Tsinghua Unigroup’s Failed Attempts to Buy America’s Semiconductor Tech

early november 2020 chinese semiconductor maker ching hua uni group defaulted on 197 million dollars 1.3 billion rmb of its bonds china's credit rating agencies downgraded the company's credit rating the potential for a downward credit spiral is very real this company might not ring many bells people might recognize the qinghua part of the name it's the name of a famous university in beijing but not all that much else who cares about another company in china even one with partial state backing defaulting on its bonds i'll talk more about the default later but to me this company is interesting because of the buy buy buy acquisition strategy china pursued in semiconductor technology development for several years during the 2010s it's also one of china's national champions in this video i want to talk about unigroup its rise to prominence and its history of company acquisition but first let's talk a little bit about what i've been working on in the forthcoming email newsletter i'm working on a new extension to the haka video that i posted many years ago the haka people have a history that's very fascinating but not all of it managed to fit in the single short video the post allowed me the chance to add a bunch of new stuff after the fact including stuff about clothing history i'm expanding on for example the hakapunti wars you can really look forward to that one i'm i'm pretty excited about it you can find the link to the newsletter in the video description below or you can just go to asianometry.com subscribe and i'll try to make it worth your while you can expect a newsletter every four days at 1 am taiwan time thanks qinghua unit group bears the name of the prestigious qinghua university in beijing it was founded in 1988 as the school's corporate arm for commercializing this research qinghua university is one of china's big prestigious universities many of its professors fled to taiwan at the end of the civil war where they established nthu national qinghua university in shinchu across the strait the communist party rebooted ching hua university in 1952 with a focus on engineering and the sciences qinghua the mainland version counts xi jinping hujintao and other political leaders has its alumni it has one nobel prize winner amongst its faculty the company is a digital infrastructure and services company it operates as kind of a holding and intellectual property organization owning companies like unisplender corporation and uni group goes as of 2018 they employ over 40 000 employees there are a few articles that imply that unigroup is wholly owned by the university that doesn't seem to be true according to chinese corporate filings unigroup is indeed majority owned by the university but just 51 percent the rest is owned by a beijing investment company founded by unit group chairman dao weikwo dao is an interesting guy born in xinjiang as an ethnic han chinese he survived the cultural revolution and enrolled in ching hwa university he then moved to the university's corporate arm unit group rising in the ranks as one of unit group's subsidiaries he then left to start a real estate investment firm buying and selling beijing properties after making a lot of money there earning his first bucket of gold dao fulfilled the dreams of office workers everywhere and used his money to buy a big share of his former employer in interviews and public statements he toes the party line he talks about strengthening china's abilities in the semiconductor space and supports openness in the u.s china relationship last year he urged american technology companies to help ease relations on the one hand they're earning lots of money here in china and on the other hand they're making malicious remarks about china to the u.s government behind the scenes u.s companies can do better especially technology giants some american companies do well and some do not he's probably referring to mark zuckerberg in facebook the zuck played up the china threat in his remarks to congress yet at the same time facebook inc makes some five billion dollars a year from advertisers in china trying to reach customers around the world anyway that's that's off topic as you might guess dao's rags to riches journey is very interesting to me so interesting that i wonder if there's more to it the nikkei asian times note that he used to be ex-colleagues with the son of former chinese president and paramount leader hu jintao in 2008 hu haifang served as party secretary of qinghua holdings unigroup's parent company and they work together i think uh prior to that that might help qinghua unit group's goal is to be the leading company in the production of integrated circuits and information technology they want to help narrow the ic gap between chinese and the west this is a tough problem in a crowded industry with a lot of well-funded competitors and very specialized knowledge how do you catch up how do you make your way from the back of the pack to the front taiwan and south korea benefited from what we call technology transfer agreements china has two in the past trading access to their massive market with agreements to acquire advanced technologies but it's harder to do this in the semiconductor space countries tend to be very protective of where their technologies are going unigroup's strategy appears to be two-pronged the first is to pay up for large acquisitions of companies in the west once acquired unigroup drives r d efforts to file international patents and reap the resulting patent revenue unigroup has filed for over 10 000 patents in the past decade covering all parts of the integrated circuit industrial value chain they're i think they're using these acquisitions as sort of like an accelerated catch up so to skip the years of development learning what whatever have you and you know the interesting thing is that uni group actually started out as more of like a lab sciences company just kind of like working with science experiments uni group first entered the semiconductor space with the 2013 acquisition of china's largest fabulous semiconductor company spreadtrum after buying spreadtrum unigroup added a second domestic purchase rda i believe they then merged the two companies together and rebranded it as unisoc the two acquisitions cost the firm some six billion dollars but leapfrogged the company into being the third largest mobile phone baseband chip supplier in the world number one and two are qualcomm and mediatek okay so you bought two fabulous companies does that really mean anything in my previous video i talked about the importance of validating your product in the world market like through sales or foreign investment thus unit group set out and received a 9 billion rmb investment from intel their proof of their global competitiveness this perfectly positioned the company to receive funds from the 140 billion rmb national integrated circuit industry investment fund formed a year later in 2014. excellent timing they got 10 billion rmb from the fund and another 20 