Bottom line: TSMC’s plan for a $3 billion Nanjing chip plant marks the latest in a nascent but growing string of China-Taiwan tie-ups in the chip space, which could gain momentum under Beijing’s recent aggressive program to develop the industry.
TSMC to build $3 bln chip plant in Nanjing
After years of disappointment for failing to fulfill its potential, China high-tech chip sector has suddenly come to life over the last year with a flurry of deals that hint Beijing is taking the lead to promote the sector. The latest of those is one of the biggest and most significant yet in terms of technology, with word that Taiwan’s TSMC (Taipei: 2330; NYSE: TSM), the world’s leading contract chip maker, will build a $3 billion state-of-the-art 12-inch wafer plant in the city of Nanjing.
The move is particularly significant because TSMC is the clear global leader in high-tech microchip production, with a client list that includes most of the world’s major companies like Qualcomm (Nasdaq: QCOM) and Apple (Nasdaq: AAPL). The deal also marks the latest in a nascent series of tie-ups between China and Taiwan in the chip-making space, a potent combination that could someday counter current powerhouses in South Korea and Japan. Read Full Post…
Bottom line: A new patent lawsuit against it in the US highlights one of the biggest challenges Xiaomi and other Chinese tech brands will face in their global expansion, and exposes a major weakness in China’s own patent protection system.
Xiaomi hit with US patent lawsuit
Stumbling smartphone sensation Xiaomi suffered a recent new setback in its global aspirations, after being sued in the US for patent infringement involving technology used in several of its popular models. The new action comes a year after Xiaomi was sued over similar allegations in India, and reflects one of the biggest challenges Chinese high-tech brands face as they try to expand beyond their home market.
Foreign companies often choose to pounce when these Chinese brands venture abroad, because they know that legal systems are more mature and patent enforcement more effective in these countries than in China. Many of these countries take immediate action against suspected patent violators if they believe a case is valid, unlike China where cases can often drag on for months or even a year or more before a verdict is reached. Read Full Post…
Bottom line: Richard Li’s investment in ZTE reflects the company’s improving position after an overhaul during the last 2 years, while Pony Ma’s sell-down of his Tencent stake looks like ordinary share selling by a company founder.
Pony Ma sells Tencent, Richard Li buys ZTE
A couple of stock sales are in the news as we head into the new week, led by Pony Ma’s sale of a massive HK$3.8 billion ($500 million) worth of shares in his company, social networking giant Tencent (HKEx: 700). While Ma was busy cashing out some of his stake, Hong Kong’s Richard Li, son of billionaire Li Ka-shing, moved in the other direction by boosting his stake in ZTE (HKEx: 763; Shenzhen: 000063), the telecoms company emerging from a major overhaul over the past 2 years.
Of these 2 moves, the latter is probably more significant since it marks a vote of confidence in the turnaround story of ZTE by Li, whose investment decisions are fairly well respected though nothing like those by his much better-known father. Pony Ma’s sell-down of his stake looks more routine, though it’s still a relatively large portion of his sizable holdings in China’s second most valuable Internet company, with a market value of $180 billion. Read Full Post…
Bottom line: Alibaba’s spin-off of its C2C marketplace for second-hand goods could reflect a new trend for big Internet firms to separately run individual assets, while LeTV may have provided most of the money in the first funding round for its smartphone unit.
Taobao spins off Xianyu
A couple of fund-raising headlines are spotlighting emerging trends in China, including a nascent move by big companies to spin off smaller units as separately run and funded entities. That move was center stage in new reports that e-commerce juggernaut Alibaba(NYSE: BABA) is spinning off its Xianyu marketplace that specializes in sales of second-hand goods between consumers.
