Five provinces and cities in mainland China are competing to develop DRAM industry, adding more variables to the memory market

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On October 14, 2014, the Ministry of Industry and Information Technology of China announced the establishment of the National Integrated Circuit Industry Investment Fund (hereinafter referred to as the Big Fund in China), which caused an uproar in the semiconductor industry. With 120 billion yuan in funds, China has great ambitions to build its own integrated circuit industry chain. Large and small mergers and acquisitions announced the start of a major IC merger war led by China. In March this year, capital investment companies led by Wu Yuefeng jointly acquired the US DRAM manufacturer ISSI, which also means that China's ambition in the IC industry extends to the DRAM industry. The acquisition of ISSI is just the beginning. The struggle between five provinces to win the central government to set up DRAM factories is still brewing under the table.

China's DRAM market has an astonishing appetite

DRAM is a capital-intensive industry. The land and factory buildings alone, excluding equipment, cost NT$15 to NT$20 billion. An investment of 60,000 pieces would cost more than NT$100 billion. To achieve a production capacity of 100,000 pieces, which is more economical in scale, another NT$200 to 300 billion would be needed. Why does China still want to invest in the DRAM market, which has been a bloodbath with only three dominant players left?

Not only to enrich the entire IC industry chain or avoid being strangled by foreign giants, China is also eyeing the astonishing consumption of memory in China. For DRAM alone, according to data from research organization DRAMeXchange, China's DRAM consumption in 2014 reached 4.789 billion pieces (2Gb equiv), totaling US$10.2 billion, accounting for 19.2% of the global production capacity. The huge domestic demand is enough to support the development of China's DRAM industry.

The huge source of funds behind the investment industry, in addition to the central government's large funds, there are also industrial investment funds created by local governments. Local investment funds alone are not enough. Local governments have also gathered the strength of venture capital companies. Through the latter's professional vision and more capital injection, the funds are more effective, in order to stand out in the local IC industry chain establishment competition in various provinces and get more subsidies from the Chinese central government. The main acquirer of the ISSI acquisition case, Wuyuefeng Capital, represents the IC Information Industry Fund established together with the Shanghai Venture Guidance Fund. Another acquirer, Qingxin Huachuang (Hua Capital), is a sub-fund management company of the Beijing Integrated Circuit Fund. Shanghai and Beijing are the early development centers of China's semiconductor industry. In this provincial and municipal-level IC competition, Beijing and Shanghai have cooperated, but more of a competitive situation. In 2014, Beijing Tsinghua Unigroup successfully acquired China's local IC design company Spreadtrum Communications. At that time, its main competitor was Pudong Technology, a state-owned investment company under the Shanghai local government. There is also another provincial struggle that is about to surface.

Behind the scenes, DRAM factories in provinces and cities compete with each other

Under China's semiconductor support policy, a province will be selected to set up a local DRAM factory. It is reported that there are currently five provinces and cities striving to qualify, Beijing and Shanghai are two of them, and Hefei is one of them. The Hefei government took frequent actions in 2014 and 2015, and successively signed 14 and 25 cooperation projects with manufacturers including MediaTek, Marvell, and Ingenic Technology to settle in Hefei, covering IC design, packaging and testing, wafer manufacturing, materials and equipment and other projects. A large Chinese PC manufacturer is also actively investing in Hefei, and according to information disclosed by informed sources, Yukio Sakamoto, the former president of Elpida who lost in the DRAM battlefield in the past, is also active in Hefei, and seems to be striving to make a comeback.

In addition to the availability of funds and land, technology, process and production capacity are also a major hurdle for China to develop the DRAM industry. How to obtain technology and talents, with huge funds, mergers and acquisitions have become the fastest way. Taiwan's R&D team is one of the best in the world in terms of quality and quantity. However, due to Taiwan's regulations, mainland capital cannot directly or indirectly hold more than 30% of shares. China has no choice but to turn its attention to small factories in the United States and other places with less advanced technology, or to look for possible opportunities among unlisted companies in Taiwan. Recently, there have been rumors in the industry that senior officials from various provinces in China have frequently visited these companies in Taiwan in person, and former Elpida President Yukio Sakamoto, who has a good relationship with Taiwan, is also rumored to have visited Hefei. It is also speculated whether Sakamoto will use this relationship to give Hefei a better competitive advantage among the provinces, or even assist in the operation of factory construction under the table, which is also a point worth paying attention to.

Yukio Sakamoto, former CEO of Elpida (Photo source: Elpida)

The impact will be felt in three years at the earliest

Beijing is an important IC application market in China and a major distribution center for Chinese electronic products. It also has advantages in knowledge and talent such as Beijing, Tsinghua University and the Microelectronics Center of the Chinese Academy of Sciences. Shanghai has SMIC, which has gradually established an IC industry chain. Hefei has actively made plans in recent years and has the support of Yukio Sakamoto. Among the places interested in building DRAM factories, except for Wuhan, which seems to have limited progress, the rest have the possibility of qualifying, which also depends on the political strength of local leaders in the central government.

The winner has not yet been revealed, but the impact on the entire DRAM industry is foreseeable. Industry insiders estimate that it will take more than two years from factory construction to trial production, not counting the availability of talent. It is estimated that China will first enter the PC DRAM field, which has relatively simple technology. As for the Mobile DRAM production capacity, which has grown rapidly in recent years, it is estimated that it will take another 5 to 10 years to catch up with the mainstream manufacturers.

China is entering the DRAM market with abundant funds and relying on its own huge domestic demand market. The real impact may come in a few years, but facing China's step-by-step advancement, are Taiwanese manufacturers really ready for the future?

Source: technews

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