Mergers & Acquisitions

Chinese firms in quest for more strategic semiconductor deals

PUBLISHED : Monday, 06 February, 2017, 8:49pm
UPDATED : Tuesday, 07 February, 2017, 8:25am

China’s aggressive policy to expand its semiconductor industry is expected to drive major mainland companies to pursue more cross-border mergers and acquisitions this year, unfazed by scrutiny from overseas regulators, according to analysts.

It will likely remain difficult, however, for Chinese firms to buy enterprises involved in strategic product segments of the integrated circuit market, such as central processing units, field-programmable gate arrays, graphics processing chips, digital signal processors and high-end memory chips.

“We think China’s integrated circuit investment community has been aware of increasing attention from foreign regulators,” Jefferies equity analyst Rex Wu said.

A Jefferies report on Monday indicated that mainland Chinese corporate investments in less sensitive product segments – including microelectromechical systems, display drivers and radio frequency integrated circuits – are poised to continue.

Data from research firm Mergermarket showed that the US$2.75 billion acquisition of NXP Semiconductors’ Netherlands-based Standard Products business, now called Nexperia, to Beijing Jianguang Asset Management and private equity fund Wise Road Capital, was the seventh-largest deal in China’s technology, media and telecommunications (TMT) sector last year.

Nexperia is a global supplier of so-called discrete and logic chips, as well as power metal oxide semiconductor field-effect transistors.

Mergermarket analyst Sophie Jin said Chinese companies’ appetite for overseas acquisitions “will remain large this year, as more of them expand their presence globally”.

Semiconductor Manufacturing International Corp (SMIC), the mainland’s largest contract chipmaker, has indicated that it could be gearing up for another foreign acquisition after buying a 70 per cent stake in Italian manufacturer LFoundry last year for 49 million (HK$409.86 million).

“There are quite a few opportunities available for us out there,” Gareth Kung, the executive vice-president for strategic business development and finance at SMIC, said recently.

Interest by Chinese companies in semiconductor-related investments at home and abroad has intensified in the past two years, following the central government’s introduction in June 2014 of a national policy to inject vast amounts of capital to build an advanced semiconductor manufacturing supply chain.

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

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

Jefferies’ Wu said China’s semiconductor industry was “on track to achieve the target of 20 per cent expansion”, but added there was more work to do on getting strategic acquisitions cleared by foreign governments.

Fujian Grand Chip Investment Fund last year dropped its proposed €670-million (HK$5.6 billion) takeover of German semiconductor equipment supplier Aixtron after being blocked by regulators in both the US and Germany over national security concerns.