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China tech

Beijing-backed Tsinghua Unigroup's chip projects hit by delays

Chipmaker faces cash crunch as local governments temper support

Tsinghua Unigroup has been a key player in Beijing's chip industry ambitions.   © AFP/Jiji

TAIPEI -- Two high-profile chip projects led by Chinese tech conglomerate Tsinghua Unigroup have hit significant delays, Nikkei Asia has learned -- a further sign of the problems affecting the company now that Beijing is becoming more careful about picking winners in its race for tech supremacy with the U.S.

For years, Tsinghua Unigroup enjoyed unstinting support from the central and local governments as it pursued Beijing's ambitions of creating a domestic semiconductor industry.

Now the conglomerate "does not have enough money" to keep one of its most ambitious new chip projects going while a second project is also on hold, sources have told Nikkei Asia.

Tsinghua Unigroup missed a Nov. 15 deadline for repaying 1.3 billion yuan ($198 million) in private debt and is facing billions more in bond payments in the coming months.

The company's troubles, industry insiders say, are a sign that the days of unlimited policy support are over, and Beijing is now focusing its resources on fewer, more promising semiconductor projects.

Majority owned by the prestigious Tsinghua University, Tsinghua Unigroup has been one of the most prominent players in China's "Made in China 2025" plan for achieving self-sufficiency in chip production. It already has one national champion -- memory chipmaker Yangtze Memory Technologies, which aims to challenge market leaders like Samsung and Micron -- under its umbrella, along with UNISOC, one of the country's leading mobile chip developers, which aims to compete with Qualcomm of the U.S. and MediaTek of Taiwan.

Just two years ago, with U.S.-China tech tensions heating up, Tsinghua Unigroup Chairman Zhao Weiguo vowed that the company would spend $100 billion over the next 10 years to build a world-class domestic semiconductor industry.

In short order, two ambitious projects were announced.

One was a massive 3D NAND flash memory factory to be built in the Chinese city of Chengdu with a total investment of up to 200 billion yuan ($30.43 billion). The aim was to re-create the operating model of Yangtze Memory in Chengdu. Initial capacity was set at 100,000 wafers a month, later to be expanded to 300,000 -- roughly 20% of current global output.

The second project, a DRAM memory chip factory in Chongqing, was announced with much fanfare in 2019. DRAM, a key segment of the memory chip market, is controlled by Samsung, SK Hynix and Micron.

Tsinghua brought in Yukio Sakamoto, former CEO of Japan's Elpida Memory, once one of the world's top memory chipmakers, to co-lead DRAM development, and building of the Chongqing factory was planned to start this year. Construction, however, has been stalled, according to sources familiar with the matter, making it extremely unlikely that the chip facility will be able to start mass production in 2022 as planned.

"The DRAM project is currently facing delays as there are not enough talent and sources of reliable technology to move ahead that quickly," one source said.

Meanwhile, construction on the Chengdu NAND project has stalled in the early stages, with no sign of when it will resume, and no orders have been placed for chip-production equipment, two people familiar with the project told Nikkei Asia.

The main problems, sources say, are related to money and management, including the company's heavy reliance on local government funding.

"Tsinghua Unigroup itself does not have enough money, and it's very much just like a holding company and an operator," one source told Nikkei Asia. "Most of its announced chip projects are funded by different local governments and funds from the central government."

At the same time, Tsinghua Unigroup's management has come under closer scrutiny by Beijing. An additional executive chairman was appointed to supervise the operation this month, and Zhao has stepped down as head of several listed subsidiaries since 2018, though he remains the group's overall chairman.

The turbulence at Tsinghua Unigroup comes weeks after policymakers issued a stark warning to the semiconductor industry. China's National Development and Reform Commission, the country's top policy planner, criticized local governments for backing undercooked chip projects and warned that they would be expected to shoulder the full responsibility for any projects that fail on their watch.

A further warning came on Saturday from Wang Zhijun, vice minister of China's Ministry of Industry and Information Technology. Speaking at a forum, Wang said there had been a flood of "blind investments" and abandoned projects in the chipmaking sector, likening the situation to the overinvestment previously seen in steel and cement. He called for stricter supervision and mergers or restructuring of smaller, less competitive chip companies to remedy the problems.

Local governments are already showing a reluctance to rescue struggling chip companies.

Wuhan Hongxin Semiconductor Manufacturing Co., founded in 2017, grabbed headlines last year when it landed Chiang Shang-yi, a former senior executive at Taiwan Semiconductor Manufacturing Co., as its CEO. It also hired more than 50 veteran engineers from TSMC. But the $18.5 billion project backed by the Wuhan government, ran into money trouble in recent months, pushing it to the brink of collapse. Chiang left the company earlier this year, calling his time there an "unpleasant experience." The Wuhan government has since taken full control of the project.

While some projects may be left to flounder, however, experts say other, more proven players will continue to enjoy government backing.

Roger Sheng, an analyst with Gartner, told Nikkei Asia that chip production projects needing more than 10 billion yuan in investment will likely come under closer scrutiny in the future.

"Those new big chip manufacturing projects will definitely be affected and face more reviews in the future. Local governments will definitely become a bit more cautious in backing these huge projects, while the country's National Development and Reform Commission will also review these projects more carefully," Sheng said. "But some key projects like Yangtze Memory and SMIC that are already national champions will continue to receive full support."

Yangtze Memory and ChangXin Memory Technologies, China's first DRAM chipmaker, have both shown significant progress in the past two years.

The government's backing of SMIC, or Semiconductor Manufacturing International Co., comes as China's largest contract chipmaker faces tightening U.S. export controls that could slow its tech advancement. Hua Hong Semiconductor Ltd., SMIC's smaller compatriot, is another key company that has secured Beijing's attention, multiple people said.

Tsinghua Unigroup declined to comment.

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