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China's antitrust issues threaten US semicon industry

Posted: 30 Jan 2015 ?? ?Print Version ?Bookmark and Share

Keywords:antitrust? semiconductor industry? royalty fee? Great Wall of China?

China's antitrust regulators are building more restrictions in the country's semiconductor industry, potentially affecting Qualcomm and U.S. industry.

The need to build Chinese walls in the semiconductor industry is taking on a completely new significance as China's antitrust regulators start to flex their muscles.

The implications affect global companies that aim to keep their foothold in China's semiconductor marketwhich by 2012 became the world's largest, accounting for 52 per cent of total demandthat continues to lead industry growth.

The key chipmakers impacted by China's antitrust initiatives include Qualcomm of the United States and MediaTek of Taiwan as well as emerging Chinese companies such as Semiconductor Manufacturing International Corp. (SMIC) and Spreadtrum Communications. The Chinese government, which has aimed to make semiconductors a pillar industry for years, is using antitrust issues to create a level playing field for domestic companies.

Yet as the government of the world's second-largest economy seeks to ensure fair trade, one possibly unintended consequence may be the creation of a new Great Wall of China.

The Wall Street Journal on January 27 reported that China's central government has asked Spreadtrum to custom design "safe phone" processors for officials' smartphones that in one to two years may replace chips from U.S. suppliers which Beijing suspects may contain back doors to aid foreign spying. To be sure, China may be justified in protecting itself from national security risks, following revelations about U.S. surveillance activities by former National Security Agency contractor Edward Snowden.

China's antitrust probe of Qualcomm may already be taking a toll on the world's largest maker of smartphone chips, which today said it has cut expectations for sales and profit this year after losing semiconductor orders and facing stronger competition in China.

The Chinese government, which owns the big three domestic telecom service providers China Mobile, China Unicom and China Telecom, has a huge influence on the technology business that it is only just starting to exert. China Mobile, the world's biggest telco by subscribers, is shifting procurement policy from five-mode smartphones with chips dominated by Qualcomm to three-mode models, spurring Chinese apps processor vendors to embrace Wi-Fi and Bluetooth Low Energy standards. China Mobile's new policy benefits domestic chip designers such as Spreadtrum and Leadcore as well as Chinese smartphone makers.

The issue has the attention of U.S. President Barack Obama, who pressed Chinese President Xi Jinping in December 2014 talks on the use of Chinese antitrust policy to limit royalty fees for foreign companies, the focus of China's probe into Qualcomm, according to a Reuters report.

The implications go beyond smartphones, however, and include new emerging businesses such as smart TVs, where China aims to be a leading player.

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