Once high-flying Chinese chip firm to delist from Shenzhen after financial fraud inquiry

01/07/2024

Beijing Zuojiang Technology said that its shares will cease trading in the Shenzhen from July 26

Chinese chip firm Beijing Zuojiang Technology, which once touted its potential to rival Nvidia Corp, will be delisted from the Shenzhen Stock Exchange after being investigated for financial fraud, marking another cautionary tale in the country's semiconductor industry.

In a regulatory filing on Friday, Zuojiang Technology said that its shares will cease trading in the Shenzhen bourse on July 26. This comes after the company was not able to present a clean audit report for its 2023 financial results, which prompted the Shenzhen Stock Exchange to move for its delisting.

Earlier this year, the China Securities Regulatory Commission (CSRC) said it found the 2023 financial disclosures of Zuojiang Technology to be "seriously untrue" and "suspected [the company] of significant financial fraud".

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The delisting notice sent shock waves across the Chinese investor community, which had pushed Zuojiang Technology's stock to a high of 300 yuan (US$41.26) a year ago when the company was touted as a key player in China's semiconductor self-sufficiency efforts. The stock closed at 6.94 yuan on April 26 before its trading was suspended.

once high-flying chinese chip firm to delist from shenzhen after financial fraud inquiry

The China Securities Regulatory Commission's headquarters in Beijing. Photo: SCMP

Earlier in June, the Shanghai Stock Exchange barred S2C, a local chip maker, from listing its shares in the next five years after it was found to have inflated its 2020 financial results. The CSRC in February slapped the firm with a 16.5 million yuan for overstating its revenue and profits in its listing prospectus.

Founded in 2007, Zuojiang Technology started as a designer, manufacturer and vendor of hardware used in cybersecurity applications.

After going public in September 2019, the firm shifted its focus on the development of data processing units (DPUs) in late 2022 when an artificial intelligence (AI) frenzy swept China following the debut of OpenAI's ChatGPT.

DPU is a programmable chip that tightly combine a central processing unit with network interface hardware, which became an in-demand component just like graphics processing units for computing infrastructure used for AI projects. Zuojiang Technology touted that its China-developed NE6000 DPU matched up with the performance of Nvidia's own Bluefield-2 DPU.

Zuojiang Technology, however, reported last December that its DPU sales last year failed to meet expectations, according to its stock exchange filing at the time. The company said that it only signed one contract for DPUs that covered 400 units of its NE6000, which were delivered to a trading company. Those goods were later classified as "not in actual development or sales" because the client enterprise that bought the chips did not use most of them.

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