Tsinghua deal to connect Western Digital to powerful China tech set

[SINGAPORE] A billion-dollar Chinese plan to invest in Western Digital Corp is designed to plug the US data storage firm into a network of influential China tech players carefully constructed by Tsinghua University, the alma mater of President Xi Jinping.

For US$3.8 billion, a unit of state-owned Tsinghua Holdings Co will get a 15 per cent stake in Western Digital. What Tsinghua, run by a university committee, hopes to get is the latest in a string of domestic and foreign footholds in data storage and the chip market, an area deemed of strategic importance by Beijing.

Wednesday's Western Digital deal follows Tsinghua's US$23 billion move to buy US chipmaker Micron Technology Inc as China ramps up efforts to develop chips expertise. But the Micron plan has been clouded by U.S. security concerns - and some say the Western Digital may follow suit. "Its (Tsinghua's) Chinese government affiliation is making its overseas acquisition more difficult," said Fubon Securities analyst Carlos Peng.

Western Digital hopes selling the minority stake to Tsinghua's Unisplendour Corp will help it avoid rigorous regulatory scrutiny. If the deal goes through, the California-based firm will have a new investor with a wide range of China tech units, from IT services provider Unisplendour to biotechnology firm Chengzhi Shareholding Co.

The Tsinghua network also stretches to other US firms.

In May, Unisplendour announced to buy 51 per cent of Hewlett-Packard's H3C Technologies for US$2.3 billion, creating a Chinese tech hub that houses H3C's networking operation alongside its China-based server, data-storage and technology-services businesses.

Meanwhile, in 2014, Intel Corp bought a US$1.5 billion, 20 per cent stake in two mobile chipmakers under Tsinghua's umbrella. That provided the Chinese firm with support from a US semiconductor giant on chip design and development within China itself - a landmark deal for Beijing. "It (China) is producing its own products rather than just contract making, it's because there's demand from local consumption," said Gartner analyst Tracy Tsai. "Tsinghua, with its state-backed role, plays a key part under this background. It needs to introduce partners through mergers and acquisitions and help China boost its technology knowhow."

REUTERS