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China's investment radar: Is Qualcomm the next target?

Posted: 19 Nov 2015     Print Version  Bookmark and Share

Keywords:Qualcomm  Tsinghua  CDMA  smartphone  tablet 

As the original developer of CDMA cellular communications protocol and holder of an impressive portfolio of essential patents helped bolster Qualcomm to become a leading semiconductor company and it still is. However, its reliance on the fast-moving consumer markets also makes its fragile. In fact, some observers think that smartphones and tablets are rapidly joining PCs as former drivers of the semiconductor industry.

Now, recent events and financial results have started to make Qualcomm's leading position as an application processor supplier look like a poisoned chalice. Could the company now be vulnerable to an approach from an ambitious Chinese investor?

The two main indicators that put Qualcomm in the frame for Chinese investment are: the fact that Qualcomm's financial results have taken a nose-dive recently, and the fact that China's government-controlled semiconductor investment vehicle Tsinghua Unigroup said it has $47 billion that will be mainly spent in the U.S.

Qualcomm was ranked number three in the 2014 calendar year ranking of semiconductor suppliers by IHS with annual chip sales of $19.3 billion. A long way behind market leaders Intel and Samsung but ahead of other potential China targets, memory makers SK Hynix and Micron Technology.

To recap on Qualcomm's most recent results the company reported revenues of $5.5 billion in its last Q1 (ended September 27, 2015) down 18 per cent from the same quarter a year before. For its fiscal year, Qualcomm reported $25.3 billion in fiscal year sales, down five per cent from the prior year and $5.3 billion in profits down 34 per cent.

Of course this is not conclusive but there are several additional indicators.

1) One is that Tsinghua Unigroup has previously expressed interest in discussing a merger deal between two Chinese companies it controls Spreadtrum Communications and RDA Microelectronics and MediaTek.

However, as Taiwan law prohibits Chinese investment in chip "design" firms, Tsinghua's chair Zhao has said that Tsinghua's $47 billion fund will likely be spent on investment on firms in the U.S. If MediaTek is a suitable target that is presently unavailable then why not pursue Qualcomm?

2) Zhao let slip in his interview with Reuters that Tsinghua is in talks with a major U.S. chip company but that would likely not involve a majority stake due to U.S. sensitivity.

A major US chip company with a significant Chinese minority stake would change the industry landscape and reduce China's economic deficit when it comes to its semiconductor balance of trade.

For sure, that company could be Micron Technology Inc. to help China establish a leading position in NAND flash memory manufacturing but it could also be Qualcomm? And Micron management has ruled out a Tsinghua takeover of its company.

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