China's Tsinghua Unigroup aiming to become powerhouse in smartphone chips

China's Tsinghua Unigroup is not a well-known brand in the West, but its recent acquisition spree could make it a much more significant player among fabless chip companies targeting the feature phone and smartphone sectors.

The company cut a deal in July to acquire top TD-SCDMA baseband chip vendor Spreadtrum Communications and last week announced plans to buy up RDA Microelectronics, which makes radio-frequency chips for mobile and broadcast devices built by vendors such as by Huawei, ZTE and Lenovo.

The $1.78 billion offer for Spreadtrum and $910 million deal to take over RDA represent a consolidation of China's fabless chip sector. The sector has been marked by struggling companies battling over the low-end device market, which offers low profit margins.

Not a lot is known about Tsinghua Unigroup, which is an operating subsidiary of Tsinghua, a state-owned corporation funded by Tsinghua University in China. Tsinghua Holdings controls 51 percent of Tsinghua Unigroup, while 49 percent is held by Beijing Jiankun Investment Group, which is controlled by Zhao Weiguo, who also serves as chairman and CEO of Tsinghua Unigroup.

A Chinese industry source told EE Times that the offer to acquire RDA is more than Tsinghua Unigroup's market cap of $820 million, meaning the real buyer may be a $2 billion-$3 billion fund related to Unigroup.

Looking to the future, some EE Times sources speculated that the consolidation of Spreadtrum and RDA under the Tsinghua Unigroup umbrella will keep them from succumbing to competitive pressures generated by Taiwan-based MediaTek. By exiting NASDAQ and again becoming private entities, Spreadtrum and RDA will have more business development freedom and gain access to the intellectual property portfolio of Tsinghua Unigroup and Tsinghua University. However, the sources expect the combined Spreadtrum-RDA under Tsinghua Unigroup, will again "go public in the near term."

The combined Spreadtrum-RDA should be better able to compete in the feature phone market, freeing it from chasing  low-end device revenues. It will also likely focus on research and development, perhaps beefing up its application processors business, which has been a weak spot for both companies.

Though consolidation in the Chinese handset chip market is seen mainly as a threat to Mediatek and other Chinese fabless companies such as Allwinner and Rockchip, it comes as Qualcomm (NASDAQ:QCOM) warns that its growth rate will slow next year due in part to increases in the sale of less expensive phones in emerging markets. Reviewing results for Qualcomm's recently completed fiscal fourth quarter, Steve Mollenkopf, Qualcomm's president and COO, said the company expects to see "strong growth in the low and mid-tiers, driven by emerging regions, including the anticipated launch of LTE in China in the second half of the fiscal year."

For more:
- see this EE Times article
- see this RDA release

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