ChangXin Memory Technologies (CXMT), China's largest DRAM maker, rose to the top of China's mainland stock market by market capitalization on its trading debut on the 27th, local time, gaining the capital to chase major semiconductor rivals in Korea and the United States. CXMT, which has rapidly expanded market share through volume offensives ranging from commodity and mobile DRAM, has raised concerns that it can quickly close not only the gap in production facilities but also the technology gap with the funds raised this time.
Listed on the STAR Market of the Shanghai Stock Exchange that day, CXMT closed at 49 yuan, a surge of about 465.82% from its offering price of 8.66 yuan. This maintained the opening price level of 49.5 yuan. Its market capitalization reached 3.28 trillion yuan, overtaking Industrial and Commercial Bank of China (about 2.6 trillion yuan) to instantly rise to the top of China's mainland stock market. CXMT's IPO was the largest in Asian stock markets this year, and the company plans to inject the up to 66.61 billion yuan (about 14.435 trillion won) raised this time into expanding production lines and advancing DRAM technology. In the early stage of CXMT's listing that day, shares of Samsung Electronics and SK hynix fell 1-3% at one point before recovering.
Experts believe CXMT will be the biggest beneficiary of the artificial intelligence (AI) infrastructure investment boom and the Chinese authorities' technology self-reliance policy. Nomura Securities said, "CXMT's market share expansion will accelerate further over the coming years," presenting a target price of 116 yuan for CXMT. Chen Jing, vice president of a technology strategy research institute, interpreted CXMT's rise as meaning that China now has, for the first time, a globally competitive memory manufacturer equipped with strong capital, production capacity and technological capability.
Analysts say that CXMT, backed by full support from the Chinese authorities and now armed with cash, could crack the global top-three structure of Samsung Electronics, SK hynix and Micron. CXMT is expanding its footprint in the commodity DRAM and server DRAM markets inside and outside China while the "Big 3" focus on high-value-added products such as high-bandwidth memory (HBM). It recently drew attention when it was reported that Apple is reviewing a plan to adopt CXMT memory in iPhones sold in China. However, since it does not yet have production capacity sufficient to meet demand, it is expected to accelerate expansion of the Hefei plant and construction of a new fab in Shanghai with the funds raised this time. Goldman Sachs held an emergency conference call that day and forecast that CXMT's production capacity could expand to twice the current level by 2030 and overtake Micron.
CXMT's aggressive capacity expansion could be a direct burden on Korean companies as well, in that it could bring forward the memory price decline cycle. The commodity DRAM market that CXMT is targeting first is an area where Samsung Electronics holds a large share. SK hynix can also defend near-term profitability based on its HBM advantage, but observers say it will be difficult to avoid the impact over the long term. As China's semiconductor self-reliance policy combines with local supply shortages, CXMT products have at times sold within China at prices 2.2% higher than Samsung Electronics products. In the long term, if CXMT expands its business into the HBM field, a direct competitive structure with Korean companies could also form. According to Goldman Sachs, CXMT is accelerating research and development with the goal of mass-producing HBM3 within the year. However, it currently remains at the mass-production stage of 16-nanometer (nm; one-billionth of a meter) class DRAM, and is assessed to be two to three years behind Samsung Electronics' and SK hynix's 10-nm-class processes.
Meanwhile, within China, the support policies of Hefei City, which nurtured CXMT, drew intense spotlight. According to the local economic outlet STAR Market Daily, Hefei City's integrated circuit industry output, which stood at 18 billion yuan (about 3.9 trillion won) in 2016, surged sevenfold to 151.4 billion yuan last year. As recently as 2012 there were fewer than 30 semiconductor companies, but as of the end of last year there are 600 integrated circuit companies with annual revenue of 20 million yuan or more, and about 70,000 workers.
This is the result of Hefei City consistently pursuing its "Xinpingqihe" (fusion of semiconductors, displays and electric vehicles) strategy, a new-industry cultivation policy, for nearly 20 years. In 2008, Hefei attracted BOE's sixth-generation production line through a state-owned investment company and was reborn as the nation's largest panel production base. However, under the awareness that it lacked the chips to actually operate the panels, it unveiled an integrated circuit industry development plan in 2013. Under the goal of "making it China's Silicon Valley," it first established Nexchip (Jinghe Integration), which produces panel and automotive semiconductor wafers. It then launched the "Hefei ChangXin" project that became the root of CXMT, and successively attracted companies in packaging, equipment and materials to complete the overall supply chain.
In this process in particular, Hefei City set out to nurture companies by strategically deploying state-owned capital. In the early stage, state-owned capital directly injected funds to attract companies, taking on the risks of the project's early phase. When it established Jinghe Integration in partnership with PSMC in 2015, it contributed the full 10 million yuan through its subsidiary investment company Hefei Jiantou, and injected additional funds thereafter to pay in a cumulative 3.1 billion yuan. CXMT was also originally a project led by Hefei City's subsidiary investment companies ChangXin Integration and Qinghui Jidian. Even while CXMT recorded massive losses totaling 37 billion yuan cumulatively over 10 years, they continued to supply funds through additional investment attraction and fund formation.
Hefei City is also actively engaged in nurturing startups to produce a "second CXMT" in fields such as design and packaging. Over the past six months alone, there have been a total of 39 investment deals in Hefei's semiconductor industry, concentrated mainly in design (10 deals) and packaging and testing (9 deals). During the same period, four new semiconductor investment funds were also formed under the lead of Hefei state-owned capital. STAR Market Daily assessed that "the 'fund matrix' formed by Hefei state-owned capital is supplying funds across the industry and further raising semiconductor competitiveness."
