Intel plans to invest $5.5 billion in its Chinese plant in Dalian to prepare the factory for making memory chips. The plant, which started operations in 2010, will make the chips by the second half of next year, Intel said on Tuesday.

Intel To Invest $5.5B In China Memory Chip Factory

Intel a threat to established players

Intel said it plans to invest $3.5 billion in the plant in the next three years but expects the investment to increase to $5.5 billion subsequently. During its most recent earnings call, the chip maker said robust demand for memory chips was very helpful in offsetting weak PC demand.

Intel’s move in the memory chip industry could impact the margins of the leading players in the industry, such as South Korea’s Samsung and SK Hynix and Japan’s Toshiba Corp. Intel has a partnership with Micron Technology to produce memory chips called NAND flash, which are used for storing data in mobile gadgets and increasingly in computers. And by lowering its dependence on magnetic disks to semiconductors for storage, the chip maker is hoping to push data access and make laptops, servers and desktops more receptive.

In a statement, Micron said it will use supplies from the plant, and “could have a greater participation in the future.”

Rising importance of memory chips

Intel’s announcement comes amid a flurry of deals in the global semiconductor industry, suggesting the rising importance of memory chips. China is expected to account for $6.67 billion worth of NAND chips this year or 29% of the global NAND industry revenue, says research firm TrendForce.

To modernize its economy, China has been making efforts to ramp up its chip industry. Last year, Intel acquired a 20% stake in two mobile chip makers owned by state-backed Tsinghua Holdings. Tsinghua also recently announced its intent to acquire a 15% stake for $3.8 billion in Western Digital, a U.S. data storage company. Western Digital is believed to be in advanced acquisition talks with memory chipmaker SanDisk. Tsinghua is also making efforts to buy Micron, but the deal is facing regulatory concerns, Reuters says.

On Tuesday, Intel shares closed down 0.45% at $33.44. Year to date, the stock is down by over 9% while in the last three months, shares are up by almost 15%. Micron stock closed down by almost 11% at $17.09 on Tuesday.