AsianFin -- In Tianjin's Huayuan Industrial Park, where two arterial roads — Haitai Avenue and Huake Street — form the backbone of the district's tech cluster, a corporate thunderclap struck less than a kilometer apart.
In a blockbuster reverse merger, Hygon Information Technology Co. — one of China's leading AI chipmakers — announced plans to acquire Sugon (officially Dawning Information Industry Co.), the server manufacturer that not only incubated Hygon but also remains its largest shareholder with a 27.96% stake.
The all-share deal has instantly become one of the most consequential events of the summer on China's A-share market and may mark a turning point for the nation's broader semiconductor ambitions.
As of the latest close, Hygon carries a market capitalization of 316.4 billion yuan ($43.6 billion), while Sugon is valued at 90.5 billion yuan. The smaller entity, Sugon, birthed and funded the rise of Hygon — and now finds itself being folded into its own offspring.
What seems like a symbolic 1-kilometer divide between the two firms belies a deep and tangled web of financial and operational interdependence — spanning ownership, sales, and personnel.
Sugon owns 27.96% of Hygon and relies heavily on Hygon for its profits. In 2024, Sugon reported 2.29 billion yuan in pre-tax profit, but only 1.41 billion yuan came from core operations. A large portion — over 1.1 billion yuan — was from non-operating income such as government subsidies (537 million yuan) and investment gains (563 million yuan), most of which came from Hygon (540 million yuan).
In essence, nearly half of Sugon's annual profit in 2024 was underpinned by government support and its stake in Hygon.
Hygon's largest customer appears to be none other than Sugon. In 2024, Hygon generated 9.16 billion yuan in revenue, with 98.16% concentrated in its top five clients. The biggest client alone accounted for 40.26% of total sales — around 3.69 billion yuan.
While Hygon didn't name the client, the company acknowledged it has equity ties with the top customer. Based on shareholder disclosures, Sugon is the only entity with deep operational links and a stake above the threshold, making it highly likely that Sugon is Hygon's largest customer.
Ties extend beyond the balance sheet. Hygon's CEO, Sha Chaoqun, was a longtime executive at Sugon. Sugon's acting chairman, Li Jun, is also a current Hygon board member. The two companies routinely buy from and sell to one another, with Hygon booking 3.68 billion yuan in related-party revenue and 60 million yuan in technology service fees paid to Sugon last year.
Hygon also reported 1.64 billion yuan in receivables and 890 million yuan in deferred revenue from the same client — reinforcing just how intertwined the businesses are.
"Their merger is not just a financial event," said a Beijing-based chip industry analyst. "It's the logical resolution of an unsustainable status quo."
Announcing the deal, Hygon CEO Sha described it as a "strategic alignment" aimed at creating a full-stack computing powerhouse — integrating chips, systems, and software. He pledged to "strengthen, extend, and complete" China's AI infrastructure chain.
While some critics worry that chipmakers acquiring downstream system integrators could alienate potential customers — a lesson drawn from 3DFX's ill-fated acquisition of STB Systems in the 1990s — most industry observers support the move.
There are several reasons why this merger is different.
First, Sugon is already Hygon's largest customer. Unlike 3DFX, which disrupted existing supply chains by favoring its newly acquired distributor, Hygon gains tighter vertical control without sacrificing clients.
Second, the merger solves real business inefficiencies. Both firms have rising operating expense ratios — with Hygon's increasing 7.62 percentage points over the past three years, and Sugon's growing 7.55 percentage points over five years. Consolidation will likely streamline management, reduce redundant R&D, and eliminate intercompany tax burdens.
Lastly, there's a national imperative. China's chip sector has long relied on sprawling, loosely connected entities under government or academic umbrellas. Hygon and Sugon's merger represents a shift from that model — toward market-driven consolidation and integrated competitiveness.
From Mellanox to Lepton AI, Nvidia has shown how vertical integration can power dominance in the AI age. China's chip players are now following suit.
Ultimately, this isn't just a merger of two companies — it's a transfer of leadership in China's semiconductor value chain. Sugon, a stalwart of serial computing and internet infrastructure, is handing the baton to Hygon, a symbol of parallel computing and AI acceleration.
If Sugon was the legacy CPU-era giant, Hygon is the face of China's next-gen GPU ambitions. Their unification — led by the once-child-now-parent — marks more than a strategic reshuffling.
It confirms, in billions of yuan and lines of code, that China's bet on the AI era is not just rhetorical. It's financial. It's structural. And it's just beginning.
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