC (System on Chip) chips are the final manifestation of chip products, typically integrating certain dedicated functional circuits, peripheral device interface circuits, memory interface circuits, etc., along with the CPU core.
Guoxin Technology is a company developing embedded CPUs based on instruction set architecture licenses. The company obtained the “M*Core instruction set” from Motorola in 2002, the “PowerPC instruction set” from IBM in 2010, and began researching the open-source “RISC-V instruction set” in 2017. With the open-sourcing of the “PowerPC instruction set” and “RISC-V instruction set” architectures, the company is no longer restricted by instruction set licensing for developing embedded CPUs based on these architectures.
Figure 5: Guoxin Technology’s instruction set licensing situation
Part Three: Guoxin Technology Company Products
Guoxin Technology’s products mainly revolve around self-developed CPU cores, providing IP licensing, chip customization services, and self-made chips and module products to customers in key areas of national major needs and market demands, mainly applied in information security, automotive electronics, industrial control, edge computing, and network communication. The company’s IP licensing and chip customization services are based on self-developed embedded CPU technology, providing key technical support for achieving secure, controllable, and domestically produced chips in the three application areas. The company’s customers for the industrial application of controllable embedded CPUs mainly include subsidiaries of large state-owned enterprises such as the State Grid, Southern Power Grid, and China Electronics, as well as research institutes under institutions like the Chinese Academy of Sciences and Tsinghua University, and many well-known domestic companies such as Lenovo, BYD, and Weichai Power.
Figure 6: The three major business segments of Guoxin Technology
IP licensing: The IP licensing business mainly refers to licensing self-controllable embedded CPU cores and their SoC chip design platform to customers. The self-controllable CPU core is a crucial factor in ensuring the chip’s controllability and also determines the requirements for the supporting software development and application ecosystem. The company has designed over 40 CPU cores across 8 major series with independent intellectual property rights based on Motorola’s “M*Core”, IBM’s “PowerPC”, and the open-source “RISC-V” instruction sets, achieving domestic substitution for embedded CPU technology and providing customers with CPU core IP licensing.
Figure 7: Guoxin Technology’s eight series of CPU cores
The M*Core instruction set core is suitable for low-power, low-cost applications; RISC-V is new, the instruction set is open-source, design is straightforward, and the toolchain is nearly complete, allowing for modular design; the Power instruction architecture is mature, with advantages in system reliability and stability, covering the entire industry application from embedded systems to servers and supercomputing. In October 2019, IBM open-sourced its Power instruction architecture, which has been well-received in the industry, and its application ecosystem is relatively mature. Guoxin Technology’s automotive electronics field adopts the PowerPC architecture, mainly due to its widespread application and good ecosystem, suitable for mid-to-high-end application fields.
The types of customers for IP licensing mainly include emerging chip design companies, mature chip design companies, IDM companies, and system manufacturers. 1) Emerging chip design companies are relatively small in scale, generally choosing to concentrate resources on chip product definition, advanced algorithms, and functions, as well as advantages in customer resources, integrating development through the procurement of CPU IP or other functional IP to supplement shortcomings in design resources and CPU core architecture. 2) Mature chip design companies and IDMs have strong brand strength, market share, and chip R&D, design, and sales capabilities, with a wide variety of chip products and long product lines, making it difficult to invest sufficient R&D personnel in chip design and production management for each product line. They tend to purchase mature, stable IP and delegate more design processes to chip design service companies to shorten their product market iteration cycles. 3) System manufacturers purchase CPU IP licenses mainly for the chip design of their own complete machines or module products, generally not selling chips externally. Standardized chip products struggle to meet the differentiated competition and supply chain stability needs of system manufacturers, leading to more system manufacturers opting for customized chips from design service companies to gain product competitiveness and supply assurance. Additionally, some manufacturers actively seek domestic customized substitute chips due to shortages in imported chip supply.
Moreover, the company has established SoC chip design platforms focused on information security, automotive electronics, industrial control, edge computing, and network communication, based on self-controllable embedded CPU cores and self-developed peripheral application IP modules, combined with some externally procured peripheral IP modules. The platform has undertaken several major product projects in key areas, enabling rapid development of chips across various process nodes including 14nm, 28nm, 40nm, 65nm, 90nm, 130nm, and 180nm. Currently, dozens of chip designs and millions of chip mass productions are completed annually based on the platform, with mature, stable, and reliable technology that can help customers quickly and accurately achieve chip design, enhancing customer design efficiency and effectively reducing the time for their products to enter the market.
