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Chinese Firm To Challenge Samsung’s Chip Market With $30B

March 28, 2016 - Written By Muni Perez

When we think about Samsung, the main products that come in mind are smartphones, since the company is the largest maker in the world. However, the South Korean giant has its fingers in several areas and Samsung is also one of the largest chipmakers in the market, producing memory (DRAM) and storage (NAND flash) for many clients which include Qualcomm, Apple and other mainstream smartphone makers. If facing fierce competition on the smartphone segment isn’t hard enough, Samsung’s dominant position in the chip market is about to be challenged as well thanks to a whopping $30-billion investment from Tsinghua Unigroup Ltd.,a Chinese government-backed company that aims to take down Samsung and other Korean chip manufacturers.

During an interview to Bloomberg, Tsinghua Unigroup’s president Zhao Weiguo stated that the huge investment will be made in the following years to grow its semiconductor business, which will add to previous efforts by the company to make its stand in the market: in 2013, Unigroup acquired Spreadtrum for $1.78 billion, and in 2014 it bought RDA Microelectronics for $907 million, and both were Chinese fabless semiconductor companies. Additionally, the Chinese group also tried to acquire a stake in Western Digital, one of the largest manufacturers of hard disk drives, but the deal as scrapped in February. The expressive sum of $30 billion is almost three times Samsung’s investment budget of $11.5 billion for their semiconductor business and it will surely bring some headaches for the Korean company.

The pursue to gain a dominant position on the chip manufacturing market is part of a strategy by the Chinese government to become independent from Western makers and it was fueled by revelations made by Edward Snowden that the American government used electronics shipped to China to spy on them. Since then, several groups backed by the Chinese government have been receiving generous funds to develop their own chip businesses. Last July, Tsinghua Unigroup also made headlines when they tried to buy Micron Technology, an American semiconductor maker, for a whopping $23 billion. The deal didn’t go through, either, and now it seems that Unigroup will be trying its luck in building the whole business themselves. As a result, Samsung may face difficult times as its profits are already set to fall to $4.9 billion in Q1 2016, mainly thanks to increased competition in the semiconductor business, down from $5.63 billion a year ago.