Thanks for the memory

China invests $24 billion in chip production in Wuhan

Wuhan w

Shortly after Google’s AlphaGo beat Korean player Lee Se-dol in a series of Go matches earlier this year, an article in China Daily claimed that the triumph would be shortlived because a new neural network chip designed by Chinese scientists would “make AlphaGo’s brain obsolete”. The chip, called Hanwuji, is a processor designed specifically for facilitating deep learning and artificial intelligence. It promises to pack the power of AlphaGo into a device the size of a personal computer. But the technology currently has limited applications, so planners have turned their attention to the production of something that will have a wider impact on the tech industry in China: homegrown memory chips.

Integrated circuit (IC) memory chips are used in a range of products like home appliances, cars and mobile phones. As the manufacturing and assembly centre for much of the world’s supply of tech products, China has relied heavily on imports of IC chips. CBN claims that they were the leading import by cash value in 2014, amounting to $217.62 billion. But as The Economist noted in an article earlier this year, developing a bigger domestic IC base will allow the Chinese to better integrate production lines and transition from an economy built on lower-end manufacturing to more sophisticated production.

To this end, a consortium of Chinese state organisations, led by the China Integrated Circuit Investment Fund, invested $24 billion late last month in the nation’s first IC memory chip manufacturing hub in Wuhan’s Optic Valley Smart Industrial Park (the money will be invested over five years).

According to China Business, the centre wants to reach production capacity of 300,000 memory chips a month by 2020, increasing to 1 million by 2030 – and lifting China from the world’s fifth largest producer of IC memory chips to second place.

It could be an uphill struggle. Subsequent to the announcement from Wuhan, two of the largest industry players – SK Hynix and Toshiba – announced their own plans for expansion. And while a manager at one semiconductor producer told China Business that the $24 billion investment seems impressive, Samsung, SK Hynix and Micron are respectively investing $15 billion, $5.1 billion and $3.8 billion on a yearly basis, and spending these sums on what is already a well-established base.

Wuhan’s Optic Valley will be playing catch-up and one of the companies tasked with setting the pace is contract chip manufacturer Wuhan Xinxin Semiconductor Manufacturing (XMC). High on the list of priorities, reports the Wall Street Journal, is production of next-generation memory chips called 3D NAND – using a design that stacks up layers of storage, compared to its single-level predecessor, NAND.

Analysts say that the new hub in Wuhan is further evidence of a change in approach from industry planners, who are shifting focus to investment in China-based research and development after difficulties in completing cross-border acquisitions in the sector.

Last year there were numerous reports about China’s investments in its semiconductor industry – mostly framed in national security terms as cyber-espionage claims mounted (see WiC241). As part of this security narrative China’s authorities have also requested significant concessions from foreign tech firms, such as demanding access to encrypted information (see WiC297). They also want more technology transfer.

Last year an official with Broadcom said of China’s relationship with the global tech firms: “They use us not because they love us, but because they need us”. The Chinese plan is to reduce this reliance and in XMC’s case it means partnering in the short term with US-listed Spansion to use its 3D NAND technology in China. XMC expects to launch its first products at the beginning of 2018, tapping into high projected growth for 3D NAND chips.

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