billion from the national development bank chinese foreign acquisitions had been on the rise during the 2013-2016 period and unigroup was single and ready to mingle for bigger buys abroad they would attempt a number of foreign transactions in attempt to absorb foreign technology leapfrog their progress and advance china's semiconductor industry the first in 2014 was when unigroup spent three billion dollars in a 51 majority stake takeover of hewlett-packard chinese server storage and technology unit h3c the next year in july 2015 unigroup attempted to acquire micron technology for 23 billion dollars micron is the united states largest memory chip company making dram memory chips and data storage products at the time micron stock was down 50 percent and the industry was working through a memory glut had the transaction gone through it would have been the biggest us purchase by a chinese company ever the problem is that large transactions by foreign companies need to be reviewed by an inter-agency committee for national security implications this committee is called cephas the committee on foreign investment in the united states cfas has the right to review and block any acquisition after review it is the successor to a 1988 law the exxon florio amendment which was passed in response to foreign acquisitions by japanese companies micron had concerns about the bid from qinghua and turned it down before the talks ever got serious ching hua yuna group's association with the university which is directly under the prc's ministry of education made it likely that cephas would consider it a chinese government-controlled company unigroup modified its strategy that same year in september 2015 with the second attempted acquisition in this transaction one of the company's subsidiaries eunice blender released a cooperation statement with american storage maker western digital in this transaction western digital would issue to unisplender 3.77 billion dollars of shares a 15 stake in the company and give it one board c unigroup likely was hoping that the fact that the wdu transaction was an equity purchase in addition to the fact that it was done through a subsidiary would allow it to evade cephas rule cephas was like nice try and in february 2016 wd got a letter from cephas telling them that the transaction would need to be reviewed eunice blender and wd called it off the third big attempted acquisition came in november 2015 when unigroup proposed in media actually a merger with taiwanese fabulous company mediatek jawweigh told taiwan media that he wanted to merge as two companies rda and spreadtrum together the number three baseband chipmakers with mediatek the number two baseband chip maker the combined company would be larger than qualcomm the number one maker this merger proposal came in at the same time with the announcement of qinghua's acquisition of a 25 state in powertech technology a provider of test and packaging services for the ic industry this particular niche in the ic industry is open to mainland chinese investment mediatech is a spin-off from umc taiwan's first electronics foundry depending on how you measure things it's the world's fourth largest ic designer ahead of names like amd and marvel mediatek is a taiwanese national champion second probably only to tsmc the government declined to change the laws to allow the merger to happen 2016 would see the last big chinese foreign acquisition of the era medea's purchase of german robotics maker kuka the kuka acquisition though successful got a lot of press and kicked off a new era of wariness surrounding big chinese acquisitions and then a year later china clamped down on capital flight and the shopping spree came to an end after these failed foreign acquisition attempts qinghua unigroup turned inward their failed investment in wd reflected their interest in breaking into the memory chip market the market is currently dominated by a small coterie of american and korean firms like samsung sk hynix and micron in july 2016 qinghua purchased a majority stake in wuhan shinshin semiconductor and rolled it into a shell company it created called changjang storage changing is in reference to the chanjeong river more well known to westerners as the yangtze river the company is based in wuhan dao vowed that he and his company would invest 100 billion dollars over the next 10 years to turn yangtze memory into a world-class domestic memory chip company he brought in the former ceo of japan's el pita memory to lead dram development at yangtze the government has strongly gotten behind yangtze memory and in april 2018 president xi jinping visited the wuhan factory and he gave a speech there in which he said that in order to achieve china's 200-year goals some major core technologies must overcome difficulties on their own two years later the company announced a major breakthrough in nand flash memory the company had kicked off then a pair of massive chip factories in chengdu and chongqing looking to replicate the success they've had in wuhan right now though those multi-billion dollar projects have stalled as qinghua unigroup works through its debt issues it appears that unigroup's default has been long foretold earlier this year in 2020 the chinese government passed down new economic reform rules that separated state-owned entities like universities from their commercial bodies once ching hua university was made unable to subsidize qinghua unigroup the latter began to struggle the debt unit group has already defaulted on seems to be a small percentage of its overall debt profile the company has another 157 billion rmb 22 million usd roughly of debt coming due in the next year and many billions at r b coming after that the government has apparently decided to get more involved dao has stepped down from the boards of several companies in 2018 an additional executive chairman for the overall group was also recently appointed zhao remains executive chairman of the overall group just like with hong xing and wuhan many of unigroup's projects rely on billions of dollars of funding to come from local governments by themselves unigroup doesn't have enough money but then as high-profile failures like hongxing filter through the system governments start cracking down on projects giving them a lot more scrutiny and looking to avoid something of the same happened to them not to say that unigroup is another hong shing unlike hong xing uni group actually owns part of a legit semiconductor business that is actually running and you know making money and all and as a national champion no reason that uni group can figure things out and eventually arise phoenix like has a new slimmed down entity like i said they still own some very interesting assets but it's going to take some time for funding to come in in the meanwhile the company's projects sit mothballed all right everyone take care of yourselves it's crazy world out there have a good one

Channel: Asianometry

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Length: 14min 58sec (898 seconds)

Published: Fri Dec 18 2020