STMicroelectronics and Sanan Optoelectronics will form a joint venture in China

The backstory: Semiconductors, those tiny but mighty components that power our gadgets, have become a big deal globally. Chipmakers worldwide are going all in on the industry, investing big bucks in new manufacturing plants to keep up with skyrocketing demand.

Now, here's where the rivalry comes in. The US and EU are determined to stay on top of the chip game and ahead of China. For example, last year, the US banned its manufacturers from selling advanced chips and equipment to make them to Chinese companies without a special license. Then, in March, the Netherlands and Japan joined in and put restrictions on selling chipmaking equipment abroad, making it even harder for China to get the tech it needs for its own chip industry.

Now, let's talk about STMicroelectronics, the Swiss chipmaker that’s Europe's second-biggest by revenue. The company has been operating in China for around 40 years, and its sights are locked on something called silicon carbide (SiC). This semiconductor base material has mainly been used in high-temp settings like car brakes and knife sharpening tools, but it's now one of the hottest things in the semiconductor world. It’s becoming widely used in electric vehicles (EVs), rail transport and renewable energy systems.

More recently: Last year, STMicroelectronics CEO Jean-Marc Chery made a trip to China and acknowledged the soaring demand for semiconductors in the country’s EV sector. It's no surprise considering that China had a surge in new energy vehicle retail sales last year, nearly reaching over US$5 million.

The development: STMicroelectronics and Sanan Optoelectronics, a Chinese company, are coming together for a major joint venture in Chongqing, China, to build a new 200mm SiC device manufacturing facility to meet the growing demand for SiC devices in the country. The deal is valued at US$3.2 billion, and they're aiming to kick off production by late 2025 and hit full capacity by 2028.

The partnership will produce SiC devices exclusively for STMicroelectronics. Sanan Optoelectronics is also setting up a separate facility to manufacture SiC substrates for the joint venture's needs. Both companies will chip in for funding, with some help from the local government and joint venture loans.

Simon Lin, the CEO of Sanan Optoelectronics, believes this venture will be a game-changer for the widespread adoption of SiC devices in the Chinese market. Of course, they still need to get the green light from regulators to finalize everything. But the arrangement underscores China’s aim to remain a major player when it comes to “legacy semiconductors,” which are chips made with 28-nanometer process technology or older, especially with all the export restrictions coming from the West.

Key comments:

"China is moving fast towards electrification in automotive and industrial and this is a market where ST is already well-established with many engaged customer programs. Creating a dedicated foundry with a key local partner is the most efficient way to serve the rising demand of our Chinese customers," said Jean-Marc Chery, president and CEO of STMicroelectronics, in a statement last week.

“It is an important step to further scale up our global SiC manufacturing operations, coming in addition to our continuing significant investments in Italy and Singapore,” said Chery.

“The establishment of this joint venture will be a major driving force for the wide adoption of SiC devices on the Chinese market,” said Simon Lin, CEO of Sanan Optoelectronics. “Being an international, well-known, high-quality SiC foundry service company, Sanan will also supply its SiC substrate to this new joint venture by building a dedicated new SiC substrate factory.