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China tech

China's No. 2 player to launch 5G chip in 2020 to rival Qualcomm

UNISOC pushes up timetable amid efforts to cut reliance on US tech

TAIPEI/SHANGHAI -- China's second-largest mobile chip developer aims to launch a 5G chipset in 2020, far earlier than previously planned, to catch up with global leaders Qualcomm and MediaTek and tap demand from local companies looking to end their dependence on U.S. suppliers.

UNISOC Communications' timetable is roughly similar to those of its much bigger competitors, and marks a significant acceleration of its ambitions following the disintegration of its partnership with chip leader Intel earlier this year.

The plan also comes amid political backing for the sector, with Beijing pushing to speed up the rollout of 5G mobile networks in the country, as well as cut China's dependence on foreign chipmakers following Washington's crackdown Huawei Technologies' use of American tech.

UNISOC, the mobile chip unit of state-backed tech conglomerate Tsinghua Unigroup, has been poaching talent from Huawei and Qualcomm to drive its ambitious target and has invested around $200 million to overhaul its processes and improve quality, one inside source told the Nikkei Asian Review.

The company is counting on demand from China's smaller smartphone makers and others who are nervous about becoming the next target of a U.S. crackdown.

"Following the Huawei ban, most Chinese companies are aware they need to review their supply chain and they will want to do everything they can to avoid the risk of supply being cut off," Eric Zhou, senior vice president of marketing at UNISOC, told Nikkei in an interview. "That's a very good opportunity for local chip solution developers like us to grab opportunities, not only for 5G but for our other product portfolios...We see many clients locally are more willing to engage with us."

California-based Qualcomm, the world's No. 1 mobile chip provider, acknowledged last week that the Huawei crackdown is hitting its Chinese business.

Chinese chip designers like UNISOC are also hoping to take advantage of their massive local market. In June, the Chinese government granted earlier-than-expected commercial licenses to major carriers to accelerate construction of the country's 5G mobile network. The next-generation wireless infrastructure is key for enabling cutting-edge technologies such as high-quality livestreaming of video, augmented reality computing, autonomous driving and other applications requiring rapid data transfer and low latency.

UNISOC plans to make its 5G Tiger mobile platform -- an integrated solution that combines its processor and 5G modem into a system on chip -- available in the second half of 2020, sources told the Nikkei Asian Review.

Zhou confirmed the schedule. He said UNISOC aims to tap the "Chinese domestic smartphone makers" as the first wave of clients for its new integrated chip.

The company's clients are mostly smaller smartphone makers, such as Hisense, Lenovo Group, ZTE, Meizu, and Samsung Electronics' entry-level handsets. Qualcomm and MediaTek mostly supply to Huawei, Oppo, Vivo and Xiaomi, as well as Samsung.

UNISOC generates annual revenues of 11 billion yuan ($1.6 billion), according to research company Trendforce, roughly one-tenth the sales of industry leader Qualcomm. It was some two years behind the U.S. giant in the introduction of 4G chipsets, Zhou said, but the company aims to narrow that gap and roll out its 5G offering at roughly the same time.

Qualcomm and MediaTek have said their 5G integrated solutions will be ready for customer use in the first half of 2020. Huawei's chip arm HiSilicon Technologies, on the other hand, hopes to make such integrated chips by the end of this year, boosted by Beijing's push to get the 5G network ready.

"We do see a very obvious trend for Chinese companies to reduce the use of U.S. suppliers since the second quarter following the Huawei clampdown," said a senior executive at WPG Holdings, the world's biggest semiconductor distributor. "The trend is here to stay."

UNISOC -- one of the earliest of Chinese chipmakers -- has been working on wireless technology for almost two decades and has been a leading force since the 2000s in boosting the country's self-sufficiency in chips. The company said it has been preparing for 5G-related chips since the end of 2014.

In 2018, the company formed a partnership with Intel under which the U.S. PC chip king would pair its 5G modems with UNISOC's mobile processors. Market watchers said the end of the Intel alliance in February was a setback for UNISOC's tech development. But the Chinese chipmaker was benefiting from the nation's push to replace U.S. suppliers and it had accelerated its 5G network ambitions.

Nevertheless, it still faced a challenge in rivaling the global giants.

"In terms of technology and performance, in the near term, UNISOC still has gaps to fill compared with...Qualcomm, MediaTek and its domestic peer Huawei's HiSilicon," said Arisa Liu, a semiconductor analyst at Taiwan Institute of Economic Research.

The Chinese chipmaker could also face challenges, Liu said, if it was not able to forge alliances with international players in future due to rising protectionism. "Knowing what other industry peers are doing is also very important for technological advancement," she said.

But, in the long run, "the company is in a good position to grab the opportunities as local Chinese companies turn to non-U.S. solutions. ... That's the trend that won't go away," she added.

China's chip designers controlled just 13% of the global market in 2018, while U.S. rivals held 68%, IC Insights data showed. HiSilicon has become one of the global front-runners in 5G chips, but it mostly designs them for in-house use.

In late 2018, UNISOC hired CEO Steve Chu Qing, a former chief strategy officer at HiSilicon, to lead the chipmaker. It also poached executives from Qualcomm, including Wang Long, an expert in Bluetooth and Wi-Fi technology, to help boost the company's technology capabilities.

The company currently has around 4,500 employees, 90% of whom are engineers. More than 1,000 engineers are dedicated to developing 5G-related products, Zhou said in the interview. "Compared with the 4G era, we invest at least twice the resources for our 5G lineups," he said, though he declined to specify the amount of investment.

Zhou, who also joined UNISOC from Huawei, said the company has spent hundreds of millions to improve its development processes and to patch vulnerabilities in previous chip designs.

UNISOC said in May that it intended to list on the Star Market, Shanghai's Nasdaq-style tech board, next year. Previously the chipmaker had hoped to file for an initial public offering in 2018 but it postponed the plan to at least the end of 2019, the Nikkei Asian Review first reported.

The company has been loss-making for several consecutive years amid a depressed smartphone market and as many of its second-tier smartphone clients struggled to survive the downturn, sources told Nikkei. In addition, Apple, Huawei, and Samsung have been designing more chips in-house.

UNISOC controls Spreadtrum Communications and RDA Microelectronics, two key Chinese mobile chip developers founded in the 2000s. 

Tsinghua Unigroup's key investors include China Integrated Circuit Industry Investment Fund, the country's most prominent financing vehicle for the chip sector. Another Tsinghua Unigroup subsidiary, Yangtze Memory Technologies, is viewed as China's hope for eventually challenge top global NAND flash memory chipmakers such as Samsung Electronics and SK Hynix.

Nikkei staff writer Lauly Li in Taipei contributed to this report.

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