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Semiconductor Is New Oil as China Sets Sights on Chip Dominance
By Jonathan Browning on 02:59 pm Dec 04, 2014
The Chinese government’s hearty appetite for oil and gas acquisitions to feed its economy is starting to give way to something most people carry with them in their pockets: semiconductors.
Chinese companies spent almost $5 billion in five major chip-related takeovers in the past 18 months, data compiled by Bloomberg show, with most deals getting state funding.
That spree shows no signs of slowing as China, home to 1.3 billion mobile-phone accounts, pursues ways to build its domestic chip industry and reduce reliance on imports from Taiwan, the US and South Korea. The well-funded acquisitions could mean tougher competition for smaller chip companies from those countries.
“China doesn’t want to be dependent on anyone,” said Michelle Chen, head of China technology investment banking at JPMorgan Chase & Co. “There’s a strong desire to build their own intellectual property, increase product depth and breadth, and, if need be, acquire intellectual property and capabilities.”
The Chinese government will provide as much as 1 trillion yuan ($163 billion) in funding over the next five to 10 years to boost the domestic market and help private companies make acquisitions at home and abroad, McKinsey & Co. estimates.
Jiangsu Changjiang Electronics Technology, China’s biggest chip tester, joined the fray in November when it offered $780 million for unprofitable Singaporean competitor Stats ChipPac.
Beijing-based private equity firm Hua Capital Management is tapping government funding for its $1.7 billion bid for OmniVision Technologies, a US company whose camera sensors have been used in Apple’s iPhone.
Taiwanese imports
Before the recent string of deals, Chinese buyers had made just two semiconductor acquisitions that topped $500 million, according to data compiled by Bloomberg going back to 1994.
China is a huge consumer of chips, accounting for about 45 percent of worldwide demand. Imports feed more than 90 percent of that demand, with almost a quarter of processors bought from Taiwan, according to a McKinsey report in August and Chinese customs statistics from 2012.
Last year the value of imported semiconductors amounted to $232 billion, up 35 percent from the year before and more than China’s oil imports, according to customs authorities cited by the official Xinhua News Agency.
US manufacturer Qualcomm, for example, supplies high-end chips to Chinese smartphone makers like Xiaomi.
Taiwan’s Mediatek provides the brains for cheaper phones. The chips are also found in hardware stretching from computer servers to televisions.
‘Moving up’
Smaller US and Taiwanese companies focused on semiconductor design will struggle to compete with the newly-merged Chinese firms, according to Mark Li, an analyst at Sanford C. Bernstein & Co. Even Taiwan’s Mediatek may need to lower prices, said Rick Hsu, an analyst at Daiwa Securities Capital Markets in Taipei.
“The Chinese are very aggressive and eating up competitors’ lunch in the low-end segment, and now they’re moving up,” he said.
China aims to generate more than 350 billion yuan in local semiconductor revenue by next year, up 40 percent from 2013, according to a June statement from the State Council, the nation’s cabinet. It plans to boost sales almost four times faster than the global average. Building a homegrown chip industry is a national security priority for China, Xinhua reported at the time.
“There is a clear strategic push from the Chinese government to strengthen the domestic semiconductor industry,” said James Perry, head of Asia technology investment banking at Citigroup.
Resources drop
The surge in chip purchases contrasts with a slump in acquisitions of overseas oil and gas assets following corruption probes into senior management at state-owned companies linked to former Chinese Politburo member Zhou Yongkang.
This year, Chinese purchases of overseas energy assets are set to fall to $9.4 billion, the lowest since at least 2008, Bloomberg-compiled data show.
Semiconductor deals are mainly coming from government-backed acquirers or those who can tap into state funding sources, Citigroup’s Perry said.
Beijing’s Tsinghua University plans to merge two recently-acquired semiconductor design firms while a government-owned company in Shanghai has announced two acquisitions so far this year.
Acquisitions will likely come across the semiconductor supply chain — from testing and assembly to design and equipment used to manufacture chips, said JPMorgan’s Chen.
More coherent
China’s current pursuit of semiconductor assets is more coherent than previous attempts to build an industry, said Chris Thomas, an associate partner at McKinsey and a former Intel China executive.
“It’s under direct oversight from the State Council,” he said. “It’s intended to bring in private talent to help the government spend money effectively.”
The success of the drive depends on whether Chinese companies can find the right targets and effectively integrate them, said Thomas. Another hurdle is local governments competing with each other for the same assets, he said.
That happened in November 2013 when a division of Tsinghua University outbid Shanghai Pudong Science & Technology Investment for RDA Microelectronics, a maker of chips for lower-end mobile phones that was traded in the US.
Such battles highlight “a constant tension in the overall government policy,” Thomas said. “Competition for assets may be inconsistent with the goals of consolidation and building scale.”
