ZTE’s chip-making arm sells 24 per cent stake to state-backed fund for 2.4b yuan

The money will be used to help ZTE expand in China and overseas

PUBLISHED : Tuesday, 24 November, 2015, 6:25pm
UPDATED : Tuesday, 24 November, 2015, 6:54pm

Efforts by mainland China to expand its semiconductor industry moved another step forward as a state-backed fund agreed to invest 2.4 billion yuan in ZTE Microelectronics Technology, a subsidiary of the country’s second-largest telecommunications equipment manufacturer.

The National Integrated Circuit Industry Investment Fund Corporation, which counts the Ministry of Finance, China Development Bank and China Mobile as shareholders, will buy a 24 per cent equity stake in the Shenzhen-based chip developer, according to a statement on Tuesday from Hong Kong-listed parent ZTE.

In a regulatory filing outlining the agreement late Monday, ZTE chairman Hou Weigui said the investment would bolster its plans to expand in China and overseas.

“The introduction of strategic capital will allow ZTE Microelectronics to strengthen its research and development capabilities, and reserve of core patents,” Hou said.

ZTE Microelectronics, which has a registered capital of 100 million yuan, currently develops chipsets deployed in cellular base stations used by telecommunications network operators to support multiple frequency band wireless access.

The company also develops semiconductor technologies used in smartphones and other mobile devices shipped to China as well as to Brazil, Indonesia and Russia.

It has more than 2,000 research and development staff in China and in the United States. The company is currently developing chips with 28 nanometre technologies. Nanometre, equal to a billionth of a metre, is the unit of measurement used in the semiconductor fabrication process to carve out a transistor on the surface of a silicon wafer.

ZTE Microelectronics last year increased its net profit by 258 per cent to 458.64 million yuan, from 128.04 million yuan in 2013, on the back of record turnover. Its revenue surged to 3.06 billion yuan last year from 292.98 million yuan in 2013.

The investment received by ZTE’s chip subsidiary followed the sweeping initiative set out by China’s State Council in June last year, which was to infuse vast amounts of capital to help expand the country’s semiconductor supply chain.

“We believe with a vast domestic market, ample talent supply and improving technologies, China is ripe for an accelerated push in semiconductors,” Bernstein senior analyst Mark Li said in a report.

The Ministry of Industry and Information Technology said the semiconductor industry was vital to national development and information security. But the sector remains too small to meet domestic demand, which is forecast to rise to 1.2 trillion yuan this year from 916 billion yuan in 2013.

Mainland China has reportedly set aside 1 trillion yuan under various funds for use over a 10-year period to accelerate the development of the domestic semiconductor industry, according to Li.