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China's Tsinghua Threatens To Disrupt Semiconductor Industry, Building $30 Billion DRAM And NAND Fab

 

Tsinghua Unigroup, one of the many tentacles of the Chinese state-controlled Tsinghua University, announced that it is investing $30 billion to build a new DRAM and NAND fab in Nanjing, China. The development comes as the company seeks to rapidly expand after its 51% buy-in of Yangtze River Storage Technology, which recently announced a separate $24 billion DRAM and NAND fab in Wuhan, China.

The NAND industry is falling deeper into the largest shortage in its history, and many industry analysts predict that we will experience yet another DRAM shortage in the coming months. Both the NAND and DRAM industries have consolidated down to a few key players, and predictable production output has kept supply and demand dynamics largely balanced for several years. However, a rash of 3D NAND developmental delays have delayed major players, such as SanDisk, Toshiba, SK hynix, and to a lesser extent Intel and Micron, from reaching production projections. These delays are the catalyst for the current shortage, but the entrance of the potentially unpredictable Tsinghua could upset the delicate supply balance, thus causing an eventual glut. The staid semiconductor industry would rather weather shortages than the margin-killing gluts, so the Tsinghua developments are concerning for the established players.

The Chinese government is diving into the semiconductor business with aplomb, as it cites the lack of native production as a national security risk. The brass ring of flash IP has eluded Tsinghua as it attempts to buy its way into the semiconductor business. The first of its fruitless efforts came in the form of a $2.8 billion investment in Western Digital (through its Unisplendour subsidiary), which at the time was in the midst of purchasing SanDisk for $19 billion. The strategic investment promised to grant Tsinghua access to the patent-protected IP it needs to jump-start production, but it later withdrew the offer after the US Committee on Foreign Investment in the United States (CFIUS) threatened to scuttle the deal based on the US' own national security interests. Undeterred, Tsinghua also reportedly began talks with both Micron and SK hynix, but neither initiative came to fruition.

With those avenues closed, the company proceeded to deepen its investment in home-grown projects and hired several high-level Taiwanese semiconductor executives to bolster its capabilities. The company projects that its new Nanjing, China facility will produce up to 100,000 wafers per month and will begin pilot production in 2018. The company will likely need to license several key aspects of the technology, and it's unclear if it will select floating gate or charge trap technology, though the latter is more likely. Tsinghua might attempt to invest in Toshiba's pending semiconductor spinoff. WD appears to be the key player in the Toshiba negotiations thus far, but if a determined Tsinghua approaches, it's possible it could offer Toshiba an enticing offer.

Other experienced and established industry stalwarts have faced significant challenges while transitioning to smaller DRAM lithographies and 3D NAND, so the multibillion-dollar question is if the fledgling Tsinghua initiatives can jump the hurdles in a time-effective and economical manner. However, if the Chinese government-backed initiatives succeed there is no question that it will drastically alter the status quo. The country also has its sights aimed squarely at producing its own processors, so its investments in key semiconductor technologies is far from over.

  • Nintendork
    The greed of the status-quo is making China smile.
    Reply
  • Urzu1000
    I'm tired and I could be misunderstanding something here. If we're facing NAND shortages, isn't it a good thing that the output increases? It will probably harm the companies' profit margins, but having an overabundance of materials would drive down the price for consumers. It could also open markets for competitors in the storage segment that were unable to get a foot in the door before - thereby spurring competition through innovation.
    Reply
  • dudmont
    Without full privatisation, this venture will never be as efficient or successful as a private business. May it lower the prices for all of us.
    Reply
  • erendofe
    the concern is, as a state owned company, the government can prop it financially and use as a pawn to disrupt the industry by later flooding the market. This tactic would be very damaging to competition and if enough competitors were to go under china would have a strangle hold on Dram and Nand. it would be a quiet subtle war fought with commerce instead of guns.
    Reply
  • mitch074
    You don't know how business works in China - if it is state owned, then there is no tariff, it is impervious to trials and has facilitated access to cash. So its products will be cheaper than the compétition,which will make it desirable for all products manufactured in China - including, say, the iPhone 10...
    Reply
  • anbello262
    Well, this seems like mainly good news, at least from a consumer point of view.
    It is only slightly worrying for the US economy, maybe, so I guess it's mostly good news for non-US consumers.
    Of course, I don't have the political/economical background necessary to fully apreciate the possible effects of this.
    Reply
  • zodiacfml
    I feel sorry for Seagate. If this happens, NAND or SSD will become even cheaper. It will make little sense in the enterprise to stay with HDDs while the consumer/mainstream will get by with low capacity drives
    Reply
  • bit_user
    I think we all knew it was just a matter of time.
    Reply
  • bit_user
    19199108 said:
    isn't it a good thing that the output increases?
    It's a matter of who gets it, and at what price. Don't assume they're bound to sell it to everyone, or that all buyers will pay the same.

    19199119 said:
    Without full privatisation, this venture will never be as efficient or successful as a private business.
    I don't know that state ownership has the same downsides in China as it might, elsewhere. The State is probably very strategic about where, when, and how it decides to profit off its enterprises.

    19199370 said:
    Well, this seems like mainly good news, at least from a consumer point of view.
    In the long term, if they can drive enough competition out of business (through short-term state subsidies), then prices for consumers might actually end up higher.

    See also: monopoly
    Reply
  • dudmont
    state ownership is state ownership is state ownership..... in the history of mankind, it's always meant the same thing and had the same results. best example I can give you is state owned oil companies.
    Reply