Fate Decided
There have been visible signs of China entering the memory semiconductor industry. Chinese state-owned corporation, Tsinghua Unigroup, became a major shareholder in Western Digital, a hard disk drive (HDD) manufacturer in the U.S., last month. Through the company, the group is set to take over SanDisk, a NAND flash memory maker in the U.S. When China takes control of SanDisk even indirectly, Korea will be pursued by China in both the display and memory sectors.
Bloomberg News reported on Oct. 20 that Western Digital is currently negotiating to take over SanDisk, and will reach an agreement as early as the end of this week. The news agency said, “If agreed on, it will be the largest M&A in the semiconductor industry this year.”
The largest shareholder of Western Digital is Unisplendour, a subsidiary of Tsinghua Unigroup. The company acquired a 15 percent stake in Western Digital for US$3.8 billion (4.3 trillion won) on Sept. 30. It shows a considerable gap with Vanguard, the second largest shareholder, of 6 percent.
It means that China, which has been aggressively seeking to tap into the memory industry, has entered the bidding battle for SanDisk right after acquiring Western Digital.
SanDisk is a storage manufacturer for mobile devices. The company has not only a strong position in the American market but also a lot of intellectual property related to NAND flash memory chips. Samsung Electronics pays about 400 billion won (US$353.36 million) to the company every year for royalties. In addition, in 2005 SanDisk joined hands with Japan’s Toshiba, which ranks second in the NAND flash market to operate three NAND flash production lines with joint investment. Through this, the company ranked fourth in terms of global NAND flash market share with 14.8 percent in the second quarter.
Moreover, SanDisk is a pain in the neck for Korea’s memory industry. At the beginning of its establishment, the company bought NAND products from Samsung Electronics, processed them, and sold them. From 2005, however, it started using Toshiba products, turning its back on Korean firms. Samsung Electronics tried to take over SanDisk for US$5.8 billion (6.57 trillion won) in 2008, but failed to do so due to strong opposition from SanDisk’s board of directors.
The reason why China is seeking to enter the memory industry is that the country is importing semiconductor products worth US$230 billion (260.36 trillion won) every year. Semiconductors have become the nation’s number one import item in 2013, surpassing crude oil. Accordingly, the Chinese government has promoted the semiconductor company as one of the “top seven strategic emerging industries” from 2010.
Industry watchers express concerns over China tapping into the memory market through Western Digital. Western Digital, which is to acquire SanDisk, is a HDD maker. Sales of personal computers are decreasing, and the HDD market is becoming smaller, as storage devices are converted into solid state drives (SSD). Western Digital is highly likely to make inroads into the SSD market by combining its controller technology and SanDisk’s NAND products. Samsung is the leading company in the SSD market with a 40 percent market share.
Also, the financial situation of both Western Digital and SanDisk is not good, due to the recent poor performance. Accordingly, China can increase capital. If SanDisk increases the investment based on Chinese capital, the game of chicken in the NAND flash market might emerge in earnest. In the DRAM industry, there are only three companies left after Japan’s Elpida Memory went bankrupt in 2012. In the NAND flash market, however, there are six companies that have more than 6 percent market share – Samsung Electronics, Toshiba, SanDisk, SK Hynix, Micron, and Intel.