Advertisement

Blog

4 Reasons for Intel’s $1.5 Billion Bet in China

China's national quest to expand its domestic semiconductor industry suddenly looks more realistic and even winnable now that Intel Corp., the world's largest semiconductor company, has revealed a plan to invest up to RMB 9 billion ($1.5 billion) — to get a roughly 20% stake in the semiconductor business under Tsinghua UniGroup. The Chinese government-affiliated private equity company controls the Chinese chip designers Spreadtrum Communications and RDA Microelectronics.

China is buying its way into the global semiconductor market. Getting Intel on its side early on in its quest for a global presence will only accelerate the process — much faster than China doing everything from scratch and competing head on with advanced semiconductor firms.

Piggybacking on that Chinese dream is Intel, which hopes its technology and chips will penetrate the hugely untapped market where millions of consumers own no smartphones or tablets. The move could be viewed as a stroke of genius by Intel. It is offering to help China build an indigenous mobile force — via Spreadtrum/RDA — so that Chinese OEMs and white box vendors will have an alternative to Qualcomm.

China appears to know exactly which of Intel's buttons to push. The company must grow in China and in the rest of the world, and it needs a willing partner to help promote Intel Architecture in the mobile market. China can fulfill both of those needs.

“Both parties have signed a series of agreements,” Intel said Friday. The agreements are meant to expand product offerings and adoption for Intel-based mobile devices in China and around the world “by jointly developing Intel Architecture and communications-based solutions for mobile phones.”

Though Spreadtrum is unlikely to abandon its own ARM-based mobile chips and switch to Intel's X-86-based solution, Spreadtrum will be surely persuaded to add an X-86-based product line. “Spreadtrum will jointly create and sell a family of Intel Architecture-based system-on-chips (SoCs),” Intel said. “Initial products will be available beginning in the second half of next year and will be Intel Architecture-based SoCs sold by both companies.”

Intel's deal with China has ramifications on multiple levels.

1. Qualcomm vs. China
“Alternative to Qualcomm” is an important concept that isn't getting lost in Tsinghua Unigroup's decision to make a deal with Intel. Qualcomm, which dominates the global mobile chip market, has been under investigation in China for almost a year over how it licenses its patents and prices chipsets.

The Chinese government has been reportedly concerned with an ever-widening gap between China's IC consumption and production. As Chinese box vendors make more smartphones and tablets in big volumes using chips developed by companies like Qualcomm or MediaTek, the government sees little room left for Chinese chip designers and foundries to grow. Intel could help solve that worry.

2. Intel vs. China's national priority
China’s latest national priority to develop its own semiconductor industry is very different from those in the past. The country is relying on the infusion of private investment funds to let professional financial investors bet on which entities — fabless, foundries, and/or research institutes — deserve the funding.

Reportedly, as much as RMB 600 billion (nearly $98 billion) will flow to local governments and their regional private equity investments in China to promote M&A activity. This is in addition to government funds for national IC industry support.

The national blueprint for semiconductor industry development is much more “market driven,” according to China hands familiar with the industry. The Intel-Tsinghua Unigroup deal precisely fits the bill of such a market-driven move.

To see the rest of the list, visit EBN's sister publication EE Times .

11 comments on “4 Reasons for Intel’s $1.5 Billion Bet in China

  1. t.alex
    September 30, 2014

    China is without has been a big market at the moment and long term in the future. They not only have huge young population they also have big land and human resources. In my opinion, Intel made a right move entering the market since they have cheap labor and they're attracting a lot of investors.

  2. Daniel
    September 30, 2014

    “China's national quest to expand its domestic semiconductor industry suddenly looks more realistic and even winnable now that Intel Corp., the world's largest semiconductor company, has revealed a plan to invest up to RMB 9 billion ($1.5 billion) — to get a roughly 20% stake in the semiconductor business under Tsinghua UniGroup.”

    Junko, it seems that the government initiatives are grooming in a fruitful way. The huge investment from Intel can also attract other similar players like ARM, AMD etc. Is it a fab unit or something else?

  3. Houngbo_Hospice
    September 30, 2014

    “they have cheap labor and they're attracting a lot of investors.”

    By investing $1.5 billion in two Chinese chip firms, Intel intends to boost its presence in the country's booming mobile phone market. Not primary to take advantage of China cheap labour. Cheap labour in China is already fading as wages keep soaring.

  4. Houngbo_Hospice
    September 30, 2014

    @Jacob: Other leading semiconductor manufacturers will also try to reinforce their position in the Chinese market. China has become a key region for most businesses to thrive.

  5. ahdand
    September 30, 2014

    @Hospice: Indeed, china is the business hub these days.

  6. Ashu001
    September 30, 2014

    Alex,

    China remains a Big Potential Market (where a lot of Companies are chasing in the Hopes of Catching that Elusive Growth that is missing in the US and Europe today).

    The issue is that they don't really have a big Young Population(thanks to their One Child Rule-Its Ageing Super-fast today).

    This has pushed wages up really fast(at Double Digit Pace) for most Workers(especially factory shop employees).

    Consequently,a lot of the Lower end Manufacturing is now moving elsewhere-Vietnam,Cambodia and Ethiopia are favorite destinations.

    There is also a Big Jobs crisis in China currently-Too many people with Degrees are chasing too few Office Jobs.

    Its a serious issue,Coupled with the fact that The Real Estate and Coal Mining Industry is in a massive Recession currently does'nt augur well for the near future.

    Lot of complicated variables in place when it comes to Piecing The China Puzzle today.

     

  7. Ashu001
    September 30, 2014

    Hospice,

    That is a very fair and accurate comment to make.

    China is no longer the home of Cheap Labor today-Thats happening in Ethiopia,Cambodia and Vietnam currently.

     

     

  8. Ashu001
    September 30, 2014

    Nimantha,

    On the Contrary most Senior Business Executives and Professionals are LEAVING China today-www.bbc.com/capital/story/20140321-expat-exodus-from-beijing

    Previously they were just moving to Hong Kong but With the Current Massive Strife happening in Hong Kong today-www.bbc.com/news/world-asia-china-29405195

    Thousands of Hong Kong Citizens are on the Street blocking all traffic today.

    The Chinese Story is'nt all a Bed of Roses as you see currently.

     

  9. Ashu001
    September 30, 2014

    Junko,

    Do you feel that this is just the way Intel hopes to crack the Mobile Market Decisively(which is now dominated by ARM today)?

    I have't seen the Full Details of the Deal but if it means that Intel will have to give up some of their Propreitary IP for access to the Chinese market(won't be the first time);It maybe too High a Price to pay?

    I can see and Understand why Intel is so Desperate.Not sure if Partnering with the Chinese is the Best option.

     

  10. Hailey Lynne McKeefry
    October 2, 2014

    @t.alex, the huge audience in China is signifigant. I hadn't really thought about it, but as Junko laid out the thought process, it makes total sense to me.

  11. Daniel
    October 7, 2014

    “Other leading semiconductor manufacturers will also try to reinforce their position in the Chinese market. China has become a key region for most businesses to thrive.”

    Hospice, hope so. Let's wait and see

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.