Figure 8: Guoxin Technology’s three SoC design platforms
In the development of new products in the embedded CPU field, the company continues to invest in R&D based on RISC-V and PowerPC instruction architectures and has initiated the design of 64-bit multi-core CPUs, which is a superscalar processor with a multi-level pipeline, meeting market demands for big data processing in edge computing and network communication fields, and is expected to achieve external authorization in the first half of 2023. In the industrial control field, the stepper motor control chip developed for customers has completed design and successfully entered mass production, with customer internal reliability verification completed, preparing for the chip usage switch for a certain project.
Figure 9: Comparison of Guoxin Technology’s automotive electronics MCU development history
Overall, the wave of open-source architecture has further enriched the product ecosystem. Although Guoxin Technology’s embedded CPU IP licensing business is not as extensive as ARM’s, it has initially established an ecological environment focused on key areas such as information security, IoT, automotive electronics, industrial control, edge computing, and network communication, and has taken the lead in supporting the realization of advanced 14/7nm process nodes. In emerging application areas represented by IoT, the market’s long-tail and fragmented characteristics lead to a large number of personalized and differentiated demands in various application scenarios. Meanwhile, IoT places greater emphasis on low-power chip characteristics. The extreme simplicity and flexible architecture of RISC-V, along with its modularity, allow users to modify and expand freely to meet different application needs and low-power requirements. Moreover, both RISC-V and PowerPC are open-source instruction sets, and adopting these instruction sets helps achieve “autonomy, security, and controllability” at the underlying architecture level.
Based on the company’s own IP reserves and the overall development trend of the industry, it is expected that this business segment will continue to grow steadily in the future.
Chip customization services: Chip customization services mainly refer to the company’s provision of customized chip design services and mass production services based on self-controllable CPU cores and application-oriented SoC chip design platforms. Customized chip design services mean defining and designing chips according to customers’ customized requirements in terms of chip functionality, performance, power consumption, and cost, forming a layout that is then produced and tested by the company or entrusted to a wafer factory and packaging testing factory, ultimately delivering tested and verified samples to customers.
Mass production services for customized chips refer to the company providing mass production services based on the layout data of customized chip design services provided to customers or layouts/samples provided by customers, and delivering qualified wafers or chip products to them.
Figure 10: Design/mass production customers served by Guoxin Technology as of H1 2021
(H1 2022 detailed data not disclosed)
Information security terminal application field: Integrated customer password algorithm information security chips used in PCs, servers, physical isolators, and other network devices and terminals, integrated with domestic password algorithms for information security chips used in power industry distribution terminals, power carrier devices, and mobile terminals; automotive electronics and industrial control terminal application field: mainly used in embedded device controllers, printer main controls, etc.; edge computing and network communication terminal application field: mainly used in secure access gateways and network communication processors.
As of June 30, 2022, the company has provided CPU IP licensing to over 101 customers for more than 144 times and provided chip customization services to over 80 customers for more than 164 times. Currently, application customers for IP licensing and chip customization services include subsidiaries of large state-owned enterprises such as the State Grid, Southern Power Grid, and China Electronics, as well as research institutes under institutions like the Chinese Academy of Sciences and Tsinghua University. The company will further deeply integrate with leading or specialized enterprises in segmented industries, providing embedded CPU technology and chip customization services, continuously enriching the series of products in this field.
Overall, in the chip customization service area, in the first half of 2022, the company, leveraging its technical accumulation in information security, automotive electronics, industrial control, edge computing, and network communication chip platforms, actively engaged in customized chip design services primarily focused on national major needs. The company is striving to seize key customer opportunities for chip upgrades and replacements, with ample orders in the chip customization service sector. While deeply exploring major customer upgrade and replacement customized chip design service projects, the company is focusing on tackling challenges, especially for clients in the national major needs sector, achieving breakthroughs and forming collaborations and sales with new customers and products, establishing technical characteristics and market advantages in segmented fields such as information security, automotive electronics, industrial control, edge computing, and network communication, and has gained a good reputation in the industry. The company’s customized chip design service content is fundamentally complementary to its technology, mutually promoting each other.
Self-developed chips and module products: The company’s self-developed chips and module products mainly focus on information security, covering key areas such as “cloud” to “end” security applications, including cloud computing, big data, IoT, intelligent storage, industrial control, and financial electronics, as well as important products like servers, automobiles, and smart terminals. Users of self-developed chips and module products include well-known information security system and equipment manufacturers such as Zhongyun Xinan, Dahua Co., Ltd., Suzhou Keda, Nanrui Group, Deepin, Newland, Zhongfu Information, and Tianyu Information. At the same time, the company is actively developing automotive electronic chips, covering areas such as body control, engine and new energy motor control, domain control, and new energy battery management system control.
