Beijing is grappling with setbacks in its plan to turn a disjointed chip industry into a few powerhouse firms that can stand up to global competition.
According to sources, the Chinese government has been discussing with key chip equipment manufacturers to consider a state-led merger that would pool their technologies.
However, talks have derailed as companies and investors clashed over the proposed ownership setup and valuation.
Lee says a merger could help China reduce its dependence on US firms
Amid US efforts to limit China’s access to semiconductors, Beijing is pushing to reinforce its domestic chip industry, with the National Development and Reform Commission at the helm of the merger talks. Still, Beijing has a long way to go, especially with corporations and investors clashing over how the merger should be structured and valued.
One person familiar with the talks commented, “There were too many split interests. The prospective sellers don’t want to sell at a loss, and the buyers don’t want to pay a premium.”
Another insider confirmed that negotiations were still in progress, although he noted that a full-scale consolidation was becoming increasingly improbable.
Meanwhile, analysts like Edison Lee, a semiconductor analyst at Jefferies, maintain that consolidation would aid the country in creating its own self-sufficient ecosystem and phase out reliance on US companies such as Applied Materials and Lam Research.
Currently, 26 semiconductor acquisitions have been announced in 2025. The highest-profile deal so far is the merger between Hygon, a CPU designer for servers and data centers, and supercomputer maker Sugon. Their deal is valued at over $16 billion and will be completed via a share swap.
Analysts are concerned that consolidation may not work to Beijing’s expectations
Beijing is also aiming for more targeted financing for firms through mergers. According to Lin Qingyuan, a semiconductor analyst at Bernstein, authorities have realized that fragmented investment fails to deliver the scale required for profitability. As a result, they’re focusing on developing a handful of globally competitive national champions.
However, there are still concerns about whether consolidation would work to improve the country’s chip industry. An investor even explained that many of the companies up for sale have no true technological moat and thus, without a strategic plan, any acquisition attempt would likely fail.
Lin also pointed out that most companies best equipped to acquire underperforming assets are often the first to reject them over concerns about the asset’s weaknesses and high price tag.
Nonetheless, a widening range of industries, including real estate and textile equipment manufacturing, are beginning to explore acquisition opportunities in the chip sector. However, despite the growing enthusiasm, not all deals reach completion. Based on Wind data, eight mergers or acquisitions announced this year have collapsed.
For instance, the Empyrean Technology, a leading Chinese EDA firm, announced in March its intention to acquire smaller competitor Xpeedic to expand its toolset. But the deal was scrapped last month due to unresolved disagreements over terms.
Additionally, Zhejiang Aokang, a leather footwear manufacturer, and Ningbo Cixing, a knitting machinery specialist, have recently withdrawn from proposed semiconductor acquisitions due to valuation disputes.
However, analysts have noted that most asset owners are unwilling to accept below-book-value offers even with deteriorating financial metrics, making consolidation and acquisition strategies unfeasible.
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