It's important to note that Tsinghua Unigroup is paying a premium to buy both Spreadtrum and RDA.
Tsinghua Unigroup's acquisition of Spreadtrum is a $1.78 billion deal, while RDA is selling itself to Tsinghua Unigroup for about $910 million. The $18.50 per share deal announced by RDA earlier this week represents a premium of 5.5 percent to RDA's Friday close of $17.53 on the Nasdaq.
The question is, then, how is Tsinghua Unigroup financing all these deals.
Another Chinese industry source said, "The notable thing about Tsinghua Unigroup is that it has a market cap of $820 million, less than what they proposed to RDA." He suspects that the real buyer of RDA is "not Unigroup, but a $2-$3 billion fund which is related to Unigroup." He then added, "That's the beauty of China's state-owned public companies: there is nothing transparent."
The Tsinghua Unigroup's website shows that the group has its hands in various fields ranging from information technology, energy/environment, science of life, and science of materials to occupational education, finance services, international trade, and real estate.
Pure financial play
Those who see Tsinghua Unigroup's acquisitions as "a pure financial play" pose a three-step scenario. First, the consolidation of China's two leading fabless chip companies (Spreadtrum and RDA are currently both public companies traded in Nasdaq) will help them both survive before the two companies get clobbered by MediaTek. Second, by going private again under the umbrella of Tsinghua Unigroup, the two companies will gain more leeway in business development -- in addition to access to the IP portfolio of Tsinghua Unigroup and Tsinghua University. Third, the new Spreadtrum, consolidated with RDA under Tsinghua Unigroup, will "go public in the near term," the sources said. Tsinghua Unigroup won't waste time making a big financial gain by doing so, they added.
Where everyone agrees is about the complementary roles RDA and Spreadtrum can play under the new structure.
One Chinese semiconductor industry observer explained, "Spreadtrum is weak in everything except TD-SCDMA, while RDA is strong in RF. Both are weak in application processors." Further, he added, "Spreadtrum's IC R&D is weak, but strong in software. Meanwhile, RDA is very strong in IC R&D, but has no real software development." As a result, combining these two "means doomsday for Allwinner and Rockchip," he noted, because Spreadtrum and RDA could ramp up tablet application processor efforts.
The Chinese industry's expectation is that the final entity (new Spreadtrum-RDA) will focus more on new wireless technology R&D, while they will spend less time competing in a declining low-end market. As for the market in feature phones for GSM, the serious competition comes down to just MediaTek and Spreadtrum, they explained.
Asked about the latest shopping spree by Tsinghua Unigroup, Will Strauss, president of Forward Concepts (Tempe, Arizona), noted that he knows almost nothing about Tsinghua Unigroup. But he added, "Actually, if you wanted to create a China-based company that could (with a lot of work and a lot of money) someday rival Qualcomm, Spreadtrum and RDA are the two companies that I would pick."