The second headline comes from online video high-flyer LeTV(Shenzhen: 300104), and spotlights a trend that shows rapidly cooling investor sentiment towards overheated sectors like video and smartphones. That news has LeTV declining to name any of the backers in the first funding round for its fledgling smartphone unit, hinting that no serious investors were interested in this particular opportunity that raised $530 million. Read Full Post…
Bottom line: A plan to pool 4G network resources between Unicom and China Telecom could be a cost saving move, but could also be the latest signal that the regulator may ultimately merge the pair.
New signs of Unicom, China Telecom merger
China’s 2 smaller telcos are reportedly studying a plan to pool their 4G networks, in the latest sign that a major industry overhaul could be coming that would see the merger of Unicom(HKEx: 763; NYSE: CHU) and China Telecom(HKEx: 762; NYSE: 728). It’s hard to say what’s happening behind the scenes in China’s opaque telecoms sector, since any plans for such a merger are probably only known to regulators at the secretive Ministry of Industry and Information Technology (MIIT).
A high-ranking MIIT official said recently that he was unaware of plans for such a merger, indicating that nothing was imminent. But a growing number of signs are pointing to such a plan, though the cautious MIIT appears to be taking a very slow approach whose end goal wouldn’t necessarily be an outright merger but could instead also include a complex network-sharing arrangement. Read Full Post…
Bottom line: A new alliance between Ericsson and Cisco, and inability to quickly bring its new Nexus 6P smartphones to China reflect the challenges Huawei will face to maintain its growth as it comes under new pressures both at home and abroad.
Ericsson-Cisco alliance challenges Huawei
Two new developments involving Huawei are spotlighting the kinds of challenges the Chinese telecoms giant will face as it tries to maintain growth for its older networking equipment and newer and rapidly rising smartphone business. The larger of the two items have global giants Cisco (Nasdaq: CSCO) and Ericsson (NYSE: ERIC) forming a major new alliance that could provide big new competition for Huawei. The second comes in a smaller news item that has Huawei saying it will launch its new Google (Nasdaq: GOOG) smartphone in Taiwan later this month, but quietly adding it won’t be bringing the Nexus 6P model to its home China market anytime soon.
Huawei grew at a breakneck pace in the first decade of the 21st century, as it made quick inroads into global markets where names like Ericsson and Motorola traditionally dominated. But that growth has slowed sharply in the last few years as the building of traditional telecoms networks slows worldwide. The slowdown has hit not only Huawei, but also led to major consolidation in the global networking equipment industry. At the same time, demand has been growing more strongly for individual company-based networks that are a specialty of Cisco. Read Full Post…
Bottom line: Unigroup’s aim of building a telecoms and memory chip giant through strategic tie-ups and plant construction could provide challenges for global leaders like Qualcomm and Samsung.
Unigroup affiliate eyes new chip factory
Tsinghua Unigroup has leaped from obscurity to become a major headline grabber over the last 2 years, by snapping up a series of global and domestic assets aimed at building a Chinese chip maker that could someday rival the likes of Qualcomm (Nasdaq: QCOM) and Intel (Nasdaq: INTC). That spending binge continues this week with 2 new headlines, led by comments from Unigroup’s top executive saying he would consider a bid for Taiwan’s MediaTek (Taipei: 2454), one of world’s top makers of chips used in smartphones. In the other headline, a China-listed Unigroup affiliate has just said it plans to raise up to 80 billion yuan ($12.7 billion) to build new chip plants.
All of this comes just a week after Unigroup announced another $600 million deal to purchase a quarter of Taiwan’s Powertech (Taipei: 6239), which engages in the relatively low-end business of test and assembly services for microchips. (previous post) These latest headlines are the clearest indication yet that Unigroup and its affiliates have strong backing from Beijing. I say that because most of the funds being raised in a newly announced private placement by Tongfang Guoxin Electronics (Shenzhen: 002049) are coming from state-run sources. Read Full Post…
Bottom line: Taiwan should quickly approve Tsinghua Unigroup’s plan to buy a quarter of Taiwan’s Powertech for $600 million if it finds no security issues, which could help to accelerate cross-Strait high-tech M&A deals.
