Four months ago Qualcomm was fined for violating the anti-monopoly law in China and was forced to sharply reduce the licensing fees it charged Chinese smartphone makers for its communications chips. Qualcomm, which had previously helped Semiconductor Manufacturing International Corporation or SMIC develop chips, is now all set to help them produce a new generation of advanced semiconductors. SMIC, on Tuesday 23rd June, 2015 said that it plans to form a new company with a leading Belgian microelectronics research centre Imec and the American Chip Giant Qualcomm.
Taking a break from the last decade’s approach when the chip makers refrained establishing their most advanced research labs in China to protect their intellectual property, the company with this new partnership with Qualcomm along with Huawei Technologies is all set to cooperate with the Chinese market to mark a difference and make it big. China, having emerged as the world’s largest smartphone market has attracted many foreign chip companies to support a broader industrial policy through which Beijing can expand chip research and production capacity within China.
2014 saw Intel investing $1.5 billion in Tsinghua Unigroup. IBM also agreed to license. IBM also agreed to license an advanced chip technology to a local Chinese company. SMIC has lagged behind Samsung Electronics and Intel because of the export restriction on the sophisticated tools and machines required to produce the most advanced chips and technology.
The question now is that how will this benefit Qualcomm? “Qualcomm just had a huge settlement with the Chinese government, so from their perspective they need to be able to sell in China. The logic is if they help SMIC manufacture Qualcomm chips in China, that improves their ability to sell those chips there,” said Mr. Willy C. Shih, a professor at Harvard Business School. The deal will help Qualcomm to use more companies to produce the chips it designs that power many of the world’s most popular smartphones. The strategy is not only profitable, but also a step towards bettering the relationship with China. “This really is Qualcomm playing nice with the Chinese government,” said Mark Hung, a semiconductor analyst with Gartner.
Though Information about the financial details haven’t been provided, Jon Carvill, a Qualcomm spokesperson, said that the new chip is expected to have a long life cycle. The two generations behind SMIC, will be at par with other companies by 2020 (as is the aim of Qualcomm) in producing the chips already being produced. Now, with this new plan, SMIC will also have the rights to license the intellectual property created by the new company. This new strategy will help Qualcomm develop amiable relationship with China; help SMIC to close the huge gap with rivals and pave the path for having a competitive lead over Intel and Samsung in the future. The plan, will obviously prove to be a boon for all if it is executed properly.