Loongson's IPO may lift home chipmakers

Chinese chipmaker Loongson Technology is banking on its upcoming IPO in Shanghai to beef up its research and production of advanced semiconductor technologies.

Loongson's plans dovetail with Chinese technology companies' efforts to strengthen the security of supply chains and achieve self-sufficiency in crucial technologies.

Beijing-based Loongson's IPO is expected to be made on the STAR Market, or the Science and Technology Innovation Board of the Shanghai Stock Exchange, with up to 41 million shares likely to be up for sale, potentially netting 3.5 billion yuan ($542 million).

Loongson's journey as a business started in 2001 with a research team under the Chinese Academy of Sciences. In 2010, it was spun off as a separate entity to commercialize its chip development research.

The firm was behind China's first self-developed general purpose microprocessor. It also created the architecture for central processing units, or CPUs.

Xiang Ligang, director-general of the Information Consumption Alliance, a telecom industry association, said Loongson chips have been used in China's space program, finance, energy and other fields so far.

Its products can be also found in desktop computers, notebooks, servers, network security equipment and industrial control computers.

"The IPO will help Loongson accelerate its commercial application, and facilitate it to leverage the capital market for rapid growth," Xiang said.

Loongson said in its prospectus that it plans to spend a third, or 1.25 billion yuan, of its anticipated IPO proceeds on research and production of advanced semiconductor technologies.

About 1.05 billion yuan will be used for research and development of graphic processing units, or GPUs, which can crunch large amounts of data rapidly and support artificial intelligence, machine learning and blockchain technologies.

The rest of the proceeds, expected to be around 1.2 billion yuan, might be used as liquid capital.

Hu Weiwu, president of Loongson, said earlier that Chinese chips are making steady progress, and more efforts are needed to develop a computing ecosystem, including software, to support their wider use.

"The wider their use, the better they will become. It will take time, but we are confident about the process," Hu said.

Loongson's 2020 revenue hit 1.08 billion yuan, a fivefold increase from 193 million yuan in 2018.

Higher expenses on research and development ate into its bottom line, slashing last year's profit by 62 percent to 72.23 million yuan.

Revenue grew rapidly as Chinese companies have been more willing in recent times than in the past to use homegrown chips, such as the ones made by Loongson, amid concerns that heavy reliance on foreign semiconductors may not be desirable for the country's electronics industry.

Sales revenue of China's integrated circuit, or IC, industry grew by nearly 20 percent annually in the last five years to reach 884.8 billion yuan in 2020, according to the Ministry of Industry and Information Technology.