China has been quite vocal that it is in an all-out effort to obtain its own CPU, NAND and DRAM production capabilities. China has an incredible arsenal of funding but lacks the experience and knowledge required to manufacture the components. The most recent news of storage consolidation likely contains yet another clue to the country’s strategy to obtaining the necessary pieces.
To some, it may appear that China’s path to its own NAND production capabilities trickles through a convoluted stream from SanDisk to Tsinghua. The real prize is the SanDisk patents, and a NAND empire could flow from that single IP source. If that is the case, we may be witnessing a tremendous shift in the computing realm as the dragon awakes.
Today WD announced that it is entering into a joint venture (JV) with Unisplendour (Unis) that will sell and market WD’s current data center storage systems in China. Unisplendour (and its subsidiary Unissoft Group Co. Ltd.) will own 51 percent of the JV, and WD will own 49 percent.
Unis recently announced its intention to purchase 15 percent of Western Digital for $3.775 billion to further its storage producing aspirations. The Chinese MOFCOM regulatory committee summarily approved the long-awaited WD merger with HGST within a few weeks of the announced Unis investment. The mudslide of activity did not stop there.
WD announced its proposed acquisition of SanDisk a mere two days later. This development came on the heels of a failed bid to purchase Micron by Unis’s parent company, the Chinese state-controlled Tsinghua Unigroup. The attempted Micron acquisition was halted due to an almost certain revocation by the United States on national security grounds.
Unis purchased 15 percent of WD, but that does not grant it a controlling stake in the company. Many view this as a way to avoid U.S. regulatory oversight. Unis, however, does gain a seat on the WD board and is not restricted from other operations with Western Digital. The new JV agreement is surely a sign of more cooperation between the two companies in the future.
The relationship between storage vendors and OEMs is changing dramatically, leading to increased competition between the OEMs and the HDD and NAND manufacturers. The JV signals a rapid broadening of the relationship between Unis and WD as the HDD manufacturer moves to increase its systems market penetration with its Active Archive System.
SanDisk is making tremendous waves with its InfiniFlash platform, which poses a serious threat to the established vendors in the all-flash array segment. None of the current AFA vendors produce their own NAND, which affords SanDisk an almost immediate pricing advantage. SanDisk does not have extended experience at the system level, so it is leveraging relationships with Tegile, CloudByte and Nexenta to further its expansion. WD will also be able to market the InfiniFlash products directly into the Chinese market if the SanDisk acquisition completes as planned.
There are developments on many fronts, as the Chinese government looks to increase its national security by manufacturing its own DRAM, NAND and CPUs. The state-controlled Tsinghua Unigroup, the parent company of WD-investor Unis, recently sunk 80 billion yuan into Tongfang Guoxin, which then invested 60 billion yuan into creating a new memory fab. The company is not directly revealing what type of memory it is producing, or in what quantity. However, according to TrendForce, China will purchase 21.6 percent of the world’s DRAM and 29.1 percent of the world’s NAND flash this year, so either will be a win for China’s national security initiative.
None of the companies involved in the new Chinese fab have any experience or IP in producing either DRAM or NAND, which leads one to wonder where the manufacturing expertise will originate. If we trace the web of connections starting with SanDisk, WD, Unisplendnour and its parent company Tsinghua back to Tongfang, it appears that a transfer of NAND licensing and IP from SanDisk to Tongfang Guoxin may be the end goal of Tsinghua/Unisplendour’s maneuvering
The new JV was approved by the Unis and WD boards and will become operational in Q2 2016, pending regulatory approvals. The JV will be based in China.