Unigroup, Powertech in cross-Strait microchip tie-up
One of the biggest equity tie-ups to date between high-tech companies across the Taiwan Strait was announced late last week, when the acquisitive Tsinghua Unigroup said it planned to buy a quarter of Taiwanese chip company Powertech (Taipei: 6239) for around $600 million. The deal would provide Unigroup with valuable production assets in its drive to build a major new global chip maker, and would give Powertech cash and other resources as it fights for advantage in the highly competitive chip sector.
And yet despite the obvious rationale for such a deal, only a handful of similar tie-ups have occurred to date due to the risks of getting vetoed by Taiwan on national security grounds, since they involve sophisticated technology. Read Full Post…
Bottom line: VMWare’s new China joint venture is the latest such tie-up for a major western tech firm to ease Beijing’s national security concerns, and could prompt the US to implement tougher restrictions on technology transfers to China.
VMWare in China cloud joint venture
EMC (NYSE: EMC) and its acquirer Dell are jumping on a high-tech train that goes directly to Beijing, with word that EMC-controlled VMWare (NYSE: VMW) has become the latest IT firm to set up a joint venture with a Chinese partner. The trio of high-tech giants join a growing number of other leading US tech firms to form similar ventures, with Hewlett Packard (NYSE: HPQ), IBM (NYSE: IBM) and Cisco (Nasdaq: CSCO) all forming similar tie-ups over the past year.
The rush to form such alliances comes as China rolls out a new national security law that could otherwise limit the big multinationals’ ability to sell their products and services to the Chinese government and big state-owned enterprises. But at the same time, a new New York Times report is pointing out that many of the Chinese firms in these new tie-ups also have links to China’s defense establishment, potentially setting the stage for a showdown between Washington and Beijing over national security. Read Full Post…
Bottom line: New signals that China’s 3 telcos are reducing their spending could presage a rumored consolidation of the trio into 2, with China Telecom and Unicom the most likely to be merged.
China telcos rope in spending
The latest sign of a potential shake-up in China’s stodgy telecoms sector came late last week, when global networking equipment giant Ericsson (Nasdaq: ERIC) attributed reorganization and weak spending by the nation’s big 3 carriers as a major factor behind its disappointing quarterly results. Despite expectation that China’s big 3 carriers would spend heavily on 4G this year, actual amounts so far have been relatively modest from the trio of China Mobile (HKEx: 941; NYSE: CHL), China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA).
The unexpected spending slowdown could be the latest sign that Beijing is planning an industry overhaul, following reports that first emerged last month of a possible consolidation of the 3 current mobile carriers into just 2. Such a move would reflect Beijing’s disappointment at the failure of China’s state-run carriers to become global innovators over the last decade, even after receiving monopoly rights over a market that has become the world’s largest for mobile and broadband services. Read Full Post…
Bottom line: The failure of 2 major touch-screen technology manufacturers in Guangdong is the latest sign of trouble in China’s overheated smartphone sector, with similar new closures likely to accelerate in the next few months.
Two more smartphone component suppliers go bust
China’s smartphone wars are taking an unexpected twist, with suppliers to some of the nation’s top brands emerging as the first victims of a prolonged battle for market share. I had previously expected at least one or two small- to mid-sized brands would bow out of the market by the end of this year, though we have yet to see any such developments.
Instead the inevitable shake-out appears to be starting in the supply chain, with media reporting that 2 major smartphone part suppliers have gone bankrupt in southern Guangdong province where much of the manufacturing takes place. (Chinese article) The insolvency of these 2 major suppliers, one in the boomtown of Shenzhen and another in the nearby city of Huizhou, comes just a couple of weeks after the bankruptcy of a major supplier of metal casings for smartphones sold by Huawei and ZTE (HKEx: 763; Shenzhen: 000063). Read Full Post…
