Beijing Zuojiang Technology, once considered a potential competitor to Nvidia, will be removed from the Shenzhen Stock Exchange due to financial fraud, reports the South China Morning Post. This is followed the company's inability to provide a clean audit report for its 2023 financial results, prompting the Shenzhen Stock Exchange to initiate its delisting, which is set for July 26.
Founded in 2007, Zuojiang Technology initially focused on producing cybersecurity hardware. However, the company shifted its focus in late 2022 to develop data processing units (DPUs), inspired by the AI boom in China.
Zuojiang claimed that its NE6000 DPU could compete with Nvidia's Bluefield-2 DPU, aiming to capitalize on the growing demand for computing infrastructure for AI projects. Despite these claims, the company's DPU sales in 2022 were disappointing, with only one contract for 400 units, most of which were not even used by the buyer, according to the source.
The China Securities Regulatory Commission (CSRC) found Zuojiang's 2023 financial reports to be significantly false, leading to the delisting decision. The company failed to present a clean audit for its 2023 finances, triggering the Shenzhen Stock Exchange's move to remove it.
Investors have been shocked by the news about the fraud, as Zuojiang's stock, which reached a high of ¥300 ($41.26) a year ago, fell dramatically to ¥6.94 ($0.95) before trading was halted in April, which indicates quite a dramatic impact of the fraud allegations on investor confidence.
This delisting follows a similar incident in June, where the Shanghai Stock Exchange barred local chip maker S2C from listing for five years due to inflated financial results. S2C was fined ¥16.5 million yuan by the CSRC for overstating its 2020 revenue and profits in its listing prospectus.
China's semiconductor industry is experiencing a surge in bankruptcies as smaller firms go insolvent, multiple media reports note. Twenty-three semiconductor companies have withdrawn their IPO applications since last year, which understandably is resulting in increasing investor caution. The trend of Chinese semiconductor companies going out of business began in 2020, with over 10,000 chip-related companies shutting down between 2021 and 2022. In 2023, a record 10,900 semiconductor-related firms deregistered, significantly up from the 5,746 that closed in 2022.
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