Intel Bets Big On China

Intel Corporation， the world’s largest chipmaker， is showing growing interest in investment in China， with the latest plan to splurge a massive 10 billion yuan， or$1.6 billion in the next 15 years， to upgrade its chip plant in the interior city of Chengdu and introduce its latest advanced test technology into the country.

The chipmaker is hoping to improve its business strategies for computing and communications market segments in China， especially those in the mobile sector， including tablets， smart phones， the Internet of Things （IoT） and wearable equipment， according to a press release from the international giant.

It is noteworthy that besides Intel， many other semiconductor giants， including Samsung， SK Hynix， and Texas Instruments， are also ramping up investment in the Chinese market.

In June 2014， in a bid to realize the leaping development of the domestic semiconductor industry， the State Council of China promulgated the Outline of National Integrated Circuit Industry Development， with a proposal to establish national industrial investment funds.

In the face of a more intense competition from Chinese enterprises in the huge market， those international giants are rushing to expand their presences in the country.

Ramped-up investment in China

“The investment is a significant move for Intel to expand its assembly and test business and it is also our largest investment in Chengdu plant，” says William Holt， executive vice president and general manager of the Technology and Manufacturing Group at Intel.

“The upgrade in Chengdu plant will help China’s ICT industry make continuous innovation and boost regional economic development，” adds Holt.

According to estimates from research firm Gartner， compared with a growth of 5.7% in the whole semiconductor market， IC devices associated the IoT with will see a whopping rise of 36.2% in 2015.

Gartner says the IC devices featured with processing function will become the biggest contributor to the IoT industry earnings， with $7.58 billion in revenue in 2015， followed by sensors which are expected to see a rise of 47.5% in revenue over the period.

Under Intel’s plan， the upgrade in Chengdu plant will give priority to the layout of the IoT and wearable products.

“The introduction of our latest technology will significantly expand the test coverage， improve product classification， help make more reliable prediction and more precise positioning of encapsulation， and optimize the adaptive process. The technology enables the plant to test various Intel products and it also can be applied to many other kinds of products，” says spokesman for the chipmaker.

With the update and the technology introduction be conducted in 2015， Intel is expected to make its products available for mass consumption in the second half year of 2016.

Before the announcement of the update， Intel has pumped a total investment of $600 million into Chengdu plant. Besides， in order to improve the supply chain efficiency， the chipmaker established a distribution center in the city， which is also its first distribution center in western China.

According to publicly available data， Intel’s large-scale investment in China dates back to 1996 when the chip giant decided to set up a chip encapsulation test plant in Waigaoqiao Free Trade Zone in Shanghai with an initial investment of $68 million. Later， the chipmaker made additional investments in the plant， making it become the largest investment project in the bonded zone.

By far， Intel has opened five branches in China， with its Chengdu branch located in Chengdu High-tech District. It announced the plan to invest the branch in 2003， which was put into operation two years later.

The chipmaker introduced assembly and testing facilities into the branch to assemble the chipsets with its encapsulation technology in 2005， a year before Chengdu plant was built to produce microprocessors.

In the past few years， Intel has been increasing investment in China， which is expected to facilitate the interaction between Intel and Chinese manufacturers in the future， according to Gu Wenjun， chief semiconductor analyst with research firm ISuppli.

International semiconductor giants piling into China

Over the past decade， China has seen an influx of foreign investment in the semiconductor industry by virtue of a huge consumer market， and relatively low labor costs， as well as preferential investment policies.

Insiders believe that China’s semiconductor industry will usher in a new wave of development， with the establishment of the national leading group for the integrated circuit industry development.

In May 2014， with a total investment of $7 billion， Samsung （China） Semiconductor Co.， Ltd.， which is China’s largest foreign investment project， went into operation in Xi’an， the capital of Shaanxi Province.

Samsung （China） Semiconductor， also touted as South Korean firm Samsung Electronics’ biggest-ever overseas investment project， will produce the world’s newest 10nm flash chips.

Besides， Taiwan Semiconductor Manufacturing Corp. （TSMC） also saw a soaring trend in its mainland businesses.

According to data， TSMC’s mainland businesses generated 12 billion yuan in revenue in 2010， accounting for 3% of its total revenue. In 2013， the share jumped to 6% with earnings of NTD36 billion over the period.

Another international semiconductor giant Texas Instruments unveiled a long-term strategy for the development of its manufacturing base located at Chengdu at the Fortune Global Forum held in June 2013.

Under the strategy， Texas Instruments would inject up to $1.69 billion， or about 10 billion yuan， into the base over the next 15 years， for the establishment of an encapsulation test plant， a 12-inch wafer plant and others.

The encapsulation test plant is now in operation， and the establishment of the 12-inch wafer plant is also put on agenda.

According to a director of Texas Instruments， the wafer plant remains in the design phase and is scheduled to begin construction in 2015 and go into operation in the first half of 2016 with a capacity of 1，000 wafers per day.

Texas Instruments’ announcement came just one month after Taiwan’s United Microelectronics Corporation（UMC） said that it would set up a 12-inch wafer plant， together with Xiamen Municipal Government and Fujian Electronics & Information （Group） Co.， Ltd.

UMC plans to pump with a total investment of $6.2 billion to the wafer plant. Coincidentally， the wafer plant is also scheduled to be put into operation in 2016， with a designed capacity of 50，000 wafers a month.

Faster is always better

Therefore， Intel still needs to set up efforts to stand up to challenges from its peers， although it has been dominating the market for 20 years in a row by virtue of advanced technologies.

The global tech leader’s predicament is mainly due to the disintegration of the storied Wintel alliance and a late entry to the mobile Internet world.

Intel has been overtaken by wire-less chip provider Qualcomm in market value， as it failed to recognize the importance of mobile devices earlier. In addition， Intel is also confronted with competitions from ARM， IBM， AMD， Nvidia and Qualcomm in the field of server chips， where the chipmaker has played a dominated role for years.

In today’s world where faster is always better， it is urgent for Intel to catch up its rivals in the mobile sector and seeing from its latest move， it seems that the tech giant deems the Chinese market as a breakthrough for its belated push into the mobile sector.

Just two months earlier before the announcement of the update in Chengdu plant， together with Tsinghua Unigroup， an operating subsidiary of stateowned Tsinghua Holdings Co.， Ltd.， the chipmaker said it would invest up to $1.5 billion in Spreadtrum Communications Inc. and RDA Microelectronics Inc.， both controlled Chinese mobile-chip designers by Tsinghua Holdings， aiming at a bigger bite of China’s smartphone market.

Under the plan， Intel will acquire a 20% stake at Spreadtrum Communications and RDA Microelectronics. In addition to the big investment， the international chip giant will introduce more cutting-edge technologies to the two chip designers.

Intel wants to increase the use of its products inside made-in-China mobiles and tablets through the capital and technology investments in Spreadtrum Communications and RDA Microelectronics which hold considerable market shares in China.

With the cooperation of Tsinghua Unigroup， Intel will gain enough traction to go further in the country.

Besides， believing that the $1.6 billion investment in Chengdu plant will not be the last major announcement from Intel， some experts its next move is to update its plant located in the coastal city of Dalian in China’s northeastern Liaoning Province， which perhaps involves investment of another$1 billion.

According to statements by several Intel executives in many occasions， the chipmaker’s U.S.-based headquarters is readjusting the positioning of the Chinese market.

At the time when China’s policy makers decide to promote the country’s semiconductor industry， it is a relatively smart move for Intel to place more big bets in the country.