China's largest chip foundry is entering into a joint venture with Qualcomm to develop chips, at a time when the country is looking for technology to emerge as a semiconductor producing powerhouse.
The foundry, Semiconductor Manufacturing International Corporation (SMIC), has partnered with Qualcomm, Huawei Technologies and Belgian firm Imec to establish the joint venture, the companies said Tuesday.
In terms of chip technology, SMIC is still two generations behind its rivals including Intel, Samsung and Taiwan Semiconductor Manufacturing Company (TSMC). But the new joint venture hopes to help the Chinese foundry streamline its research operations.
The joint venture's initial goal is to develop 14-nanometer chip manufacturing technology for mass production by 2020. Currently, SMIC is still producing processors at the 28-nm scale, while its competitors are already shipping processors at the 16 and 14-nm level.
Although behind industry leaders, SMIC has the support of the Chinese government, which last year released a blueprint that called for the country to lead in the semiconductor market by 2030.
The government has also been funding local players, including SMIC, to make this all happen. China hopes to eventually wean itself off foreign chip makers. But even so, U.S. companies including Intel and Qualcomm have all been working to keep their presence in the country's market over the long-term.
For Qualcomm, China represents big business. It is not only the largest market for smartphones, but many device manufacturers are based in the country, and using its Snapdragon mobile processors.
However, the company still faces competition from Intel and domestic chip vendors, which are all competing to grab a larger share of the mobile processor market. Intel, for instance, has been partnering with Chinese companies to develop and distribute chips for smartphones and tablets.
"It's not surprising that Qualcomm is trying to do the same thing and find local partners," said Kitty Fok, an analyst with research firm IDC. "They want to secure their position in China."
Qualcomm's own business was on shaky ground last year because of an anti-monopoly investigation in China that led to the company getting fined US$975 million in February. Partnering with SMIC could now give Qualcomm greater access to the Chinese market.
"If you are not here in China, you cannot develop something proper for the local market," Fok said.
SMIC will have majority control over the new joint venture. Before the joint venture announcement, Qualcomm was already partnering with SMIC to produce Snapdragon chips using its 28 nm process.
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