ChangXin Memory Technologies reportedly reached a $3 billion memory supply agreement with Tencent.

Reuters cited three sources familiar with the matter, revealing that Chinese memory chip manufacturer Changxin Memory Technologies has signed a long-term supply agreement worth over 20 billion yuan with Tencent (00700) ahead of its highly anticipated initial public offering (IPO).

The sources said the agreement covers the supply of dynamic random access memory (DRAM) chips for servers over the next several years. Two of the sources said the agreement has a term of up to three years, while a third said it could extend up to five years.

Many details of the transaction remain unclear, including whether it involves Changxin's high-bandwidth memory (HBM), a key component for high-performance AI chips.

Additionally, two sources said Changxin is currently negotiating similar partnerships with other major Chinese internet companies. According to its IPO prospectus, Tencent, Alibaba Cloud, ByteDance, Lenovo (00992), and Xiaomi (01810) are all key clients.

The sources revealed that Changxin is actively expanding production capacity to seize opportunities from the industry's upward cycle. Two of the sources said that in addition to its existing Shanghai plant focused on HBM packaging, Changxin has begun construction of a new DRAM factory in the city.

Changxin currently operates two 12-inch DRAM wafer fabs in Hefei and one in Beijing, with a total monthly capacity of approximately 300k wafers. The sources said that with the new Shanghai plant and other capacity expansions coming online, Changxin's monthly DRAM wafer output will double to around 600k.

However, the company still faces challenges. The sources said that Changxin's yield rate for its next-generation DDR5 memory products produced in the first quarter was relatively low, once again highlighting the technology gap between the company and established global manufacturers.

Changxin received approval from the Shanghai Stock Exchange in May for an IPO on the STAR Market, aiming to raise 29.5 billion yuan, which could make it one of the largest listings in mainland China in recent years.

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