In the information security field, the company is one of the few domestic manufacturers that can provide a series of security chips and module products from “cloud” to “end”. The new generation CCP908T series cloud security chip’s symmetric algorithm performance reaches the technical indicators of similar products from international leading enterprises, achieving international advanced levels; the company is the first domestic enterprise to pass the international PCI5.1 standard assessment for financial terminal security master control chips, realizing the industrialization of domestic financial security chips supporting national secret algorithms; the automotive-grade security chip developed by the company has passed AEC-Q100 standard certification, with high-level security features and hardware algorithm coprocessors, supporting national commercial password algorithms and international password algorithms, and has obtained the national secret level two certificate and the national test EAL4+ security certificate, making it one of the few manufacturers capable of providing security chips for automotive and vehicle networking communication security in China.
In the automotive electronics field, the CCFC2012BC mid-to-high-end body and gateway control chip launched in the first half of 2022 can benchmark foreign products such as NXP’s MPC5604BC, MPC5607B series, and ST’s SPC560B50, SPC560B64 series, and has been widely welcomed in the market, with rapidly increasing orders. This chip adopts the self-controllable PowerPC instruction set. As of the end of June 2022, the new generation mid-to-high-end body/gateway control chip successfully developed by the company has received orders exceeding 2 million pieces and achieved shipments of hundreds of thousands of pieces, with application scenarios including complete vehicle control, body gateways, airbags, keyless start, and T-BOX, capable of replacing foreign products, covering both new energy vehicles and traditional passenger cars, with very strong demand. Currently, the company’s automotive electronic chip products primarily focus on body control chips, and the company entered this field relatively early, establishing close cooperative relationships with Tier 1 automotive electronic module manufacturers such as Aitec and Kersida, with several domestic automotive manufacturers beginning to use them in bulk, including BYD, Changan, Great Wall, Chery, SAIC, and Dongfeng.
(The company’s automotive electronic MCU R&D history: In 2009, the company initiated key technology R&D for automotive electronics and industrial control chips, launching the embedded CPU core C2002 and corresponding SoC chip design platform for automotive electronics and industrial control fields. In 2014, the company undertook the national major science and technology project “Research and Industrialization of Body Electronic Controller SoC Chip”, launching chips suitable for applications in body control and vehicle gateways, such as CCFC2002BC. In 2015, the company initiated the development of the chip CCFC2003PT for engine control applications. In 2017, the company started the development of the second-generation engine control chip CCFC2006PT. All of the above chips have now passed AEC-Q100 Grade 1 testing and certification, and have been launched into the market, achieving domestic substitution in key areas of China.)
In the edge computing and network communication field, the company has successfully developed RAID control chips and high-performance SoC chips H2048, H2068, and S1020, supporting key chips for storage servers’ domestic substitution.
Part Four: Financial Analysis of Guoxin Technology
In 2021, Guoxin Technology achieved operating revenue of 407 million yuan, a year-on-year increase of 56.99%, of which main business revenue was 401 million yuan, accounting for 98.55% of total annual revenue, a 55.26% increase from 2020; the net profit attributable to shareholders of the listed company was 70.205 million yuan, a year-on-year increase of 53.47%. The net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses was 43.801 million yuan, a year-on-year increase of 82.13%.
From 2017 to 2021, the company’s self-developed chips and chip customization contributed significantly to revenue, with IP licensing having high gross profit margins, ranking third in share. The revenue growth rate of self-developed chip products from 2017 to 2021 was CAGR of 37.81%, with 2021 revenue increasing by 158.75% year-on-year, contributing 220 million yuan, accounting for 54.16%. The significant growth in self-developed chip products is mainly due to the completion of mass production introductions of multiple chip products developed in key areas in the earlier stages, with new orders significantly increasing compared to the previous year; chip customization services contributed 93 million yuan, accounting for 22.78%; IP licensing contributed 88 million yuan, accounting for 21.60%; other businesses contributed 6 million yuan, accounting for 1.45%.
Figure 11: Revenue situation of Guoxin Technology by product classification (ten thousand)
From an application field perspective, from 2017 to 2021, the information security field consistently contributed the most revenue, accounting for 60.75% in 2021; the automotive electronics share has been expanding, accounting for 20.40% in 2021, and is expected to continue to rise; the share of edge computing and network communication has also increased, accounting for 17.39% in 2021. While the company has advantages in the information security field, it is also actively pushing forward in automotive electronics and industrial control, as well as edge computing and network communication, with significant revenue growth achieved in both fields. In the coming years, the self-developed chip and module business is expected to maintain rapid growth, thus steadily increasing the company’s operational scale and fully realizing the benefits of its technological advantages.
From 2018 to 2021, the company’s gross profit margins were 57.88%, 58.49%, 66.24%, and 52.85%, respectively. The decline in gross profit margin in 2021 was due to the increased proportion of revenue from self-developed chip and module products with lower gross margins, along with the relatively low margins from customized chip mass production services.
