Xi’an’s Eswin Material Technology IPO will fund chip wafer plant

After a two-year lull, Chinese investors are tiptoeing back into domestic start-ups. Reforms of stock market regulations by China Securities Regulatory Commission and others  have made it easier for potential future champions to raise capital regardless of their current profitability. Eswin Material Technology (西安奕斯伟材料科技股份有限公司) is a case in point. Founded nine years ago, it now competes directly with foreign suppliers in 12-inch wafer production. The firm produces electronic grade polished silicon wafers and epitaxial wafers used for semiconductor production. In October, the Xi’an subsidiary of Beijing’s Eswin Technology Group became the second-largest IPO in China this year after Huadian New Energy, according to Law Asia, even though a price war is putting pressure on its bottom line. 

Debuting on Shanghai’s STAR stock exchange, its share price shot up nearly 200 percent on the day, raising €561 million (4.6 billion yuan), or 94 percent of its initial target. Investors have been buoyed by the promise that Eswin Material Technology could reduce China’s dependence on high-quality wafers from the West, as well as Beijing willingness to ‘do what it takes’ to break this bottleneck. Investors also take confidence in the company’s chairman, Wang Dongsheng, who is known for transforming BOE Technology Group into the world’s largest display maker. Wang plans to use IPO funds to build a second wafer plant in Xi’an, aiming to increase monthly output by 85 percent, from 650,000 to 1.2 million wafers by 2026, and increasing Eswin’s global share from 6-7 percent to over 10 percent. 

But these goals may be too ambitious. Eswin Material Technology can only offer 12-inch wafers at about 50 percent of the international price because its domestic suppliers are engaged in an unsustainable price war. At some point, Eswin will start paying more for its inputs. Moreover, already the wafer firm itself has accumulated losses of EUR 317 million (CNY 2.6 billion). Finally, although Eswin seeks to insulate itself from geopolitical tensions by using local suppliers wherever possible, the tensions may still scare off its current foreign clients, such as UMC and GlobalFoundries. However, investors bet that the Chinese government will make sure Eswin Material Technology keeps thriving.