Chinese semiconductor firms invest in expansion

China's semiconductor companies are shoring up investment for expansion, as their customers look to secure supply in response to US restrictions on Chinese suppliers.

Yangtze Memory, a subsidiary of Tsinghua Unigroup, has this week started the second phase of construction of its National Storage Base project to scale up its flash memory production to meet demand for 5G and data centre applications. The company plans to boost its output to 50,000-100,000 units by the end of the year from 20,000 with the first phase of the project, increasing to 300,000 in the second phase.

Chinese industrial equipment supplier Suzhou Tianzhun Technology has acquired MueTec Automated Microscopy and Messtechnik, a German semiconductor wafer test equipment manufacturer, for €18mn. The move will accelerate the company's expansion in the semiconductor market, which it expects to continue growing rapidly, as competition is being incentivised by the Chinese government.

China-based electric vehicle (EV) producer BYD last week secured a second round of financing for its BYD Semiconductor subsidiary, to increase its production of insulated gate bipolar transistors (IGBTs). IGBTs are silicon-based power semiconductors that increase the efficiency of the electric motor in EVs. The 800mn yuan ($113mn) second funding round follows a Yn1.9bn first round in May and reduces BYD's ownership stake to 72.3pc.

The IGBT market is valued at around Yn10bn, and with the rapid increase in EV production is expected to register a compound annual growth rate of 30pc to reach Yn40bn in 2025, according to analysts at commodities brokerage firm Citic Securities. The market in China is dominated by Germany-based Infineon, which accounts for around 58pc. BYD aims to increase its share from 18pc as China looks to reduce its reliance on imports.

The largest investment in BYD Semiconductor's second round came from South Korea's SK Group, which is involved in the EV space with its SK Innovation subsidiary, produces memory semiconductors at SK Hynix and is rolling out 5G telecom network equipment with mobile phone service provider SK Telecom. South Korean semiconductor producers have been losing market share to Chinese companies in the past few years, and have responded by investing in Chinese production.

The other new investors in BYD include Chinese smartphone manufacturer Xiaomi, Chinese laptop maker Lenovo, and Chinese EV producer BAIC. US trade policy is driving Chinese companies to accelerate their semiconductor development and secure supply as it increases its restrictions on companies using components produced in the US to produce chips for China's Huawei.

Taiwan is caught in the middle, trying to strengthen relations with the US while still dealing with China. Taiwan Semiconductor Manufacturing (TSMC), the world's largest foundry, has been banned from supplying telecom equipment producer Huawei. TSMC said last week that it will invest $12bn in 2021-29 to build a new plant in the US with a monthly production capacity of 20,000 semiconductor wafers, noting the project has the support of the US government. Construction on the Arizona facility is planned to start in 2021, with production targeted to commence in 2024.

As Chinese companies have had to quickly secure alternative sources of chips without US components, other Taiwanese semiconductor companies have helped to fill the void, according to ING Bank's chief economist for Greater China, Iris Pang. Taiwan's exports of electronics components driven by business with China have outperformed the country's overall exports, which have contracted since March.

By Nicole Willing