PARIS — China’s growing presence in M&A negotiations for U.S. chip companies is this year’s one of the biggest untold business stories, and probably 2017, too.
China’s voracious appetite for the access to memory technologies (and her plans to locally produce memory chips) has yet to be satisfied.
China’s memory chip production plans, although still sketchy, became evident to close industry observers in 2016. What they’ll be watching for next is who — among global suppliers like Micron, Intel, Samsung and others — will make the first move in devising and negotiating technology licensing agreements or joint ventures with China.
One factor in this suspense drama are several industry players eager to minimize Samsung’s market dominance in the memory field, a few industry analysts suggested to EE Times. China, which doesn’t necessarily want to see Koreans continuing to win either, can help their cause.
Rob Lineback, a senior market research analyst with IC Insights, told EE Times, “With DRAM and NAND flash being significant IC markets in China (for PCs, data center servers, tablets, and smartphones, plus a wide range of other applications), it makes sense that memory would be in the crosshairs of Chinese initiatives.”
Indeed, in its 13th five-year plan, China is explicitly seeking to develop an entire semiconductor industry that includes logic, memory, analog, FPGA, power management ICs, semiconductor manufacturing equipment, CAD, and EDA tools.
(Source: IC Insights)
Its memory ambitions, however, crystalize China’s dilemma.
Dieter Ernst, East-West Center senior fellow, notes that the market potential for memory is huge for IoT and AI applications in transportation, health and the environment. The conundrum for China lies in “how fast and at what cost can Chinese entities gain access to core tangible [memory] technology?”
EE Times sees a set of questions arising.
- Will China be able to design and manufacture memory chips on its own?
- If not, will China be able to buy out global chip companies with memory technologies?
- If CFIUS (the Committee on Foreign Investment in the United States) won’t allow such M&A’s, from whom will China license cutting-edge memory technologies?
Ernst raised the most crucial question: When all is said and done, “Can China bring together a pool of experienced and highly skilled engineers and technicians good enough to pull off this advanced memory invasion?”
On the other hand, China isn’t facing this conundrum alone. Non-Chinese memory chip vendors are also asking themselves whether they can afford not to play ball with China.
The issue isn’t just market access to China, but the immense and growing capital expenditure now so critical to memory development and production. One semiconductor company executive based in Silicon Valley, who spoke on the condition of anonymity, cautioned, “I believe companies like Micron and Toshiba are vulnerable” if they don’t find a way to work with China.
Risk for overcapacity
Another dimension to the memory story is this: If China delivers on its promises, the industry could face an overcapacity of flash memory in the next few years.
Brian Matas, vice president responsible for market research at IC insights, cautioned in the firm’s recent report, “Overall, the flash memory segment is forecast to register the largest increase in capital spending in 2016 with a very strong 43% surge. However, historical precedent shows that too much spending usually leads to overcapacity and pricing weakness.”
To read the rest of this article, visit EBN sister site EE Times.