Western Digital Urges China to Tread Carefully on Chip Ambitions

Western Digital Corp. Chief Executive Steve Milligan warned that China’s burgeoning semiconductor industry may flood global markets if the rapid growth of domestic chipmaking capacity runs unchecked.

The country’s ongoing effort to build a world-class microchip industry requires careful planning and consideration because a global glut -- a persistent concern for a largely commoditized memory sector -- benefited neither companies, the government nor the market, the executive told Bloomberg News.

China’s government is intent on spending more than $100 billion to become a leading supplier of semiconductors in coming years, to compete on an even footing with the likes of Samsung Electronics Co. or Qualcomm Inc. Semiconductors are seen by the political leadership as vital to national security, but the success of that multi-year effort comes down to accessing technology, analysts have said.

“I understand China’s desire to get into the semiconductor and memory business, I respect that. But let’s try to do it in a way that is economically responsible,” Milligan said in the eastern city of Nanjing. “Because if you want to call it ‘destroying’ an industry, it is not good for anybody. You just need to be careful how you layer in the capacity.”

Miligan attended on Thursday the official opening of a 1 billion yuan ($150 million) storage solutions venture with Tsinghua Unigroup Ltd., the sprawling conglomerate that emerged from the prestigious local university of the same name. Called Unis-WDC Storage Co., it’s 51-percent owned by an arm of the Chinese company and 49-percent by Western Digital, and will operate a research and development center in Nanjing as well as a marketing office from Beijing.

The many affiliates of state-backed Tsinghua University -- including Unigroup -- have become the vehicle for a Chinese effort to wean itself off foreign technology. Together they’ve spearheaded a spate of high-profile acquisitions in recent years, despite being forced to drop a proposed $3.8 billion investment in Western Digital after it fell under U.S. security review. Unigroup bought RDA Microelectronics Inc. and Spreadtrum Communications Inc., and came close to a potential $23 billion bid for Micron Technology Inc.

On their part, Western multinationals such as Cisco Systems Inc. or Hewlett-Packard Enterprise Co. have sought local partners break into a massive Chinese information technology market where state agencies and corporations favor local vendors. Those partnerships sometimes involve a transfer of technology, but Milligan said that was not the case with Unigroup.

Closely held Unigroup had sales of 52 billion yuan last year with an after-tax profit of 3.9 billion yuan, according to the company. In July, it merged its memory chip-making arm with a Wuhan-based chipset factory, creating a $2.8 billion domestic giant.

“Our goal is to build a Pacific fleet for China’s information technology industry,” Unigroup Chairman Zhao Weiguo said at the venture’s opening ceremony. “It not only needs a strong defense power to fuel China’s growth, it’s our responsibility to help the country grow high-technology capability.”

— With assistance by Robert Fenner

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