China’s Tsinghua Unigroup axes major memory chip projects
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
China’s state-backed Tsinghua Unigroup has scrapped major memory chip projects in two cities as new investors push to turn around the debt-stricken company that has been left reeling from US restrictions on its access to vital technology.
The group is also preparing for a major personnel reshuffle at key affiliate Unisoc, China’s second-biggest mobile chip developer, sources briefed on the matter told Nikkei Asia, amid concerns over the nation’s lack of a “viable” 5G mobile chip player.
One of the two memory chip projects that was terminated is in the city of Chongqing.
Tsinghua Unigroup had brought in Yukio Sakamoto, the former chief executive of Japan’s Elpida Memory, to help build up the company’s capabilities in dynamic random-access memory (Dram), a segment dominated by Samsung Electronics, SK Hynix and Micron Technology. The plan was to leverage Sakamoto’s experience and connections to develop a team of up to 100 employees in Japan and churn out cutting-edge Dram products in Chongqing. But recruitment did not go as hoped and the company encountered financial difficulties as well as challenges in securing technology sources and importing advanced chip production equipment amid tensions between Washington and Beijing, said sources familiar with the matter.
In a further setback, Sakamoto left Tsinghua Unigroup in the second half of last year, the sources said. A spokesperson for Sakamoto confirmed his departure.
The second project to be ditched was in Chengdu, Sichuan province, where Tsinghua Unigroup planned to build a $24bn facility for 3D NAND flash memory chips, according to government documents and sources briefed on the matter. Sources told Nikkei Asia the company had hoped the project would replicate the manufacturing success of Yangtze Memory Technologies, China’s memory chip champion and an important Tsinghua affiliate.
Nikkei Asia first reported in late 2020 that the memory chip projects in Chongqing and Chengdu had hit significant delays and were likely to be scrapped after Tsinghua Unigroup missed debt repayment deadlines. Last July, one of the company’s creditors filed a petition to begin bankruptcy proceedings for Tsinghua Unigroup due to its continued failure to resolve its debt crisis.
Then, in December, a consortium headed by two prominent funds — Beijing Jianguang Asset Management Co and Wise Road Capital — appeared as new backers of Tsinghua Unigroup. On January 17, a local court in Beijing gave the go-ahead to the consortium’s restructuring plan for the company.
Beijing Jianguang Asset Management, also known as JAC Capital, and Wise Road have emerged as two of the most important investment vehicles supporting China’s semiconductor ambitions. Their previous deals include acquiring Netherlands-based NXP Semiconductors’ chipmaking division Nexperia in 2016, and buying four plants in China from ASE Technology Holding, the world’s largest chip packaging and testing company, at the end of last year.
This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.
The size of the new investors’ stake in Tsinghua Unigroup is not yet clear, but market watchers and industry sources say they are probably taking over part or all of the 49 per cent held by prior investor Beijing Jiankun Investment Corp.
Roger Sheng, a veteran semiconductor analyst with Gartner, told Nikkei Asia the new strategic investors are seen as having even better business and political connections than Tsinghua’s earlier backers, as well as good track records in helping the country strike overseas chip investment deals.
“Tsinghua Unigroup’s debt crisis has come to an end. Now it’s time to restart,” said Sheng. “As new investors were brought in, it’s likely that there will be many personnel reshuffles and changes . . . All the previous agreements with other local governments may need to be reviewed further.”
In addition to restructuring Tsinghua Unigroup’s chip manufacturing programmes, the consortium has outlined plans to consolidate research and development resources at Unisoc and to overhaul the company’s management team, people familiar with the matter said. They added that the aim is to make Unisoc more competitive and gain market share in the 5G arena.
Unisoc, which counts Samsung, Honor and Motorola among its clients, doubled its share in the global market for mobile processors to 9 per cent last year after Huawei’s chip developing arm, HiSilicon, lost access to US chip production technologies. Its gains, however, were mostly from mid-to-lower-end 4G chips, rather than the higher-margin 5G chips that Qualcomm and MediaTek dominate, according to research agency Counterpoint. The company’s share in the 5G chipset market stood at just 0.3 per cent for 2021, trailing Qualcomm, Apple, MediaTek, Samsung and Huawei.
“Unisoc is doing very well in 4G-related chipsets as it secured clients such as Realme, Honor, ZTE and Motorola . . . As Qualcomm becomes more focused on pushing its 5G chips, that gives Unisoc some chance to continue to grow in 4G,” Brady Wang, an analyst with Counterpoint, told Nikkei Asia. “However, Unisoc is still trailing far behind market leaders in 5G chip offerings due to a technological gap.”
One plan for the new investors is to consolidate the engineering workforce at Unisoc, which is currently scattered across multiple cities, to increase efficiency, one of the people briefed on the matter said. The company currently has more than 5,000 employees.
“The fact that China has no viable 5G mobile chip developers after Washington cracked down on Huawei is very concerning to players in the overall domestic tech ecosystem,” the person said.
Unisoc has not secured sufficient chip production capacity from major contract chip manufacturers — such as Taiwan Semiconductor Manufacturing Co, United Microelectronics and Semiconductor Manufacturing International Co — amid the unprecedented global chip crunch, sources familiar with the matter said, preventing the company from taking advantage of Huawei’s setbacks to expand its own market share.
Unisoc has repeatedly postponed its plans to list on the Shanghai Star market, the tech-focused board billed as China’s version of Nasdaq, but doing so remains a key goal under the new strategic investors, sources said.
Tsinghua Unigroup, which is 51 per cent owned by the investment arm of Tsinghua University, Chinese president Xi Jinping’s alma mater, was once a high-profile tech conglomerate with a major role in Beijing’s ambition to rapidly increase the country’s self-sufficiency in semiconductors.
When US-China tech tensions heated up in 2018, Tsinghua chair Zhao Weiguo vowed the company would spend $100bn over the next 10 years to build a world-class domestic semiconductor industry, announcing around this time the projects in Chongqing and Chengdu.
Yangtze Memory Technologies, meanwhile, does not appear to be affected by its parent company’s debt crisis. The chipmaker is on track to enlarge its production in Wuhan and enjoys the support of the local governments in Hubei Province and Wuhan City, and the central government’s State Council, sources said. The Tsinghua affiliate is viewed as China’s most promising memory chipmaker.
Tsinghua Unigroup declined to comment for this story. Unisoc, JAC Capital and Wise Road did not respond to Nikkei Asia’s requests for comments.
A version of this article was first published by Nikkei Asia on January 26 2022. ©2022 Nikkei Inc. All rights reserved
Comments