TAIPEI — Just before the Labor Day weekend, the investment community and Chinese media were abuzz with two hot news items: Intel, in hopes of bolstering its mobile business, is pursuing China’s Spreadtrum as an investment (according to a Chinese news site); and Intel should consider buying Taiwan’s MediaTek (urged by RBC Capital Markets analyst Doug Freedman).
Reached by EE Times on Tuesday, Sept. 2, Intel spokesman Chuck Mulloy was, of course, mum, other than noting: “We don’t comment on speculation nor do we speculate on what might have caused the speculation.”
This is a predictable no-comment. Both items might indeed be pure “speculation” worthy of no further interest.
However, it was only a few weeks ago when a group of Chinese investors -- including a state-owned firm -- offered a buyout proposal to US digital imaging chipmaker OmniVision. Putting together a string of recent events, we couldn’t help but wonder:
- Does selling Spreadtrum to Intel, or allowing the foreign chip giant to invest in the now state-owned company, make sense for China?
- What’s the real motivation behind China’s wanting to acquire OmniVision?
- Do any of these moves have anything to do with China’s recently unveiled “National Framework for Development of the Integrated Circuit Industry”? (After all, the Chinese government is setting up a huge annual investment fund to support the nation's semiconductor industry.)
Some US-based electronics industry executives told us that a Spreadtrum sale and an Omnivision purchase are both among the potential financial plays contemplated by China’s investment community. Others, however, are skeptical of the whole scenario.
EE Times has been scrambling to connect the dots of China’s seemingly unrelated investment moves in recent months.
Nicky Lu, WSC Chair
Nicky Lu, chairman of Etron Technology Inc. in Hsinchu, Taiwan, is one of those industry executives convinced that these maneuvers are closely tied to China’s national IC industry framework. He says they make perfect sense.
Just to be clear, we regard Lu as “the man in the know.”
While serving as chair of the Taiwan Semiconductor Industry Association (its politically correct name is “Semiconductor Industry Association in Chinese Taipei”), Lu earlier this year became the chair of the World Semiconductor Council (WSC).
Lu explains that China’s new policy, different from those in the past, is the infusion of private investment funds. It allows professional financial investors to bet on which entities -- fabless, foundries, and/or research institutes -- deserve the funding.
In Lu’s view, if the Chinese funds actually succeed in improving the value of Spreadtrum and manage to sell it off (to Intel or not), China wins.
China’s proposal to buy OmniVision, on the other hand, will have further impact.
By taking over the world’s leading CMOS image sensor vendor, China will gain instant access to the global market and the company’s formidable market share. More importantly, such a deal generates demand for volume production of CMOS image sensors in China (not in Taiwan) -- enough to fill the capacity of home-grown Chinese fabs like Semiconductor Manufacturing International Corp. (SMIC) based in Shanghai.
In short, China’s investment funds are on the lookout for acquiring successful companies in the global market.
How China funds are allocated.
Click here for larger image.
(Source: Data compiled by EE Times based on media reports in China and Taiwan, and interviews with industry sources)
As illustrated in the table above, as much as 600 billion RMB (nearly US$98 billion), to promote M&A activity, will flow to local governments and their regional private equity investments in China. This is in addition to government funds for national IC industry support.
Modeled after the Beijing IC Industry Equity Investment Fund, Chinese provinces including Wuhan, Shanghai, and Shenzhen are racing to build “regional” private equity funds. Rivalries between different regional private equity funds were already evident when the Beijing-based Tsinghua Unigroup outmaneuvered the Shanghai Pudong Science and Technology Investment Co. (PDSTI) to buy Shanghai-based Spreadtrum. Meanwhile PDSTI, not to be outdone by Beijing, unveiled a plan to acquire Montage Technology of Shanghai. PDSTI is also a part of the investment group that has offered to buy OmniVision.
China’s national blueprint for semiconductor industry development is far from the stodgy, top-down model of the planned economy era, according to China hands familiar with the industry. Today, it’s much more “market-driven.”
A case in point is that the money made available by the government and China’s private investment funds isn’t just for investing in Chinese companies. The funds can go global to acquire technologies and companies with the best potential to expand China’s semiconductor industry. The OmniVision deal would fit that bill, according to Lu.
Next page: China to follow Taiwan's playbook