China’s second-largest chip foundry Hua Hong said on Wednesday that a state-owned fund would invest $414.2 million in the firm. The company said the China IC Fund II fund would participate in the proposed RMB share issue as a strategic investor by subscribing to RMB shares worth 3 billion yuan ($414.15 million), subject to the allotment. The company said the deal would enable the chipmaker to enhance its research and development capabilities.
Beijing has been steering money into the domestic chip industry to counter U.S. curbs on technology exports—Hua Hong, which competes with bigger Chinese rival Semiconductor Manufacturing International Corp SMIC. H.K. has escaped some of the damage wrought by the U.S. sanctions due to its focus on older chips less sensitive to Washington’s restrictions.
The new fab will produce chips at mature technology nodes, such as 65-nanometre and 55-nanometre. The company said that reflects a move away from developing cutting-edge technologies that are most susceptible to the latest sanctions.
During earlier trade frictions, Beijing mobilized vast sums to cultivate homegrown alternatives to foreign technology providers. However, a lack of experience and other factors meant that even the most promising Chinese tech companies struggled to replace Western components.
But now, chipmakers up and down the supply chain are assessing how to use domestically made parts instead of those from overseas suppliers. This is accelerating the pace at which Chinese chipmakers, such as Hua Hong, are building capacity.
For Hua Hong, the increased domestic demand will also allow it to give priority to local original equipment manufacturers who can take advantage of a more expansive product portfolio. The chipmaker has already cut orders from some of its foreign customers to prioritize domestic ones as its production capacity became overstretched last year, according to three people familiar with the matter.
The accelerated pace of capacity growth will help Hua Hong increase its market share in the contract chipmaking business, which makes chips for electronics, vehicles, and communication devices. The company is already the second-largest pure-play foundry in the country, and its revenue and profit rose for the 10th straight quarter in 2022.
The Hua Hong deal is part of a wave of financing activity this year that has seen dozens of Chinese tech firms raise funds through issuances. Other notable deals have included a chip tool maker and the mainland debut of semiconductor equipment manufacturer Crystal Growth & Energy Equipment Co. Those IPOs are a sign that investors see China’s chipmakers as a way to diversify their portfolios amid heightened tensions with the United States. But not all of the investments in China’s chipmakers have been wise, analysts say. The F.T. reported earlier this week that local government funds had wasted billions of yuan on semiconductor stocks since 2019. It needs to be clear how much money has been wasted by the Shanghai Stock Exchange and other local market entities.
