Intel’s Collaboration With Tsinghua To Expand Its Footprint In The Chinese Mobile Chip Market

Leading PC and server chipmaker, Intel (NASDAQ:INTC) announced signing a series of agreements with Tsinghua Unigroup to expand the product offerings and adoption for Intel-based mobile devices in China and worldwide, by jointly developing Intel architecture and communications-based solutions for mobile phones. Tsinghua Unigroup is a government-affiliated private equity firm funded by Tsinghua University in China. As part of the agreement, Intel will invest $1.5 billion for an approximate 20% stake of the holding company under Tsinghua Unigroup,  which will own Spreadtrum Communications and RDA Microelectronics, subject to regulatory approvals and other closing conditions.

The web was abuzz with speculation of Intel acquiring a stake in Spreadtrum and RDA since the last few days. Both Spreadtrum and RDA are leading fabless semiconductor companies in China, which develop mobile chipset platforms for smart phones, feature phones and other consumer electronics products, supporting 2G, 3G and 4G wireless communications standards.

While Intel has been the world’s dominant PC and server microprocessor maker for over two decades, it has had difficulty penetrating newer processor markets for tablets and smartphones, in which Qualcomm (NASDAQ:QCOM) and Samsung (OTC:SSNLF, including Apple) are dominant. As a result, Intel’s growth has slowed significantly in the last two years, in line with declining PC shipments. Intel’s efforts to enter the handset advanced logic market with its Atom processor have failed to make a significant mark in the industry so far. However, it continues to focus on producing more energy efficient chips and adding features for connectivity and security to increase its share in the mobile computing space.

Intel’s deal with Tsinghua Unigroup will give the former a greater footprint in the Chinese mobile chip market, which has become a focal point of the global smartphone industry.

Our current price of $33 for Intel is slightly below the current market price.

See our complete analysis for Intel

China Is The World’s Largest Smartphone Market

With more than 500 million smartphone users, China is not only the world’s largest smartphone market but also the biggest smartphone manufacturing hub. With demand for smartphones cooling in the U.S., manufacturers have increased their focus on China. Rising demand for low-cost phones is one of the key factors driving strong mobile sales in the country.

In Q1 2014, 449 million mobile phones (feature & smartphones) were sold, 3.9% higher compared to Q1 2013. Smartphones accounted for 62.7% of total mobile shipments in the quarter, with 40% of the demand coming from China. ^[1] According to ABI Research, smartphones with a price point of $250 and below (before carrier subsidies) will account for 46% of global smartphone shipments by 2018 compared to 28% in 2012. ^[2] Much of the low-cost smartphone growth is being driven by rising demand from emerging economies with China leading the pack, so far.

The Chinese government recently issued 4G licenses to its telecom providers — China Mobile (CHL), China Telecom (CHA) and China Unicom (CHU) — in the TD-LTE network. Only a handful of countries including China have adopted this standard for its 4G, and the same is expected to increase demand for LTE-enabled smartphones in China this year. ^[3]

Partnerships With Chinese Firms Can Help Intel Accelerate Its Presence In The Region

To leverage growth in China, Intel plans to build upon its nearly 30-year history in the country, accelerating new innovations and reshaping the computing industry. (Read: Increasing Investment In China Can Help Expand Intel’s Mobile Presence) In May this year, the company announced the establishment of an Intel Smart Device Innovation Center in Shenzhen and a $100 million Intel Capital China Smart Device Innovation Fund. It also signed a strategic agreement with Rockchip, a leading Chinese fabless semiconductor company and mobile-internet system on a chip (SoC) solution provider, to expand its low-cost tablet offerings. (Read: Agreement With Rockchip To Help Intel Reach Its Target Of Shipping 40 Million Tablets In 2014)

Intel presently accounts for 4% – 5% of the global tablet market, and its share in smartphones is less than 1%. We believe that expanding its presence in China can help the company increase its global share in the mobile market. While the agreement with Rockchip can help expand Intel’s presence in the Chinese tablet market, the deal with Spreadtrum will accelerate Intel’s growth in smartphones. Spreadtrum already has a sizable footprint in the Chinese low-cost smartphone market. ^[4]

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1. Emerging markets, low-cost devices, 4G drive smartphone sales, The Economic Times, May 4, 2014 [↩]
2. China’s TCL Communication Adopts Broadcom 3G Android Platform, Broadcom Press Release, May 23, 2012 [↩]
3. Broadcom: This Is The Right Time To Invest, Seeking Alpha, December 30, 2013 [↩]
4. Why Would Intel Corporation Want to Buy Into Spectrum, The Motley Fool, September 24, 2014 [↩]