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China wants global semiconductor leverage

Posted: 05 Sep 2014     Print Version  Bookmark and Share

Keywords:China  Intel 

In the past weeks, two news items involving Intel and China stirred up the investment industry, as well as attracted Chinese media attention. First is that Intel is eyeing China's Spreadtrum as an investment to shore up its mobile business, according to a Chinese news site. Second, Intel should consider acquiring Taiwan's MediaTek as urged by RBC Capital Markets analyst Doug Freedman.

Reached by EE Times on Tuesday, Intel spokesman Chuck Mulloy was, of course, mum, other than noting: "We don't comment on speculation nor do we speculate on what might have caused the speculation."

This is a predictable no-comment. Both items might indeed be pure "speculation" worthy of no further interest.

However, it was only a few weeks ago when a group of Chinese investors—including a state-owned firm—offered a buyout proposal to US digital imaging chipmaker OmniVision. Putting together a string of recent events, we couldn't help but wonder:

  1. Does selling Spreadtrum to Intel, or allowing the foreign chip giant to invest in the now state-owned company, make sense for China?
  2. What's the real motivation behind China's wanting to acquire OmniVision?
  3. Do any of these moves have anything to do with China's recently unveiled "National Framework for Development of the Integrated Circuit Industry"? (After all, the Chinese government is setting up a huge annual investment fund to support the nation's semiconductor industry.)

Some US-based electronics industry executives told us that a Spreadtrum sale and an Omnivision purchase are both among the potential financial plays contemplated by China's investment community. Others, however, are sceptical of the whole scenario.

EE Times has been scrambling to connect the dots of China's seemingly unrelated investment moves in recent months.

Nicky Lu

Lu: China's new policy allows professional financial investors to bet on which entities deserve the funding.

Nicky Lu, chairman of Etron Technology Inc. in Hsinchu, Taiwan, is one of those industry executives convinced that these manoeuvres are closely tied to China's national IC industry framework. He says they make perfect sense.

Just to be clear, we regard Lu as "the man in the know."

While serving as chair of the Taiwan Semiconductor Industry Association (its politically correct name is "Semiconductor Industry Association in Chinese Taipei"), Lu earlier this year became the chair of the World Semiconductor Council (WSC).

Lu explains that China's new policy, different from those in the past, is the infusion of private investment funds. It allows professional financial investors to bet on which entities—fabless, foundries, and/or research institutes—deserve the funding.

In Lu's view, if the Chinese funds actually succeed in improving the value of Spreadtrum and manage to sell it off (to Intel or not), China wins.

China's proposal to buy OmniVision, on the other hand, will have further impact.

By taking over the world's leading CMOS image sensor vendor, China will gain instant access to the global market and the company's formidable market share. More importantly, such a deal generates demand for volume production of CMOS image sensors in China (not in Taiwan)—enough to fill the capacity of home-grown Chinese fabs like Semiconductor Manufacturing International Corp. (SMIC) based in Shanghai.

In short, China's investment funds are on the lookout for acquiring successful companies in the global market.

China funds

How China funds are allocated. Source: Data compiled by EE Times based on media reports in China and Taiwan, and interviews with industry sources

As illustrated in the table above, as much as $98 billion, to promote M&A activity, will flow to local governments and their regional private equity investments in China. This is in addition to government funds for national IC industry support.


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