MADISON, Wis. — Feeling little love from the US investment community while being lured by a golden handshake from their government, some Chinese fabless companies have forsaken Nasdaq and sold out as quasi-state enterprises.
Spreadtrum Communications and RDA Microelectronics have taken advantage of the Chinese government's hunger for a stake in the semiconductor industry. Montage Technology of Shanghai is being acquired by another Chinese fund. That deal is expected to close this fall. Actions Semiconductor could follow suit, though no intended acquirer has emerged.
Call it phase two of the Chinese fabless evolution.
China's current fabless chip market -- fragmented among too many little players fighting for the low-margin smartphone, tablet, and set-top box chip business in the domestic market -- isn't sustainable. To break that cycle, fabless companies require fresh focus, more distinct market/product differentiation, fewer and more patient investors, and probably a few more grown-up managers.
By going private, these companies become state-owned entities and look for a fresh infusion of state funds. But this tactic doesn't guarantee success. It's simply the latest angle Chinese fabless companies are taking in hopes of growth and profitability.
Jeremy Wang, Asia-Pacific executive director at the Global Semiconductor Alliance (GSA), told us delisting from the US financial market is a predictable trend. "Historically, there was no suitable Chinese financial market" when the first fabless companies were planning IPOs a decade ago. "Now the government has been emphasizing innovation and technology in which semiconductors play a key role."
Some conventional winners in the Chinese stock market (such as real estate and banking) have been slowed by new regulations and a shift in national focus. The stock market "could add new ingredients to prevail again," he said. "Semiconductor can be one of the options."
Spreadtrum of Shanghai, which has grown rapidly by leveraging its early investment in TD-SCDMA modem chip development, was one of the first companies snatched up by Tsinghua Unigroup Ltd.
Tsinghua Unigroup is 51% owned by Tsinghua Holdings, a 100% state-owned limited liability corporation funded by Tsinghua University in China. The rest of Tsinghua Unigroup is owned by private equity -- Jiankun Investment Group Co. Ltd., which is controlled by Zhao Weiguo.
Spreadtrum agreed to sell itself in July 2013, reportedly for about $1.78 billion. The deal closed Dec. 23.
Last summer, Tsinghua Unigroup entered a separate agreement to acquire RDA Microelectronics Inc., China's RF IC leader, with plans to merge RDA and Spreadtrum. When that plan was announced, hopes were running high in China that its domestic electronics industry might finally create a consolidated entity powerful enough to compete with Taiwan's MediaTek, if not quite an equivalent to Qualcomm in the United States.
Spreadtrum and RDA, China's two most successful fabless chip companies, had initial public offerings on Nasdaq several years ago. However, the forced merger, met resistance from RDA employees. Chairman and CEO Vincent Tai, who reportedly opposed Tsinghua Unigroup's acquisition plan, was fired by the RDA board late last year. RDA employees, who credit much of its success to Tai, also objected to merger with Spreadtrum.
Though it took almost a year to untangle the squabble, Tsinghua Unigroup closed its $907 million acquisition of RDA last month. The Spreadtrum/RDA merger will produce a state-owned, consolidated entity.
Views vary in China on Tsinghua Unigroup's acquisitions. Some see this as a pure financial play, assuming that the private fund will list the merged company on the Chinese market as soon as possible. Another theory is that this is a behind-the-scenes ploy by the government to strengthen China's electronics industry.
The fate of other Chinese fabless companies, such as Allwinner and Rockchip, is unclear.
This year, Montage Technology became an acquisition target of Shanghai Pudong Science & Technology Investment Co. (PDSTI), another state-owned company. Montage is a fabless chip company focused on analog and mixed-signal semiconductor solutions for set-top boxes and memory interface chips for memory-intensive server applications. The two entered a definitive merger agreement in June, under which PDSTI would acquire all of Montage's outstanding ordinary shares for $22.60 each.
Montage shareholders approved the transaction Aug. 1, but it still requires antitrust and other regulatory approvals.