Exclusive: Unigroup-backed phone chip designer worth $9.1 billion, plans to start IPO process next year

Unisoc, a mobile phone chip designer backed by Tsinghua Unigroup, is nearing the completion of a funding round worth around 66 billion yuan ($9.11 billion), missing its previous target (para. 1). The round, worth more than 4 billion yuan, involves investors such as the Shanghai Municipal State Assets Supervision and Administration Commission, Beijing Jingguorui Equity Investment Fund Management Co. Ltd., ICBC Capital Management Co. Ltd., BOCOM Financial Asset Investment Co. Ltd. ., and PICC Capital Equity Investment Co. Ltd. (para. 2). Other participants include China Securities Co. Ltd., Guotai Junan Securities Co. Ltd. and Hony Capital (para. 2). This financing, together with a 3.2 billion yuan syndicated loan secured in March, is expected to support the company until its initial public offering, which is scheduled to list on Shanghai’s STAR Market next year. (para. 3).

Shanghai-based Unisoc mainly produces chips for consumer electronics and reports sales of 14 billion yuan in 2022, up about 20% from 11.7 billion yuan in 2021 (para. 5). Despite not yet making a profit, the company is expanding its 5G chip business with the aim of breaking even by 2025. (para. 4). Given the challenging fundraising environment for domestic chipmakers, Unisoc’s ability to secure substantial funds is remarkable, helped significantly by support from the Shanghai government and Tsinghua Unigroup. (para. 6). Complications arose due to leadership changes and shareholder disputes over employee stock incentives (para. 7).

Unisoc’s previous major fundraising took place in April 2021, raising 5.35 billion yuan and valuing it at around 60 billion yuan, with plans to list on the STAR Market. (para. 8). These plans were postponed due to the bankruptcy of Tsinghua Unigroup and subsequent reorganization, with the company being acquired by Beijing Jianguang Asset Management Co. Ltd. in July 2022. and Wise Road Capital Ltd. (para. 9). For a STAR Market listing, the actual controller, now the PE companies, must be in charge for two years (para. 10). Tsinghua Unigroup remains the largest shareholder with a 35.23% stake (para. 11).

Unisoc explored alternative financing options in early 2023 and presented potential investors with two proposals: one from Unigroup and another from the management team led by then-chairman Wu Shengwu, revealing internal disagreements. (para. 13)(para. 14). Wu, appointed chairman of Unisoc in February 2022, aimed to raise 15 billion yuan at a valuation of 70 billion yuan, focusing on all pre-IPO funds and expanding into the automotive chip market. (para. 17). Despite securing term sheets worth more than 15 billion yuan in June, some investors demanded buyback deals, which Unigroup rejected (para. 18).

Disputes among shareholders over stock incentives for employees, dating back to earlier share distribution promises that never materialized, have led to ongoing litigation and a freeze on 8.37% of shares held on behalf of employees. (para. 20)(para. 21). Wu’s opposition to Unisoc’s acquisition of JLQ Technology Co. Ltd., the consortium’s smartphone chip joint venture, further strained relations (para. 24). Unigroup then removed Wu in June 2023 and replaced him with Ma Daojie (para. 25).

The PE consortium, which now controls Unisoc’s financing efforts, faced a challenging environment due to the oversight of unprofitable companies and the economic downturn (para. 27). The latest round of funding keeps Unisoc’s valuation relatively low and new resources are being allocated to support operations (para. 29). The government’s support continues to reflect Unisoc’s potential to compete with major industry players such as Qualcomm and MediaTek (para. 30). The company is leveraging 4G and older chips for revenue while expanding its 5G market share, with 26 million smartphone processors shipped in the first quarter of this year (para. 32)(para. 33). Unisoc’s strategic opportunities lie in AI-embedded system chips and automotive chips, which provide alternatives to Qualcomm (para. 34).

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