Intel Injects $1.5 Billion for Stake in Chinese Chip Maker

Intel forged its second alliance with a major low-cost Chinese chip maker through a $1.5 billion investment. The Intel logo is displayed at Intel’s headquarters in Santa Clara, Calif. Associated Press

Intel Corp. INTC +0.35% forged its second alliance with a major Chinese chip maker Friday through a $1.5 billion investment, highlighting the Silicon Valley giant’s new strategy of teaming up with rivals to gain a foothold in the mobile market.

The U.S. chip maker said it would buy about 20% of China’s Tsinghua Unigroup Ltd., a state-owned firm that owns China’s second- and third-largest chip designers, Spreadtrum Communications and RDA Microelectronics. The deal follows Intel’s announcement in May of a partnership with another low-cost Chinese chip maker, Fuzhou Rockchip Electronics Co.

Intel has pushed to expand its limited presence in the smartphone and tablet markets this year as growth slows for personal computers. After making little headway against low-cost chip providers that dominate the mobile sector, Intel began this year to seek out its Chinese rivals for partnerships as it set a target of putting its technology in 40 million tablets before year’s end.

Intel President Renee James said in an interview earlier this year that the Santa Clara, Calif., company realized it needed partners to help it meet the needs of customers in emerging markets and adapt to the rapid production cycles in the Chinese market.

Chinese chip makers have been early adapters of “turnkey solutions,” in which they sell a whole device template to manufacturers incorporating the chips, resulting in lower production costs and rapid turnaround times.

Intel’s alliance with Tsinghua could prove strategic for a firm with larger government ambitions backing it. Until recently a low-key company funded by Tsinghua University in Beijing, Tsinghua has made big moves in the chip sector within the past year, announcing purchases of two major Chinese chip designers, Spreadtrum for $1.78 billion and RDA for $907 million.

China’s Ministry of Industry and Information Technology has stated its goal of forging a globally competitive semiconductor industry, although its technology still lags behind. The government announced in December it would pour $5 billion into the sector to fuel mergers and enhance production facilities.

Intel said Friday the two companies would jointly develop Intel-based chips for mobile phones for China and other markets.

Chief Executive Brian Krzanich said in a statement that the partnership would help Intel in “more quickly delivering a broader portfolio of Intel architecture and communications technology solutions.”

Tsinghua Unigroup, a unit of Tsinghua Holdings Co. Ltd., said the partnership would include product design, development and marketing, and would benefit China’s chip industry.

Tsinghua Chairman Zhao Weiguo called the development of China’s semiconductor industry “a national priority,” adding that Intel’s investment would “accelerate the technology development and further strengthen the competitiveness and market position of Chinese semiconductor companies.”

The companies expect Intel’s investment to close in early 2015, pending regulatory approvals.

Source: The Wall Street Journal