Semiconductor chips are seen on a circuit board of a computer in this illustration picture taken February 25, 2022. REUTERS/Florence Lo/Illustration - RC2XQS9L5P9YRegister now for FREE unlimited access to Reuters.comHONG KONG, Aug 3 (Reuters Breakingviews) - A Chinese chipmaker is becoming Beijing's poster child for technological self-sufficiency. Hygon Information Technology (688041.SS) is readying a $1.6 billion float – the largest so far on Shanghai's STAR market this year. The company's controversial joint venture with U.S.-based AMD (AMD.O) formed back in 2016 gave it a leg-up in microprocessors, and the deal’s huge valuation premium spotlights its ongoing hope for success as it strikes out on its own.Hygon may be little-known outside the People's Republic, but it is a rising star at home. The company in 2018 debuted a cutting-edge processor on par with Intel (INTC.O) and AMD. Its partnership with the latter allowed Hygon to license advanced chip designs and sell its production to local hardware manufacturers including Lenovo (0992.HK). Escalating U.S.-China tensions have dealt a huge blow to the business, however. In 2019, Washington added both Hygon and its joint venture’s units onto the Entity List restricting them from U.S. exports. AMD says it has stopped selling products, providing services or transferring technology to the joint venture.The debutant’s challenge now is to become China's answer to AMD and more without the help of the U.S. giant. Proceeds from its initial public offering will mostly go towards research and development, a spend the company has been ramping up since its blacklisting. Between 2019 and 2021, Hygon invested 3.5 billion yuan ($519 million) in R&D, some 95% of combined revenue over the period. Its top line, in the meantime, is booming: sales last year more than doubled. The company also swung to a net profit from a net loss a year earlier.Register now for FREE unlimited access to Reuters.comHygon’s fortunes also will be felt in Beijing, where President Xi Jinping wants to reduce his country's reliance on foreign technology, especially in advanced semiconductors vital to strategic areas like artificial intelligence. Despite funnelling billions of dollars into developing local chipmaking, China is still technologically years behind leaders like Intel or Taiwan's TSMC (2330.TW), the industry behemoth U.S. House of Representatives Speaker Nancy Pelosi may visit today as part of her contentious visit read more to the self-governed island.Hygon will debut at a valuation over 300 times its 2021 earnings, an astronomical premium to global peers and almost three times the average of where four local listed rivals trade. At least there is plenty of vested interest in its triumph.Follow @mak_robyn on TwitterCONTEXT NEWSHygon Information Technology is due to open books on Aug. 3 for its initial public offering on the Shanghai STAR market, according to financial publication IFR. The company, which designs and manufactures microprocessors, plans to raise 10.8 billion yuan ($1.6 billion) in what will be STAR’s biggest offering in 2022.As part of the deal, Hygon is selling 300 million shares, or 12.9% of the enlarged capital, at 36 yuan each. The implied valuation is roughly 316 times its 2021 earnings, according to the company.In 2019, the U.S. Department of Commerce added the company, as well as units of its joint venture with U.S. chipmaker AMD onto its Entity list, which restricts access to U.S. goods and services.Register now for FREE unlimited access to Reuters.comEditing by Una Galani and Katrina HamlinOur Standards: The Thomson Reuters Trust Principles.Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.Robyn MakThomson ReutersRobyn Mak joined Reuters Breakingviews in 2013. Previously, she was a Research Associate for the Global Policy Programs at the Asia Society in New York where she focused on US-Iran relations, US-Myanmar relations and sustainability issues in Asia. She has also worked as a researcher at the Carnegie Endowment for International Peace in Washington DC and interned at several consulting firms, including the Albright Stonebridge Group. She holds a masters degree in international economics and international relations from the Johns Hopkins School of Advanced International Studies and is a magna cum laude graduate of New York University.
Chinese chip IPO is bet on double self-sufficiency.