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Western chipmakers join hands with Chinese firms to gain foothold

A worker oversees chip production at SMIC's plant in Shanghai. In 2013, semiconductor foundry firm SMIC ranked on top in China's chip production.

BEIJING -- Major U.S. and European semiconductor makers are forming technological partnerships with Chinese companies in a bid to break further into the mainland China market through greater sales and marketing efforts, including the offer of technology proposals.

     In late May, major U.S. chip maker Intel announced that it had joined hands with China's Fuzhou Rockchip Electronics in producing chips for lower-priced tablet computers. The U.S. and Chinese companies plan to jointly develop system chips for tablets using Google's Android operating system by mid-2015.

     Rockchip Electronics is a so-called fabless manufacturer focused on chips for mobile Internet-related products. Under the agreement, it will develop chips that complement Intel's chip performance, and the two companies plan to sell the new chips to Chinese makers that turn out low-end tablets.

     For its part, Intel has been aggressively pushing for business expansion in China. It manufactures semiconductors used in PCs, among other products, at its subsidiary in Dalian, Liaoning Province. Through the partnership with Rockchip Electronics, Intel aims to gain a foothold in the Chinese market where tablets are displacing PCs and are growing in sales in recent years.

     This strategic agreement with Rockchip Electronics will assure Intel's greater presence in the global mobile market, said Intel CEO Brian Krzanich.

     Meanwhile, Geneva-based manufacturer STMicroelectronics also established in late May partnership over automotive electronics with China's major automaker Changan Automobile. The European and Chinese companies will set up a joint laboratory and focus on the research and development of car body, automotive infotainment and engine management, among other things. They are looking to develop semiconductor suited to marketable cars in China.

     In December last year, NXP Semiconductors, based in the Netherlands, agreed to create a joint venture firm with China's state-owned telecommunications and semiconductor firm Datang Telecom Technology. Under the plan, the joint venture will develop semiconductors used in power and battery management of eco-friendly cars and gasoline-powered vehicles, among other products. It is capitalized at $20 million, with NXP holding a 49% stake and Datang 50%.

     Even though China is the world's largest semiconductor market by country and region, foreign chip makers have so far been making inroads mainly by exports, due to concerns over technology leaks and other factors. But now, these developments suggest that foreign manufacturers increasingly find it difficult to penetrate further into the market unless they are willing to accommodate Chinese firms' requests for more technology disclosure.

     In the meantime, local Chinese chip makers are achieving steady growth as well. In 2013, semiconductor foundry firm Semiconductor Manufacturing International Corp. (SMIC) ranked at the top in China's chip production, according to a report by the China Semiconductor Industry Association (CSIA). SMIC's output was worth 12.65 billion yuan ($2.03 billion), up 18.4% from 2012, outstripping a DRAM-making subsidiary of South Korea's SK Hynix, based in Wuxi, Jiangsu Province, and Intel's subsidiary in Dalian and jumping to the No. 1 spot from No. 3 in 2012.

     Fabless makers are growing at a faster clip than conventional makers. Shenzhen HiSilicon Semiconductor, a group firm of Huawei Technologies, is the largest Chinese chip maker in terms of sales and saw a 75.7% increase in sales in 2013 from a year earlier thanks to increased sales of Huawei's smartphones. Likewise, other firms, such as Spreadtrum Communications, boosted sales as well.

     However, domestically-made chips accounted for only 38.3% of China's total semiconductor products in 2013, according to the CSIA. This is partly because production has not been able to meet rapidly growing demand. "If you exclude the local production by foreign makers, such as SK Hynix, the domestic production ratio would even fall short of 20%," said Gu Wenjun, an analyst with IHS iSuppli, a U.S.-based research firm.

     Moreover, individual Chinese makers are still lagging behind from their major rivals. SMIC came in fifth place in the global foundry sales ranking, but its sales are still about a 10th of those of Taiwan Semiconductor Mfg.

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