For China, semiconductors are new oil as spend on chip-related takeovers nears US$5b
China is pursuing ways to build its domestic industry and reduce reliance on imports
Beijing's hearty appetite for oil and gas acquisitions to feed its economy is starting to give way to something most people carry with them in their pockets: semiconductors.
Mainland companies spent almost US$5 billion in five major chip-related takeovers in the past 18 months, with most deals getting state funding.
That spree shows no signs of slowing as the mainland, home to 1.3 billion mobile-phone accounts, pursues ways to build its domestic chip industry and reduce reliance on imports from Taiwan, the US and South Korea. The well-funded acquisitions could mean tougher competition for smaller chip companies from those countries.
"China doesn't want to be dependent on anyone," said Michelle Chen, head of China technology investment banking at JPMorgan Chase. "There's a strong desire to build their own intellectual property, increase product depth and breadth, and, if need be, acquire intellectual property and capabilities."
The government will provide as much as 1 trillion yuan (HK$1.26 trillion) in funding over the next five to 10 years to boost the domestic market and help private companies make acquisitions at home and abroad, McKinsey & Co estimates.
Jiangsu Changjiang Electronics Technology, the country's biggest chip tester, joined the fray in November when it offered US$780 million for unprofitable Singaporean competitor Stats Chippac. Beijing-based private equity firm Hua Capital Management is tapping government funding for its US$1.7 billion bid for OmniVision Technologies, a US company whose camera sensors have been used in iPhones.
Before the recent string of deals, Chinese buyers had only made two semiconductor acquisitions that had topped US$500 million.
The mainland is a huge consumer of chips, accounting for about 45 per cent of worldwide demand. Imports feed more than 90 per cent of that demand, with almost a quarter of processors bought from Taiwan, according to a McKinsey report in August and mainland customs statistics from 2012. Last year the value of imported semiconductors amounted to US$232 billion, up 35 per cent from the year before and more than China's oil imports, according to customs authorities cited by Xinhua.
US manufacturer Qualcomm, for example, supplies high-end chips to Chinese smartphone makers like Xiaomi. Chips are also found in hardware stretching from computer servers to televisions.
