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China's chip acquisitions send ripples across industry

Posted: 20 Nov 2015 ?? ?Print Version ?Bookmark and Share

Keywords:Qualcomm? Intel? Tsinghua? semiconductor? acquisition?

From 2014 to 2015, China has subsumed a number of semiconductor companies, which arguably could be considered as the country's great leap forward in the global market. This development essentially rests on two major factors.

First, China's policy efforts, combined with private-market forces, have launched a Chinese shopping spree of unprecedented speed, value and volume, through mergers and investments in global electronics companies.

Second, leading global electronics companies, Qualcomm and Intel included, are eagerly allying with Beijing. They are making large-scale investments in, and giving business to, China-based companies and foundries.

China targets memory

The technologies and IP targeted by China include disk drives, CMOS image sensors, servers, memory chips and advanced semiconductor packaging and test services.

For the moment, the biggest prize sought by a private fund such as Tsinghua Unigroup appears to be NAND memory chips. In August, the firm made an informal $23 billion takeover offer for U.S. giant Micron Technology Inc. The Idaho-based chipmaker rejected the deal outright, conceded that it might endanger U.S. national security.

In an interview with Reuters this week, the Tsinghua Unigroup chair, Zhao Weiguo, said his firm plans to about $47 billion "over the next five years in a bid to become the world's third-biggest chipmaker." To put the matter into perspective, this five-year investment target roughly equals a year's revenue at Intel. (Intel's 2014 revenue was $55.9 billion.)

Over the past two years, Tsinghua has spent more than $9.4 billion on acquisitions and investments at home and abroad. These include the purchase of stakes in U.S. data storage company Western Digital Corp. and Taiwan's Powertech Technology Inc. Without disclosing specifics, the chair revealed that the company is about to close another investment deal, a minority stake in a U.S. chip company, as early as the end of this month, Reuters reported.

Asked about China's five most important investment/acquisition deals in global electronics companies announced in the last 12 months, Kevin Wang, director, semiconductor value chain and mobile devices & networks at IHS Technology, listed China's private-equity investments in companies such as Western Digital, H3C Technologies/HP enterprise business in China, OminVision, Integrated Silicon Solution Inc. (ISSI) and StatsChipPAC.

Not every deal sought by different Chinese funds is consummated. But Wang estimates that more than '20 deals and cooperation' have been announced by Chinese investors in the last 12 months alone.

China says 'Jump,' the U.S. companies ask 'How high?'

During the same period, large U.S. corporations whose business depends so much on China, such as Qualcomm, Intel, Apple and IBM, finding themselves more and more at the mercy of Beijing, probably more than they care to admit.

A case in point is the $975 million fine Qualcomm paid in February this year to settle a Chinese antitrust investigation. It also reduced the fees it charges Chinese phone makers to use its chips. Qualcomm has agreed to bring the business of 28nm Snapdragon apps processor production to China's largest foundry, Semiconductor Manufacturing International Crop. (SMIC). Earlier this month, announcing its latest quarterly results, Qualcomm's CEO acknowledged that the company has not been able to close licensing deals with two major Chinese customers [believed to be Xioami and Lenovo].

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