Two years after listing on the Science and Technology Innovation Board, HUA HONG SEMI is finally fulfilling its promise. Recently, the company announced that it is planning to acquire controlling stake in Shanghai Hua Li Wei Electronics Co., Ltd. ("Hua Li Wei") through issuing shares and cash payment. The acquisition target is equity corresponding to part of Hua Li Wei's mature process business.

Hua Li Wei is a company jointly invested by HUA HONG SEMI and its indirect controlling shareholder Hua Hong Group. Hua Hong Group had previously committed to injecting Hua Li Wei into HUA HONG SEMI. This asset acquisition is part of the current M&A wave in the domestic semiconductor industry, and HUA HONG SEMI will further strengthen its strategic positioning focused on mature processes and specialty technologies, consolidating its technical advantages in automotive, industrial, and consumer electronics markets.

However, industry insiders believe that with accelerating technological iteration in the semiconductor industry and advanced processes gradually becoming mainstream, if the company cannot proactively increase R&D investment and deploy advanced technologies in advance, HUA HONG SEMI may face the risk of widening technological generation gaps.

**Asset Integration**

Regarding the controlling acquisition of Hua Li Wei, HUA HONG SEMI's announcement states the reason as "resolving IPO commitment regarding peer competition issues." This was actually a commitment made by Hua Hong Group when HUA HONG SEMI applied for listing on the Science and Technology Innovation Board.

In 2023, HUA HONG SEMI's Science and Technology Innovation Board prospectus showed that Hua Hong Group issued a "Supplementary Commitment Letter on Avoiding Peer Competition," promising to inject Hua Li Wei into HUA HONG SEMI within three years from the listing date on the Science and Technology Innovation Board, after fulfilling government regulatory approval procedures.

The acquisition target assets are equity corresponding to assets operated by Hua Li Wei that compete with HUA HONG SEMI in 65/55nm and 40nm processes (Hua Hong Fab 5). Currently, these target assets are in the separation stage.

According to HUA HONG SEMI's prospectus, the three process platform businesses where HUA HONG SEMI and Hua Li Wei have partial business overlap at 65/55nm process nodes will be divided as follows: 65/55nm standalone non-volatile memory and embedded non-volatile memory process platform related businesses will be undertaken by HUA HONG SEMI, while 65/55nm logic and RF process platform related businesses will be undertaken by Hua Li Wei. The 40nm process node businesses across various process platforms will also follow the above division standards, with standalone non-volatile memory and embedded non-volatile memory process platform related businesses undertaken by HUA HONG SEMI, and logic and RF process platform related businesses undertaken by Hua Li Wei.

From an industry perspective, HUA HONG SEMI's asset acquisition is an important component of the current M&A wave in the domestic semiconductor industry. From Hua Hong Group's own perspective, this restructuring is a strategic optimization based on the development strategies and financial conditions of both companies.

Industry expert Yuan Bo stated that after HUA HONG SEMI acquires Hua Li Wei's 65/55nm and 40nm competing assets, HUA HONG SEMI will integrate Hua Li Wei's capacity in 65/55nm and 40nm processes. This will enhance HUA HONG SEMI's capacity and technical capabilities in mature processes while reducing peer competition with Hua Li Wei, optimizing resource allocation, and complementing HUA HONG SEMI's existing technologies, thereby further expanding HUA HONG SEMI's customer base, consolidating its technical advantages in the mature process market, and meeting the growing demand in mature process markets such as automotive and industrial electronics.

According to the announcement, this transaction is still in the planning stage. HUA HONG SEMI is currently in contact with intended transaction parties, with preliminary transaction counterparts identified as Hua Hong Group, Shanghai IC Industry Investment Fund Co., Ltd., National IC Industry Investment Fund Phase II Co., Ltd., and Shanghai Guotou Pioneer IC Private Investment Fund Partnership (Limited Partnership). The final transaction counterparts will be subject to information disclosed in the restructuring plan or restructuring report.

The day after the news was announced, HUA HONG SEMI's A-shares began trading suspension, while H-shares fell for two consecutive days on August 18 and 19, dropping 6.2% and 3.12% respectively, with some recovery at the opening on August 20.

