At present, the trade friction between China and the United States has eased. However, the two sides have not yet entered the trade negotiation stage, and it is difficult to judge how things will eventually develop. Memory chips may be affected to some extent in the future because China is the world's largest buyer of memory.
If a trade war really breaks out, the US memory giant Micron Technology (Micron) will be affected together with its IM Flash Technologies (IM Flash Technology Joint Venture) jointly established by Intel (INTC). In addition, Western Digital ( Western Digital , the world's second largest hard drive manufacturer) may also be affected. These three companies are all headquartered in the United States, and therefore fall within the scope of Sino-US trade frictions.
While China’s response to Trump’s initial tariff list focused on agricultural products imported into China, the list grew to 106 items, including products that use memory chips. On the contrary, the 1,300 Chinese products listed by the US government include a large number of high-tech products containing DRAMs (dynamic memory) and NAND flash (non-volatile memory technology) chips.
But as can be clearly seen from Chart 1, China is far from self-sufficient in IC ( integrated circuit ) production. China needs these semiconductors , and this trade war that restricts the component supply chain will have a negative impact on production plans for consumer high-tech products made in China.
Informatica Network A report titled "Mainland China's Semiconductor Equipment Market: A Complete Analysis of Technical, Economic and Political Issues" stated that China's large-scale investment has finally shown its advantages, because integrated circuits made in China are not as good as those imported into China. The proportion increased from 29.1% in 2016 to 32.2% in 2017.
"China's IC production in 2017 was 173.9 billion, up from 130.3 billion in 2016. In 2017, China imported 366.1 billion ICs, up from 317.7 billion in 2016."
In other words, China consumed more than 50,000 Billions of ICs are used to make smartphones and other consumer products, which are then sold around the world.
However, China’s production is less than 200 billion. The 36.6 billion shortfall can only be met by imports, including DRAN and NAND memory chips imported from the above-mentioned U.S. companies, as well as South Korea's Samsung Electronics, semiconductor giant Hynix (SK Hynix) and Japan's Toshiba. Memory chips account for about 25% of imported chips.
China's memory chip market
China needs to import memory chips. Micron Technology's sales to customers outside the United States in 2017 totaled US$17.56 billion, including US$10.39 billion in sales to mainland China, US$2.54 billion in Taiwan, and US$2.54 billion in Europe. US$1.36 billion, US$1.03 billion in Japan and US$1.81 billion in other Asia-Pacific regions, that is, sales to China accounted for 59.2% of overseas sales. Of the total sales of US$20.32 billion, China also accounted for 51.1%. Clearly, any tariffs or trade war would have a profound impact on Micron Technology's revenue.
In addition, in fiscal year 2017, Western Digital's revenue in China accounted for 22.37% of its total revenue of US$19.09 billion, the highest among all regions, mainly from NAND memory and hard drives. While the exposure to China is only half that of Micron Technology, it's still considerable.
Clearly, China is an important market for these companies. But on the other hand, since Chinese chip manufacturers have not yet manufactured these devices, a large number of memory chips are imported into China every year. In fact, China's memory chip consumption accounted for approximately 30% of the total in 2017, of which DRAM demand accounted for 22% and NAND demand accounted for 29%. This is where the United States feels confident in trade negotiations.
On the other hand, if the trade war escalates, it could have an adverse impact on memory, which is ubiquitous in electronics and is the driver of growth for companies like Micron .
Several companies in China are involved in the professional memory field. They are too small to become global memory company giants, but they may rise if the industry over-adjusts.
Chinese company GigaDevice has always been a supplier of NOR flash. Recently, the company acquired ISSI and now also supplies professional DRAM and NAND.However, considering that the entire market is basically monopolized by the three major manufacturers of , Samsung, , Hynix and Micron, it will be very difficult for GigaDevice to enter the first echelon of the global market for DRAM and NAND Flash in the future. The company purchased SLC NAND (SLC is a NAND flash memory architecture) from Toshiba , and has cooperation with Broadcom, Marvel, Qualcomm and Intel. The list in Figure 2 contains Chinese companies with and without fabs.
As shown in Figure 3, Credit Suisse is tracking 19 wafer fab projects that China plans to build or upgrade in the next three years, of which 2 DRAM wafer fabs and one NAND wafer fab are planned to be launched in 2018. Intel expands together.
Trump’s troubles may hurt memory companies
Current tariff negotiations and item lists include products containing memory chips. " Made in China 2025" proposes that the domestic chip self-production rate will reach 40% in 2020. As memory chips account for the largest proportion of chip consumption, import substitution has become an urgent matter. And China’s need for self-sufficiency in local semiconductor products should be the catalyst to avoid a trade war.
If that doesn't work, Trump may add memory chips to the tariff list. This would be a devastating blow to U.S. memory companies and the supply chain for all Chinese-made products, such as Apple’s iPhone. This is a lose-lose situation.
In addition, Trump may also increase tariffs on semiconductor production equipment, and even impose tariffs on U.S. equipment suppliers, such as Applied Materials (the world's largest nanomanufacturing technology company), Lam Research (a global leader) The products of the top ten semiconductor equipment manufacturers) and KLA-Tencor are embargoed.
China's integrated circuits "Self-sufficiency" will become the key to tariff negotiations
In the past, China has invested a lot of money to vigorously support the semiconductor industry supply chain in order to become self-reliant in the semiconductor manufacturing industry. This has actually narrowed the gap between the blue line and the red line in Chart 1 difference.
China has earmarked a total of $150 billion in investments through the National Integrated Circuit Fund, regional funds and private equity funds. The initial target of these funds was overseas mergers and acquisitions and fab expansion, but the resistance of the U.S. government brought strong resistance to mergers and acquisitions. In 2016 alone, the U.S. CFIUS (Foreign Investment Review Committee) vetoed the Chinese acquisition of Fast Semiconductor ( Fairchild), Witten Electronics (WD), and the U.S. business of German semiconductor equipment manufacturer Aixtron. In September 2017, Trump officially signed an order to prevent the Chinese-backed private equity firm Canyon Bridge from acquiring the US chip manufacturer Lattice Semiconductor (Lattice), marking the establishment of a legal framework in the United States aimed at preventing Chinese capital from getting involved. The virtual ramparts of American high-tech companies.
Therefore, China is focusing its attention on domestic companies. Over the past few years, the China Integrated Circuit Industry Investment Fund, backed by the Chinese government, has raised about $20 billion for more than 20 Chinese companies, including ZTE and Semiconductor Manufacturing International Corporation. Currently, the fund company is negotiating with government agencies and enterprises to raise an additional US$22 billion to reach US$95 billion as its second tranche of investment funds. The fund will again invest in a wide range of areas from IC design and manufacturing to chip testing and packaging.
The "Made in China 2025" plan is a ten-year plan launched by China in 2015. The goal is to promote and develop 10 strategic advanced technology manufacturing industries, among which the new generation of information technology industries include integrated circuits and special equipment. The plan calls for achieving "self-sufficiency" through technological substitution and becoming a "manufacturing superpower" that dominates key global high-tech industries.
But China still has a long way to go before its domestic chips can meet all the needs of the high-tech consumer products it produces, mainly for foreign companies such as Apple and Samsung.
This is why memory and integrated circuits will become key to Sino-US tariff negotiations. China’s policy of self-sufficiency and financial support in semiconductor manufacturing will be a turning point in trade negotiations, making it pointless to impose tariffs on the industry.
