China Still Pursues Self-sufficiency in Chips
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
Despite the failures of several companies, including HSMC, the Chinese government is continuing in its ambition of making China self-sufficient in chips. Thus, we believe it is too early for investors in existing memory semiconductor makers to rest easy.
HSMC shutting down business
Chinese semiconductor player HSMC (Wuhan Hongxin Semiconductor Manufacturing) is known to be in the process of closing down its operations. Established in 2017, the firmwas supposed to receive investment of RMB128bn (W22tn) from Chinese government and state-owned enterprises, with the aim of manufacturing 7nm chips. To achieve this goal, HSMC hired human resource talent from TSMC and other semiconductor players, but the actual amount of funds it actually received from the government was W2.5tn, far less than expected. Lacking technical know-how, it ran into financial difficulties.
Also known to be suffering from financial difficulties is NAND developer and producer YMTC. Last week, several Korean media sources reported that the rise of the Chinese semiconductor industry is being frustrated by such failures.
Despite several failed companies, Chinese semiconductor industry remains on the rise
But, contrary to media reports, we believe that the Chinese semiconductor industry remains on the rise, viewing the Chinese government as remaining firmly committed to achieving semiconductor self-sufficiency. Already two years ago, the Chinese government changed its semiconductor strategy from across-the-board investment to restructuring of insolvent companies and concentration on investment in the most promising players. Therefore, despite the above-noted failed companies, we believe that the Chinese government’s plan of achieving self-sufficient production of logic and memory semiconductors is unfolding.
We point out that CXMT has recently been receiving intensive investment from the Chinese government. Mainly developing and producing DRAM products, CXMT is manufacturing 19nm DRAM with capacity of 40K wpm. It plans to start mass-production of 17nm DRAM in the near future. Its overall capacity is expected to increase to 70K wpm by end-2021, a level representing around 5% of total global DRAM capacity. Thus, with Chinese competitors continuing to enter the market, it is our view that investors in existing memory semiconductor companies should not rest easy.