Jacob Schindler

Many joint ventures in China are announced to great fanfare, but few provoke open criticism. Foreign companies enter into these agreements because they want to grow their business in the country with the help of a local partner – they are calibrated to avoid controversy and get on with business. So it was somewhat unusual when Qualcomm’s most recently announced partnership elicited a pointed response from a major figure in the country’s chip industry.

The San Diego company’s latest China play is a five-party deal that will create a local entity called JLQ Technology focused on the design of chipsets for “mass-tier smartphones designed and sold in China”. Two major Chinese investors – JAC Capital and Wise Road Capital are providing financing for the deal, along with local fabless chip designer Leadcore, a subsidiary of Datang Telecom. JAC and Wise Road last year acquired a major business divested by NXP. Combining technology from NXP and Qualcomm with Leadcore’s local connections and R&D resources has the potential to create a big player in the market for lower-end smartphone chipsets – a win-win for the US company which mainly competes in high-end models.

But the domestic smartphone chip market in China is already fiercely competitive, which is why Qualcomm’s latest move has not be welcomed everywhere. Zhao Weiguo, the chairman of Tsinghua Unigroup, a deep pocketed player that has itself played a key role in consolidating semiconductor technology in China, spoke out against Qualcomm’s latest play. “China’s local chipmakers are looking to participate in the world’s semiconductor industry, and agree with a division of work between companies at different tiers in the supply chain”, Zhao said, branding JLQ’s establishment a “low-class” move.

An industry analyst in EETimes explains two key reasons for Zhao’s displeasure. First, it disrupts an unwritten truce amongst domestic chip producers to grow together in different segments of the entry-to-mid-level smartphone market rather than compete head-on. Second, the money behind Qualcomm’s finance partners is supposedly enough to give the new venture deeper pockets than even Tsinghua, which has tried to splash quite a bit of money around, often running into regulatory hurdles. That, compared with the technology bona fides of the companies behind JLQ, may indicate that Zhao is worried about Tshinghua’s ability to compete.

Domestic players in China’s smartphone chipset market

Tsinghua Unigroup

  • Acquired Spreadtrum in 2013 and RDA Microelectronics, 2014
  • The two were merged to form Spreadtrum RDA
  • Received investment from Intel in 2014 worth up to $1.5b

Mediatek

Taiwanese company with around 40% total market share for Chinese smartphone processors

Device makers

Two smartphone companies have launched in-house chip design programmes.

  • HiSilicon, owned by Huawei, was set up in 2004
  • Xiaomi recently launched its first in-house designed processor after a 2014 tech transfer deal with Leadcore

JLQ Technology

  • JAC Capital and Wise Road Capital, which acquired Standard Products business from NXP in 2016
  • Leadcore, a subsidiary of Datang Telecom
  • Qualcomm

 

Qualcomm and Mediatek already compete fiercely in China, with Qualcomm focusing on the premium segment. Analysts say the US company is taking more and more market share from Mediatek as it picks up orders from customers like Vivo and Oppo. If its new venture becomes competitive with Spreadtrum RDA and Mediatek on the lower end, it would be something of a coup for a company that has seen its share of China trouble.

But as Zhao’s comments indicate, the sector could become a lot more cutthroat if the new entrant makes inroads. Thus far, the major domestic chip players have played nice – there certainly hasn’t been patent conflict, nor have we seen major third party portfolio acquisitions. If that were to change, most of the domestic players have an IP transactions and business team that is a global force – Qualcomm, Huawei, Xiaomi and Mediatek. That might be one other reason why Tsinghua Unigroup, with its lower profile in the IP world, seems alarmed