Samsung, State Planner Charge Up China Microchip Collaboration

Global high-tech giant Samsung Electronics Co. Ltd. has signed an agreement with China’s state planner to resume collaboration in the realm of high-tech microchips, as part of Beijing efforts to build up a lucrative sector now dominated by foreign firms.

Samsung, one of the world’s leading makers of memory chips used in computers and mobile devices, signed the memorandum of understanding (MOU) with the National Development and Reform Commission (NDRC) late last week, according to a source with direct knowledge of the situation, speaking on condition of anonymity because neither side has made an official announcement.

A spokesman in China for South Korea-based Samsung had no comment on the matter.

South Korean media cited a Samsung official as saying the new agreement marked the deepening of a previous collaboration between the two sides that took effect in 2015 and expired a year ago. He added the new agreement touched on issues regarding standardization and product development, with specific points including information exchange, academic collaboration and increased investment and supply of components for China’s chip sector.

The original agreement ended about a year ago, but wasn’t immediately replaced by a follow-on second agreement due to diplomatic tensions between China and South Korea over a high-tech U.S. anti-missile system that the latter was installing over concerns about possible attack from North Korea, according to a report in South Korea’s edaily. Those tensions have eased more recently, paving the way for the second agreement.

As a major electronics manufacturer, China is the world’s largest buyer of semiconductor microchips that power everything from smartphones and computers to microwave ovens. But it lacks the expertise to make many of those high-tech chips, with the result that the majority must be imported from other countries.

To change that, Beijing has embarked on a major campaign to encourage development of a domestic chip-making sector, which includes both homegrown players and also more investment in local production facilities by companies like Samsung and Intel. Last year Samsung announced a plan to invest $7 billion in a factory in Northwest China’s Shaanxi province over three years to meet growing global demand for NAND flash memory, which is commonly used in smartphones and other mobile computing devices.

Signing of the new agreement also comes amid reports of separate talks between Samsung and the NDRC over global NAND memory prices, which have climbed steadily over the last six quarters amid strong demand from Chinese and other manufacturers. The NDRC reportedly expressed concerns about the rising prices to Samsung at the end of last year, and an “intervention” is expected in this year’s first quarter to moderate climbing prices, according to DRAMeXchange, a unit of semiconductor industry tracking firm TrendForce.

Contact reporter Yang Ge (geyang@caixin.com)