Figure 12: Gross profit margin situation of each product line of Guoxin Technology
The IP licensing business involves licensing CPU IP that has been successfully developed and verified to customers, with the investments incurred during the R&D process accounted for in the current costs. Therefore, from 2017 to 2021, the gross profit margin of the IP licensing business has remained at 100%. In the chip customization business, both design and mass production margins have decreased to some extent, with design business being related to the company’s strategic development in this area, involving price adjustments, while mass production margins are mainly related to insufficient transitions between new and old products; the gross margin of self-developed chip business has increased, mainly due to product structure adjustments, with the rising share of high-margin categories.
Regarding sales expenses: Compared to other comparable companies, the company’s sales expense ratio is higher, primarily because: 1) the company’s key customers are mainly major national demand customers, requiring continuous resource investment for customer development and maintenance; 2) IP licensing, chip module, and other businesses require longer verification and testing times compared to ordinary consumer products, and chip customization services also require ongoing communication with customers regarding needs, leading to higher expenses; 3) the company adopts a direct sales model, necessitating more sales personnel investment in market development. The company’s management expense ratio has generally remained around 10%, and it is expected to gradually decrease as income levels rise. The company has a high proportion of R&D investment relative to revenue. The three main businesses of self-developed chips and module products, IP licensing, and chip customization services all require high levels of technical R&D investment, and the company continues to maintain high R&D investment ratios, which is beneficial for the development of new technologies and products, consolidating its competitive advantages.
Figure 13: Guoxin Technology’s four expense situations (ten thousand)
From a financial analysis perspective, in the field of self-developed chips and modules, the company is continuously launching new products and actively introducing them into the market, with expectations of maintaining a high growth rate; in the chip customization service field, although the semiconductor industry is currently experiencing moderate conditions, the advancement of IoT applications is positive, and the company can rapidly respond to the customization needs of startup companies, which is expected to maintain a high level of activity; IP licensing is a core business with high gross margins, with revenue mainly depending on the speed of acquiring new customers, resulting in relatively stable income growth.
Part Five: Market Outlook for Guoxin Technology
As of 2020, the number of integrated circuit design companies in China reached over 2,200, more than doubling from 736 in 2015, with an average compound annual growth rate of 24.69%. In the face of rapidly growing and quickly iterating market demands, more and more integrated circuit design companies and complete system manufacturers are choosing customized services for mid-to-high-end SoC chips to improve design efficiency and enhance product competitiveness, thus driving an increase in demand for chip customization services.
In the embedded CPU IP licensing field, ARM holds an absolute leading position. According to Nvidia’s announcement, chips based on the ARM architecture have cumulatively shipped 180 billion units. By the end of 2018, ARM architecture chips held over 90% of the global mobile phone market share. Due to the high technical barriers and ecosystem requirements of embedded CPU microarchitecture design, only a few giants like ARM and SiFive have the long-term investment capability for embedded CPU design and R&D and engage in licensing business. Currently, in terms of domestic CPU products in China, the instruction sets used by domestic CPUs are also showing a diversified state, with processes mainly concentrated in the 28-14nm process nodes, while Intel, AMD, and IBM mainly use high-end processes below 7nm, showing a significant gap. Currently, Shanghai Zhaoxin and Loongson Zhongke have launched consumer-grade CPUs and related products, with Zhaoxin holding x86 instruction set licenses, providing good compatibility, while Loongson has abandoned the MIPS instruction set architecture in its 3A5000/3B5000 products, adopting self-developed instructions, achieving a new breakthrough in the instruction set market for processors in China. Additionally, Tianjin Haiguang and Huawei Kunpeng are used for servers.
Figure 14: Parameters of some state-owned CPUs
The self-developed instruction set of Loongson Zhongke is a good start for establishing a complete ecosystem. Domestic CPUs need to follow an independent and self-reliant path, which helps break through foreign technology and patent blockades. Currently, China has reached the international mainstream level in integrated circuit design and packaging, but still relies heavily on overseas technology in integrated circuit manufacturing, and the healthy development of domestic CPUs requires comprehensive construction of the entire industry chain to face increasingly complex international situations.
Computing chips are among the most challenging categories in chip sub-classifications, requiring a long time for technology accumulation and user feedback. As a domestic CPU developer, Guoxin Technology, whether in market share or technical level, finds it difficult to compete with international leading enterprises, but its self-developed CPUs have filled the gaps in key areas such as information security and industrial control, achieving a breakthrough from “0” to “1”. With a solid foundation of self-developed IP, the extension of the company’s customized chips and self-developed chips is expected to naturally follow, allowing for mutual reference and validation among engineering experience, quality management, and product reliability, ensuring the success rate, technical stability, and reliability of chip design. This interactive validation is also beneficial for the company’s technical route to remain highly aligned with market demands, continuously iterating and upgrading.
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