China has a chip to fry with y'all: Wants its own chip smarts and fabs

Davos talk reveals Middle Kingdom plans to break Western tech hegemony

China is making more moves as it tries to set up an indigenous and patent-protected semi-conductor chip capability.

Xu Jinghong, the chairman of Tsinghua Holdings, said in a Davos World Economic Forum interview that Tsinghua wanted to buy two semi-conductor manufacturing companies.

Analyst haus Stifel Nicolaus' MD Aaron Rakers tells us “state-backed Tsinghua will look to invest 200 billion yuan (~$30bn) in merger and acquisitions activity in 2016” to do this.

Tsinghua, through its Tongfang Guoxin subsidiary, is already committed to spending some $12bn to build a NAND/NOR flash fab and, it appears, China is intent on becoming a major force in semi-conductor manufacturing and lessen reliance on foreign suppliers. Western Digital is taking in a $3.8bn investment from Unisplendour, which is owned by Tsignhua. That equates to a 15 per cent stake.

Another point made by Rakers is that Tsinghua could look to set up a joint venture with Micron, thus avoiding any US regulatory opposition to it taking over the firm instead.

Rakers notes: “These comments follow China Resources Microelectronics and Hua Capital Management (co-founded by Tsinghua Holdings) outbidding ON Semiconductor for a ~$2.5bn acquisition of Fairchild Semiconductor early this month and Hua Capital leading a 2015 $1.9bn acquisition of OmniVision Technologies.”

Then there is this gem in his report:

We would additionally highlight China’s Ministry of Industry and Information Technology (MIIT) announced the formation of an Integrated Circuit Intellectual Property Alliance. Initially introduced in April 2015, this alliance was noted as focused on enhancing IP risk management by establishing an IP defense system, encouraging research and development of key technologies, accumulating IPR assets through acquisitions, studying IP asset business operation models, and strengthening competitiveness through active participation in global standards setting. This alliance is said to include 64 Chinese founding companies, including Huawei, ZTE, Datang Telecom, Cool, and Founder.

The fear is that China could go on a state cash-fuelled rampage through outside (American, European and Asian) semi-conductor businesses, using these regions' business openness to gain a foothold whilst denying businesses in these regions similar unfettered access inside China. It's the Wild East out there and the crown jewels – chip IP and businesses – are at stake. ®

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