Intel Corporation (INTC) recently invested $1.5 billion to purchase a 20% stake in two Chinese chipmakers, in a bid to gain traction in the smartphone chip market reigned by Qualcomm Inc. (QCOM). The deal awaits government approval.
Intel will buy a stake in Spreadtrum Communications and RDA Microelectronics, both owned by Tsinghua Unigroup. Both companies are leading China-based fabless semiconductor companies, which create chipsets for mobile devices and other consumer electronics products that support 2G, 3G and 4G wireless communications. Tsinghua Unigroup is a state-funded private equity corporation controlled by Tsinghua University in Beijing.
While Intel has for long dominated the chip market for personal computers, it has been struggling to spur growth in the smartphone and tablet markets. The investment seems to be a sensible move, as it will help Intel broaden its foothold in the Chinese mobile chip market by reaching out to a larger audience with products based on its technology.
The deal is particularly important because of the decline in sales of high-end mobile devices in North America, which prompted more and more manufacturers to turn to low-end smart devices designed for customers in China.
Previously, in May, Intel signed an agreement with Rockchip, a Chinese mobile chipmaker in a bid to produce chips for cheap tablet computers running on Google’s (GOOGL) Android operating system.
Intel seems determined to meet its target of 40 million tablet units this year. The main hurdle for Intel has been the level of integration required in mobile devices, an area where it is yet to build expertise. The agreement illustrates the fact that Intel is unwilling to leave anything on the table in its race to take share in this fast-growing market.
Following the purchase of the stake, Intel will co-develop Intel-based chips with Spreadtrum which will be available to Spreadtrum’s domestic phone-manufacturing customers from mid-2015.
Intel currently holds a Zacks Rank #3 (Hold).
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