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China fabless firms exit public market, swoop up state funds

Posted: 14 Aug 2014 ?? ?Print Version ?Bookmark and Share

Keywords:China? Nasdaq? fabless? Spreadtrum? RDA?

Political play?

This year, Montage Technology became an acquisition target of Shanghai Pudong Science & Technology Investment Co. (PDSTI), another state-owned company. Montage is a fabless chip company focused on analogue and mixed-signal semiconductor solutions for set-top boxes and memory interface chips for memory-intensive server applications. The two entered a definitive merger agreement in June, under which PDSTI would acquire all of Montage's outstanding ordinary shares for $22.60 each.

Montage shareholders approved the transaction Aug. 1, but it still requires antitrust and other regulatory approvals.

When PDSTI's bid for Montage was revealed in March, it came as a shock to the Chinese electronics industry. Many industry sources saw the deal more as a political play. The Shanghai fund had been beaten twice by Beijing's Tsinghua Unigroup in bids to acquire leading Shanghai fabless chip companies (Spreadtrum and RDA). Word on the street was that PDSTI couldn't possibly let Tsinghua Unigroup steal Montage from its backyard.

Actions Semiconductor plans to split into two and leave Nasdaq (see Actions to split into Multimedia co., Android tablet co.). How the company will achieve that goal!or even if it's feasible!remains to be seen. Actions's CEO says the company is in a quiet period until Aug. 15, when it is scheduled to announce its second-quarter results.

Wang said separating two groups with products that have unique life cycles and P&L models "might be a good thing to do at some point" to ease friction between the groups. However, he cautioned that a split might deprive Actions of its critical mass of resources.

National business

Executives at Chinese chip companies have been jockeying to grab what appears to be a huge chunk of the money the government is poised to pump into the domestic chip industry. The planned investment, combining contributions from the central and local governments, is likely to be $10 billion to $15 billion per year, starting in 2015. Some say it might be stretched over 10 years, but others say five.

Several sources in China say that, rather than expecting the government to dictate which IC industry sectors should get investment money, the idea that has gained consensus among locals is to "set up a fund" and let professional investors place bets on which entities!fabless, foundries, and/or research institutes!deserve the funding. Moreover, the sources say, the investment overseers would not be the government, but fund managers, who would demand tangible results and a real return.

Though details remain under negotiation, it is clear that some state-owned companies, such as Tsinghua Unigroup and PDSTI, have started to take action. This probably explains why Spreadtrum, RDA, and Montage started receiving acquisition offers last year.

"If we look at the semiconductor sector itself, it's always a national business," Wang said, "even though we have seen so many successful global players." By "national," he means that it needs strong support from government policies and incentives.

Also essential are a healthy local financial market to increase the industry's value and continuously attract the talented workers who make the difference.

"If we look at the US, Japan, Korea, Europe, and Taiwan, those major players in respected regions all have listed themselves in their own financial markets," he said. "Why would China differ?"

- Junko Yoshida
??EE Times

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