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My country's integrated circuit industry is about to face a major integration test.
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2014.07.26
Recently, Tsinghua Holdings' Unisplendour Group Co., Ltd. and RDA Microelectronics Inc. jointly announced that the acquisition transaction of RDA, valued at approximately $907 million, has been completed according to the merger agreement signed in November 2013 and its subsequent amendments. Coupled with the acquisition of Spreadtrum Communications last year, Unisplendour has become China's largest communication chip design company, bringing it closer to its goal of building a world-class enterprise group in the semiconductor chip field. Experts believe that Unisplendour's acquisition of RDA will significantly enhance the overall strength of China's chip design industry, potentially leading to the emergence of the first chip company in mainland China with a market value exceeding 100 billion yuan. Mergers and acquisitions will be a development trend in the chip design industry.
RDA is a leading domestic chip design company focused on the design, development, and sales of wireless system chips and RF chips, with products widely used in mobile communications, wireless connectivity, broadcasting communications, and other fields. Regarding this acquisition, Zhao Weiguo, Chairman and President of Unisplendour Group, stated, "The acquisition is of great significance for both Unisplendour Group and RDA, as well as for China's semiconductor industry. The effective synergy between RDA and Spreadtrum Communications will significantly enhance the market position of domestic companies in the global mobile communication chip field. We look forward to closely collaborating with RDA's excellent management team and workforce to make due contributions to the development of China's integrated circuit industry."
It is reported that Unisplendour plans to develop its chip industry into a world-leading communication chip group within five years, with an employee count reaching 20,000 and revenue exceeding $10 billion.
The background of Unisplendour's continuous mergers and acquisitions is the Chinese government's efforts to revitalize the semiconductor industry. For a long time, China's integrated circuit industry has been controlled by foreign manufacturers, with integrated circuit products heavily reliant on imports, making it difficult to provide strong support for building national industrial core competitiveness and ensuring information security. Data shows that in 2012, China's dependence on imported semiconductor chips was nearly 80%, with the import rate of high-end chips exceeding 90%, and the import value of semiconductors surpassing that of oil imports. In 2013, China's integrated circuit imports reached $231.3 billion.
To break this passive situation, relevant departments issued the "National Integrated Circuit Industry Development Promotion Outline" in June this year, proposing that by 2020, the gap between China's integrated circuit industry and international advanced levels will gradually narrow, with an annual sales revenue growth rate exceeding 20% across the entire industry and significantly enhanced sustainable development capabilities for enterprises. Efforts should focus on leveraging market mechanisms to guide and promote mergers and acquisitions among integrated circuit design companies.
It is understood that the semiconductor industry mainly includes design, manufacturing, packaging testing, and other links. Over the past decade, driven by strong policy support and terminal market demand, the design sector has achieved sustained rapid growth, becoming the fastest-growing segment in the semiconductor industry chain. Subsequently, the growth focus of China's semiconductor industry shifted towards a no-production-line design model. According to statistics from the China Semiconductor Industry Association, in 2013, China's integrated circuit industry sales reached 250.851 billion yuan, a year-on-year increase of 16.2%, with the design sector at 80.88 billion yuan, a year-on-year increase of 30.1%, far exceeding manufacturing's 19.9% and packaging testing's 6.1%.
Although China's integrated circuit industry is developing rapidly, due to years of overly fragmented industrial layout and small enterprise scale, the total output value of the top ten domestic chip design companies combined is still less than one-third of Qualcomm's. Now, Unisplendour's mergers and acquisitions in the design sector will change this situation. By acquiring Spreadtrum Communications and RDA Microelectronics, Unisplendour now holds two out of the top three chip design companies in China.
In this regard, Zhang Le from Shenwan Hongyuan Research believes that if Spreadtrum and RDA merge smoothly, their combined revenue for 2013 would be $1.42 billion; Unisplendour would surpass HiSilicon to become China's largest integrated circuit (IC) design manufacturer and rank 11th globally. The strong alliance between Spreadtrum and RDA will achieve complementary advantages. Spreadtrum has strong software development capabilities but weak IC research capabilities; RDA excels in IC research but lacks software development strength.
In addition to benefiting these three companies through mergers and acquisitions, China's semiconductor industry will also be greatly affected as a result. "For the semiconductor industry to grow rapidly, mergers and acquisitions are a very important means," said Gong Xiaofeng, Director of the International Economic and Technical Cooperation Center at the Ministry of Industry and Information Technology. The development of the integrated circuit industry requires substantial funding; without a certain scale it is difficult to seize market opportunities—for example, chip design companies need to achieve $1 billion in revenue to have sufficient risk resistance capability; while enhancing technology quickly, improving talent quality, and forming a certain scale within a short time frame through mergers with existing advantageous enterprises is undoubtedly an effective approach. "In the future, similar merger events in the integrated circuit field will become increasingly common," Gong Xiaofeng said.
"Specifically regarding Unisplendour's acquisition case, in the short term it may force accelerated integration in China's integrated circuit field; in the medium term it may affect upstream companies' integration such as manufacturing and packaging testing; in the long term it will impact terminal manufacturers," Gong Xiaofeng added.
"If we say that the first move was still 'capital operation' leading to quantitative changes in the industry, then integrating Spreadtrum and RDA this time as 'industrial operation' will trigger a huge qualitative change in China's integrated circuit industry," said Gu Wenjun, Chief Analyst at iSuppli Semiconductor. "The integration of Spreadtrum and RDA will open up a new chapter for major industrial changes in China; the resulting chain reaction will force our integrated circuit industry as well as mobile phone industry into significant consolidation."
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