China’s state-backed companies to continue driving global semiconductor M&A activity

State-owned companies expected to continue strategic investments in support of national policy

PUBLISHED : Monday, 04 January, 2016, 8:48pm
UPDATED : Tuesday, 05 January, 2016, 12:19am

Mainland China is expected to drive more mergers and acquisitions in the global semiconductor industry this year, which could redraw the competitive landscape in this high-tech sector.

“The country is interested in all parts of the semiconductor supply chain, and is keen to leverage its ample capital supply to elevate the capabilities of its domestic industry quickly,” Bernstein senior analyst Mark Li said in a report on Monday.

Li expected this state-backed “shopping spree” to continue going strong this year, following the central government’s introduction in June 2014 of a national policy to infuse vast amounts of capital to develop an advanced local chip manufacturing supply chain.

The China Integrated Circuit Industry Investment Fund was established in September that same year to support the domestic semiconductor industry’s expansion initiatives.

The policy’s aggressive target is for the mainland chip industry to record a 20 per cent compound annual growth rate by 2020.

“As China consumes US$169 billion (HK$1.309 trillion) worth of chips every year and the majority of them are imported, replacing imports with local production provides strong economic motivation,” Li said.

He said Tsinghua Unigroup, known as China’s largest semiconductor design company, and its subsidiaries have been making strategic investments over the past two years to push forward the central government’s ambitious goal.

Unigroup, a subsidiary of technology-focused Tsinghua Holdings, made a big splash in July when reports surfaced that it proposed to acquire Micron, one of the world’s largest suppliers of memory chips, for US$21 a share, which valued the buyout at US$23 billion.

Li said that the deal has not been realised because of “failed attempts to structure a joint venture with Micron”, which is one the world’s biggest makers of dynamic random-access memory and NAND flash memory chips.

Data from technology research firm Gartner and Bernstein showed that memory chips -- which are used from smartphones to tablets and laptops to servers -- accounted for 23 per cent of the global US$340 billion semiconductor market in 2014.

Unigroup had earlier made two big acquisitions of so-called fabless semiconductor firms.

In 2013, the company bought Shanghai-based Spreadtrum Communications for US$1.7 billion. Spreadtrum designs chips for mobile phones and has these products fabricated by contract semiconductor manufacturers, also known as foundries.

RDA Microelectronics, another Shanghai fabless company, was purchased by Unigroup for US$907 million in the same year. RDA designs wireless systems-on-a-chip and radio frequency semiconductors used for cellular, connectivity and broadcast applications.

A total investment of US$1.5 billion was received by Unigroup for those two deals from US semiconductor giant Intel, which had a combined 20 per cent stake in both Spreadtrum and RDA.

Semiconductor Manufacturing International Corp, the mainland’s biggest contract manufacturer of integrated circuits, in September teamed up with Qualcomm to invest US$280 million in the development of an advanced assembly package line for the country’s chip industry.

In November, the national fund agreed to invest 2.4 billion yuan (HK$2.9 billion) in ZTE Microelectronics Technology, a subsidiary of the country’s second-largest telecommunications equipment manufacturer.

“Though not all of these aggressive investments will bear fruit, we have no doubt they will propel the

industry to a steeper trajectory and the supply chain will grow by leaps and bounds in the next five years,” Li said.

Apart from the national fund, Beijing and Shanghai have established separate semiconductor investment funds to support local companies. Provincial governments, such as Anhui, Shandong and Sichuan, have also set up similar funds.