GUEST POST: Qualcomm’s Big New Venture in China – An Analysis

By newsdoug on March 31, 2016

By Peng Ma

Qualcomm China JV to improve company’s image

In a move that is likely to alleviate its strained relationship with Beijing and give new impetus to big data in one of China’s poorer regions, Qualcomm (Nasdaq: QCOM) has signed a strategic cooperation agreement with the provincial government of Guizhou.

Signed on January 17, the agreement will see Qualcomm establishing a Guizhou-based investment corporation to look for more business opportunities in China’s integrated circuit market, and promote the development of the country’s related industries.

The deal, which also creates a joint venture named Guizhou Huaxintong Semiconductor Technology, is a major step in Guizhou’s effort to position itself as a leader in the big data field in China. The province has been designated by the central government as a pilot zone for the development of big data, and has a sound regulatory framework and a sophisticated infrastructure that is of growing interest to foreign tech firms.

Under the agreement, Qualcomm will not only provide funds to support ARM architecture server chip R&D, but will also license its server technologies to the joint venture. This will establish Guizhou as a leader in China’s chip server R&D and a leader in the development of chip manufacturing.

With ambitions to promote its own brand internationally, Guizhou will also be able to draw on Qualcomm’s marketing channels and outstanding brand reputation.

For Qualcomm, the deal will ease a fraught relationship with the Chinese government. In 2013, the company was the target of an anti-monopoly investigation by China’s National Development and Reform Commission (NDRC), and was fined $975 million. (previous post) By moving with its new venture in Guizhou, Qualcomm is looking to regain the trust and confidence of the Chinese authorities.

Finding Local Partners

It is also a reflection of an increasingly important trend for foreign tech companies in China- the need to partner with local companies for better access to a rapidly growing market. Under the deal, the Guizhou government will offer Qualcomm a series of preferential terms, including low-cost industry parks, investment funds, talent training, and more.

In addition, at a time when the Chinese authorities have, for security reasons, been encouraging domestic production of mobile phone chips, the new venture will help Qualcomm offset the impact of this trend. This will be welcome news since, even though it remains the world’s leading supplier of mobile phone chips, Qualcomm’s overall business slumped in 2015.

The deal is also designed to play a broader role in spurring economic development in Guizhou, one of China’s poorest provinces. By choosing to promote the tech sector and then attract investment from prominent international companies like Qualcomm, the central government is hoping to give a boost to Guizhou’s overall economic progress.

For all its promise, however, the new venture faces a variety of challenges. These include the possibility of changes in the central government’s overall economic policies, changes in personnel, a weak talent base in Guizhou due to its overall lack of development, and the technological weakness of ARM architecture-based processors worldwide.

Still, Qualcomm’s deal with Guizhou represents a significant opportunity that – if it succeeds – could change the way foreign tech companies approach doing business in China.

Peng Ma is a research manager at IDC China. For questions or comments, please contact IDC Jessica Qiao at jqiao@idc.com.

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