August 10, 2017 10:00 am JST

Nanya Technology chief: Chinese chip rivals no threat -- yet

Company is guarding its secrets as DRAM market returns to health

CHENG TING-FANG and CHIEN CHIA-HUNG, Nikkei staff writers

Nanya Technology President Lee Pei-ing says the DRAM industry will stay healthy through 2018. (Photo by Cheng Ting-fang)

NEW TAIPEI CITY, Taiwan For Taiwanese memory chip maker Nanya Technology, China's ambition to build up a competitive semiconductor sector is a threat to the balance of the industry, but it will take three to five years to affect the business, according to the company's president.

"Currently, the industry's key players are in control of their output expansion and we don't see any incentive at the moment for them to license technology to new players in China," said Lee Pei-ing, president of Nanya Tech, in an interview on July 27, adding that it would take at least three to five years for Chinese challengers to catch up to the major players or cause oversupply issues in the industry.

Nanya Tech is the world's fourth-biggest producer of dynamic random access memory chips by revenue, trailing Samsung Electronics and SK Hynix of South Korea, and U.S. manufacturer Micron Technology.

DRAM and NAND flash chips are used in a wide range of electronic devices, including personal computers and smartphones. Strategic thinkers see them as key to national security.

That helps explain why China is pouring funds from the central and local governments into big chip-development projects around the country. Among the $66 billion worth of construction projects are state-backed Tsinghua Unigroup's two advanced memory chip parks in the cities of Wuhan and Nanjing, a DRAM plant being built by Hefei Chang Xin Network Technology and a joint DRAM project by Fujian Jin Hua Integrated Circuit and Taiwan's United Microelectronics Corp.

These efforts are pulling in high-profile industry executives such as David Wang, former vice president of Applied Materials; Charles Kau, former president of Nanya Tech; and former UMC head Sun Shih-wei. Hundreds of engineers from Taiwan and South Korea have also been lured to the new Chinese chip players by fatter paychecks, according to industry sources.

Lee said Chinese companies are poaching talent from his company with "very high salaries." Nanya Tech has recently invested "millions of U.S. dollars" to enhance its information security systems to avoid technology leaks, and has also given substantial pay raises to 500 high-value employees to counter China's aggressive moves.

"What we are really concerned about is the unlawful leak of sensitive technology blueprints to competitors, not only the outflow of people," said Lee.

A HEALTHY DRAM The DRAM market is on an upward trajectory. For the second half of 2017, Lee expressed optimism about demand, adding that there is room for prices to rise, thanks to tight supplies.

"For 2018, the overall DRAM industry continues to look healthy, although there might be some minor seasonality factors," he said.

The most important growth drivers are coming from data center servers and mobile devices, Lee said. Other positive factors are voice-activated gadgets and the increasing need for data processing in cars, cameras and artificial intelligence.

For the first six months of the year, Nanya Tech's operating profit jumped 87.2% on the year to 8.02 billion New Taiwan dollars ($265 million). The company's revenue rose 28.5% to NT$24.85 billion.

The average price of DRAM chips may rise 10% in the second half of 2017, and there are no substantial risks for 2018, according to Avril Wu, an analyst at Taipei-based DRAMeXchange. "Some uncertainties could come up in 2019, when a new SK Hynix facility in the Chinese city of Wuxi goes into production. We tend to be cautious around then," Wu said.

Asia300

Nanya Technology Corp.

Taiwan

Market(Ticker): TAI(2408)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 7,594.01M
Shares: 2,963.93M
Asia300

Samsung Electronics Co., Ltd.

South Korea

Market(Ticker): KRX(005930)
Sector:
Industry:
Electronic Technology
Telecommunications Equipment
Market cap(USD): 340,662.72M
Shares: 147.34M
Asia300

SK hynix, Inc.

South Korea

Market(Ticker): KRX(000660)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 52,452.41M
Shares: 728.00M
Asia300

United Microelectronics Corp.

Taiwan

Market(Ticker): TAI(2303)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 6,288.18M
Shares: 12,624.31M
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