The unstoppable wave of domestic alternatives in China's semiconductor industry is reshaping the landscape, leaving an indelible mark on the global stageRecently, Wuhan Tai Zhiwei introduced its T150 A photolithography resin, marking a significant milestone not just in its development but also because the formulation was designed entirely in-house, showcasing China's growing self-reliance in semiconductor productionThis is a reflection of a broader trend; in the first three quarters of this year, the sales figures of China's semiconductor industry soared by 23.9%. Industry leaders like Northern Huachuang, Zhaoyi Innovation, and Fuchuang Precision reported impressive performance increases, signaling that the domestic sector is not only alive and thriving but also entering a period of rapid growth that correlates with accelerated efforts to replace foreign technologies.

At the forefront of this movement is Dinglong Co., a pioneering force in China's quest for high-end semiconductor materials capable of replacing imported technologiesDinglong is being lauded for its commitment to challenging monopolies within the marketplace, embracing the mantra of "disrupting the status quo" with a robust platform business model that emphasizes self-sufficiency and controlled core operationsThis dedication places Dinglong among few key players with the caliber to make substantial advancements in such a competitive landscape.

Delving into the core of Dinglong's business, it operates through two primary segments: general consumables for printing and copying, and an impressive semiconductor segmentThe semiconductor division encompasses areas such as Chemical Mechanical Polishing (CMP), display materials, and advanced packaging materialsThis specialization positions Dinglong as a critical component in China's semiconductor infrastructure, focusing on technologies that require substantial barriers to entry—both technical and financialAs of the third quarter of 2024, Dinglong’s semiconductor revenue reached 452 million yuan, marking a remarkable 76% year-over-year growth and constituting 42% of the company's total revenue—certainly a pillar of strength that demonstrates significant potential for higher profitability.

To begin with, the CMP polishing pad business is a notable highlight

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Dinglong is the only supplier in China that comprehensively masters the entire process from R&D to production of CMP polishing padsThe company uniquely offers products across all four core materials essential for CMP manufacturing, which is pivotal for ensuring wafer surfaces are smoothened to meet the quality demanded in wafer fabricationWith key players in the semiconductor industry, like SMIC and ChangXin Memory Technologies, expanding their capacities, the demand for CMP solutions is expected to surge, representing a lucrative opportunity for Dinglong.

Currently, the global polish pad market remains dominated by Dow Chemical, which holds nearly 80% market shareHowever, in this competitive battleground, Dinglong has successfully undermined Dow’s monopoly and established a robust supply chain for raw materials, thereby mitigating potential risks of supply chain disruptionsIn addition, the company has developed a comprehensive ecosystem of polishing materials, achieving a wide range of product variations—numbering in the hundreds—which provides substantial advantages that highlight its capability for domestic substitution.

The next vital area of Dinglong's innovation lies in high-end OLED materialsDinglong has emerged as a trailblazer in producing flexible display materials, such as PSPI, being one of the first domestic companies to transition to mass production and salesPSPI materials are critical in the OLED display sector, characterized by high technological barriersThis achievement also signifies Dinglong's successful breach of a nearly 20-year overseas monopoly, establishing itself as the exclusive domestic manufacturer to achieve volume production and realize extensive sales—an enviable competitive edge in an emerging market.

In recent developments, the company’s Xiantao industrial park has officially commenced operations, boasting a production capacity of up to 1,200 tonsAs the PSPI production lines begin large-scale operations, Dinglong is poised to capitalize on significant upticks in demand

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Such technological breakthroughs cannot be overstated, given that they emerge from the company’s robust commitment to research and development (R&D). In the third quarter of 2024 alone, Dinglong invested 336 million yuan into R&D, with a sustained expense rate of over 10% since 2021. In contrast, competitors like Tongcheng New Materials and Yake Technology maintained R&D rates below 7%. This exemplifies Dinglong's dedication to innovation and its aspirations to maintain its competitive firing line.

Current performance metrics of Dinglong impressively reflect these breakthroughsIn the third quarter of 2024, the company reported revenues of 2.426 billion yuan—a remarkable 30% growth year-over-year, with a net profit of 376 million yuan, soaring by 113.51%. Notably, the profits accrued in just the first three quarters exceeded the entirety of 2023’s annual profit, indicative of the company's explosive growth trajectoryThis is complemented by a notable improvement in profitability metrics; the gross profit margin rose to an impressive 46.45%—the highest in its history and far surpassing competitors such as Tongcheng New Materials and Yake TechnologyThe semi-annual report revealed the gross margin for Dinglong’s semiconductor operations to be a staggering 67.21%, underscoring the significant leverage it holds in the profitability domain.

As we pivot to observe the future, Dinglong's expansive potential is also evident beyond CMP and PSPI—specifically in the realms of photolithography resins and advanced packaging solutionsStarting with the photolithography business, Dinglong, positioned as a leader in the domestic substitution wave, is not overlooking this crucial sectorPresently, the rate of domestication for photolithography resins in China remains dismally low, particularly for high-end KrF and ArF types, which barely surpass 10% domestically producedHowever, with ongoing breakthroughs by leaders like Tongcheng New Materials and Huamao Technology, the woeful local production rates are becoming a double-edged sword, highlighting a vast opportunity for growth and market penetration.

On December 9, Dinglong announced that its high-end ArF and KrF wafer photolithography products successfully passed customer evaluations, with two of China’s leading wafer manufacturing clients placing orders exceeding one million yuan combined

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