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.