Semiconductor Is New Oil as China Sets Sights on Chip Dominance - The Jakarta Globe
Bloomberg
By Jonathan Browning on 02:59 pm Dec 04, 2014
The Chinese government’s hearty appetite for oil and gas acquisitions to feed its economy is starting to give way to something most people carry with them in their pockets: semiconductors.
Chinese companies spent almost $5 billion in five major chip-related takeovers in the past 18 months, data compiled by Bloomberg show, with most deals getting state funding.
That spree shows no signs of slowing as China, home to 1.3 billion mobile-phone accounts, pursues ways to build its domestic chip industry and reduce reliance on imports from Taiwan, the US and South Korea. The well-funded acquisitions could mean tougher competition for smaller chip companies from those countries.
“China doesn’t want to be dependent on anyone,” said Michelle Chen, head of China technology investment banking at JPMorgan Chase & Co. “There’s a strong desire to build their own intellectual property, increase product depth and breadth, and, if need be, acquire intellectual property and capabilities.”
The Chinese government will provide as much as 1 trillion yuan ($163 billion) in funding over the next five to 10 years to boost the domestic market and help private companies make acquisitions at home and abroad, McKinsey & Co. estimates.
Jiangsu Changjiang Electronics Technology, China’s biggest chip tester, joined the fray in November when it offered $780 million for unprofitable Singaporean competitor Stats ChipPac.
Beijing-based private equity firm Hua Capital Management is tapping government funding for its $1.7 billion bid for OmniVision Technologies, a US company whose camera sensors have been used in Apple’s iPhone.
Taiwanese imports
Before the recent string of deals, Chinese buyers had made just two semiconductor acquisitions that topped $500 million, according to data compiled by Bloomberg going back to 1994.
China is a huge consumer of chips, accounting for about 45 percent of worldwide demand. Imports feed more than 90 percent of that demand, with almost a quarter of processors bought from Taiwan, according to a McKinsey report in August and Chinese customs statistics from 2012.
Last year the value of imported semiconductors amounted to $232 billion, up 35 percent from the year before and more than China’s oil imports, according to customs authorities cited by the official Xinhua News Agency.
US manufacturer Qualcomm, for example, supplies high-end chips to Chinese smartphone makers like Xiaomi.
Taiwan’s Mediatek provides the brains for cheaper phones. The chips are also found in hardware stretching from computer servers to televisions.
‘Moving up’
Smaller US and Taiwanese companies focused on semiconductor design will struggle to compete with the newly-merged Chinese firms, according to Mark Li, an analyst at Sanford C. Bernstein & Co. Even Taiwan’s Mediatek may need to lower prices, said Rick Hsu, an analyst at Daiwa Securities Capital Markets in Taipei.
“The Chinese are very aggressive and eating up competitors’ lunch in the low-end segment, and now they’re moving up,” he said.
China aims to generate more than 350 billion yuan in local semiconductor revenue by next year, up 40 percent from 2013, according to a June statement from the State Council, the nation’s cabinet. It plans to boost sales almost four times faster than the global average. Building a homegrown chip industry is a national security priority for China, Xinhua reported at the time.
“There is a clear strategic push from the Chinese government to strengthen the domestic semiconductor industry,” said James Perry, head of Asia technology investment banking at Citigroup.
Resources drop
The surge in chip purchases contrasts with a slump in acquisitions of overseas oil and gas assets following corruption probes into senior management at state-owned companies linked to former Chinese Politburo member Zhou Yongkang.
This year, Chinese purchases of overseas energy assets are set to fall to $9.4 billion, the lowest since at least 2008, Bloomberg-compiled data show.
Semiconductor deals are mainly coming from government-backed acquirers or those who can tap into state funding sources, Citigroup’s Perry said.
Beijing’s Tsinghua University plans to merge two recently-acquired semiconductor design firms while a government-owned company in Shanghai has announced two acquisitions so far this year.
Acquisitions will likely come across the semiconductor supply chain — from testing and assembly to design and equipment used to manufacture chips, said JPMorgan’s Chen.
More coherent
China’s current pursuit of semiconductor assets is more coherent than previous attempts to build an industry, said Chris Thomas, an associate partner at McKinsey and a former Intel China executive.
“It’s under direct oversight from the State Council,” he said. “It’s intended to bring in private talent to help the government spend money effectively.”
The success of the drive depends on whether Chinese companies can find the right targets and effectively integrate them, said Thomas. Another hurdle is local governments competing with each other for the same assets, he said.
That happened in November 2013 when a division of Tsinghua University outbid Shanghai Pudong Science & Technology Investment for RDA Microelectronics, a maker of chips for lower-end mobile phones that was traded in the US.
Such battles highlight “a constant tension in the overall government policy,” Thomas said. “Competition for assets may be inconsistent with the goals of consolidation and building scale.”
Semiconductor Is New Oil as China Sets Sights on Chip Dominance - The Jakarta Globe
Bloomberg
