March, 2018

Beijing doubles down on IC ambitions with planned $31.6 billion fund

Original article: The South China Morning Post

China remains committed to building up its domestic semiconductor industry. The government plans to set up a new fund that targets up to $31.6 billion and begin allocating capital in the second half of the year. The fund will invest in many segments of the IC business, such as processor design and manufacturing, as well as chip testing and packaging.


Four years ago, Beijing unveiled its sweeping IC vision to the world. China, the country's leadership said, should become a global semiconductor powerhouse, reducing its dependence on foreign IC technology. The government would spend US$150 billion over a decade in that endeavor. Self-sufficiency in semiconductor manufacturing would accomplish two important goals. It would both bolster China's national security - there are concerns foreign-made chips could be used for spying purposes - and help the world's factory transform into an advanced manufacturing nation. 

Things haven't worked out as China planned. Beijing still imports about 90% of its semiconductors. Big-ticket bids for foreign IC makers have been rebuffed, notably Tsinghua Unigroup's attempt in 2015 to buy the U.S.'s Micron for $23 billion. A bid for a stake in South Korea's SK Hynix also went nowhere. 

Smaller bids have been abortive too. Taiwanese regulators blocked one overture after another from Unigroup in 2015-16. The Beijing-based company failed to acquire stakes in Taiwan's Powertech Technology, ChipMOS and Silicon Precision Industries. More recently, Washington blocked attempts by state-backed Chinese funds to acquire U.S. IC makers Lattice and Xcerra.  

With the overseas M&A environment frosty, it makes more sense for Beijing to focus on developing IC technologies at home. That's not so difficult when industry leaders like Intel are eager to please. Spreadtrum Communications, one of China's foremost homegrown IC firms, uses Intel technology to make mobile-phone chips. 

Intel believes China's high-flying smartphone vendors can help it grab a larger share of the global flash memory business, notes Seeking Alpha in a March report. Intel has just a 6.6% share of the $43 billion market at present. Flash memory has the most applications in smartphones. Micron, Samsung and SK Hynix are the leading suppliers of NAND Flash memory to Chinese smartphone vendors Huawei, Xiaomi, Oppo and Vivo. 

Once Beijing's latest IC fund is deployed, Intel may find additional business opportunities which could help reduce the company's reliance on Apple. In addition to Tsinghua Unigroup, telecom giants Huawei and ZTE Corp could benefit from the new IC funds, Bloomberg reported in March. 

Overseeing fundraising and deployment is the "secretive" China IC Fund, Bloomberg says. The fund will reportedly look for contributions from the government and state-owned companies, just as it did during an earlier round of fundraising.