**Adhering to Mature Process Strategy**

Notably, amid growing demand for advanced process technology markets, HUA HONG SEMI continues to adhere to mature process specialty technology business, seemingly without plans to deeply cultivate advanced process fields.

From HUA HONG SEMI's recently disclosed Q2 financial report, mature processes remain its entire revenue source. Among these, sales revenue from 65nm and below process technology nodes accounted for 22.2% of total revenue; 90nm and 95nm process technology nodes accounted for 25.7%; 0.11μm and 0.13μm process technology nodes accounted for 11.3%; 0.15μm and 0.18μm process technology nodes accounted for 5.1%; 0.25μm process technology nodes accounted for 0.2%; and 0.35μm and above process technology nodes accounted for 35.5%.

By acquiring controlling stake in Hua Li Wei, HUA HONG SEMI only obtains part of the mature process assets, not including advanced process assets below 28nm. Hua Li Wei's core assets are Hua Hong Fab 5 and Hua Hong Fab 6. According to its official website, Hua Hong Fab 5 covers 65/55 and 40nm technology nodes and began production in 2011, while Hua Hong Fab 6 is planned for 28nm/22nm technology nodes and began production in October 2018.

However, industries corresponding to mature processes have experienced a downturn cycle in recent years, especially the consumer electronics market. HUA HONG SEMI was inevitably affected, experiencing declining revenue and net profit attributable to parent company for two consecutive years in 2023 and 2024. Fortunately, there has been some relief this year.

HUA HONG SEMI's Q2 2025 financial report shows sales revenue of $566 million, up 18.3% year-over-year and 4.6% quarter-over-quarter; profit attributable to parent company owners was $8 million, up 19.2% year-over-year and 112.1% quarter-over-quarter; gross margin was 10.9%, up 0.4 percentage points year-over-year and 1.7 percentage points quarter-over-quarter.

"From HUA HONG SEMI's Q2 performance, the dual growth in revenue and profit mainly benefited from the overall semiconductor market recovery. Particularly, the major trends of digitalization and intelligentization have brought industrial transformation in automotive, industrial control and other fields, with sustained strong demand for mature process chips, driving improvements in HUA HONG SEMI's capacity utilization," Yuan Bo said. Currently, the mature process market has gradually emerged from oversupply, mainly benefiting from vigorous digital transformation demands across various industries driven by new energy and intelligentization. As artificial intelligence develops rapidly across all fields, the process of industry digitalization and intelligentization continues, and market demand will keep growing.

By end market segment, consumer electronics remains the largest contributor to HUA HONG SEMI's revenue, with Q2 sales revenue of $357 million, up 19.8% year-over-year, accounting for 63.1% of total revenue; industrial and automotive sales revenue was $129 million, up 16.7% year-over-year, accounting for 22.8% of total revenue; communication business sales revenue was $71.64 million, up 20.4% year-over-year; computing business sales revenue was $7.91 million, down 21.5% year-over-year.

In Yuan Bo's view, HUA HONG SEMI's long-term focus on specialty processes and mature processes does provide certain "convenience" in the industry, allowing it to avoid direct competition with companies like TSMC and SMIC that focus on advanced processes.

"HUA HONG SEMI mainly focuses on mature processes and specialty processes, targeting automotive, home appliances, industrial and other markets. Currently, market demand remains in an upward trend, which is favorable for HUA HONG SEMI's performance in the short to medium term. Additionally, compared to SMIC's massive investment in advanced processes, HUA HONG SEMI's focus on mature processes requires much lower R&D costs than SMIC, allowing HUA HONG SEMI to maintain good cash flow and effectively support sustainable company development."

However, Yuan Bo also pointed out that from a long-term development perspective, with accelerating technological iteration in the semiconductor industry, advanced processes of 28nm and below are gradually becoming mainstream, with sustained climbing demand for small-size, low-power, high-performance chips. If the company cannot proactively increase R&D investment and deploy advanced technologies in advance, HUA HONG SEMI may face the risk of widening technological generation gaps. Once market demand in niche sectors begins shifting toward more advanced processes, the company will face severe technological upgrade challenges, and existing market advantages may be weakened.