CHIPS: China Tries New US Chip Buy with Analogix

Bottom line: A Chinese buyer’s plan to purchase US chip maker Analogix for more than $500 million is unlikely to meet with political resistance, and could mark a new template for similar cross-border chip M&A by China.

Chinese group bids for US-based Analogix

After failing at several high-profile attempts to buy US microchip technology, China is trying once again with a newly announced plan to acquire venture-backed chipmaker Analogix Semiconductor for more than $500 million. Unlike previous failed efforts that targeted more mature companies, the acquisition target in this case is much younger, since Analogix was only founded in 2002.

This new deal looks strikingly similar to another one earlier this year that saw the Shanghai-based National Silicon Industry Group purchase a similarly young Finnish chipmaker called Okmetic in a deal that valued the company at nearly $200 million. (previous post) That deal and this latest one don’t appear to be related, though one can never be completely sure due to the vague descriptions of the buyers in both cases.

The bigger picture is that Beijing has earmarked billions of dollars to build up the nation’s high-tech chip sector. China is already the world’s biggest consumer of such chips that power everything from household appliances to smartphones and smart cars. But up until now it hasn’t been able to cultivate a cutting-edge chip maker to compete with the likes of US giants Qualcomm (Nasdaq: QCOM) and Intel (Nasdaq: INTC), or Asian leaders like South Korea’s Samsung (Seoul: 005930) and Taiwan’s TSMC (Taipei: 2353; NYSE: TSM).

One of the Chinese leaders in the modernization drive has been a group of companies based at the prestigious Tsinghua University, China’s leading sciences university in Beijing. But that group, which includes names like Unigroup and Unisplendour, has been largely rebuffed in efforts to purchase leading US memory chip maker Micron (Nasdaq: MU) and a stake in memory storage products maker Western Digital (Nasdaq: WDC).

By comparison, this latest bid for a US chipmaker is much more low key, and has Beijing Shanhai Capital Management offering to buy all of Analogix’s outstanding shares for the more than $500 million price tag. Unlike many of the previous acquisition targets that were publicly traded, Analogix appears to be private and owned by a number of venture investors, including Woodside Fund and DCM. That also implies that the company may not be too profitable, since it probably would have been sold or gone public by now if that was the case.

Unlike many of the other deals, this one has some very specific Chinese elements, including an Analogix management team that looks quite Chinese. Its Chairman and CEO Yang Kewei even earned his bachelor’s degree at the same Tsinghua University that is bidding for so many global chip companies now. The company’s general manager and chief technology officer also come from China, and the latter also earned his undergraduate and graduate degrees at Tsinghua.

Chinese Flavored Investor

One of Analogix’s venture capital investors, Keytone Ventures, also has a distinctly Chinese flavor, set up by a trio who were founding managing partners at Kleiner Perkins Caufield & Byers China and partners at IDG Capital Partners. Thus it appears that after funding Analogix for up to 14 years, Keystone, Woodside, DCM and the company’s other backers are now looking to recoup some of their money.

In terms of controversy, this deal seems far less likely to generate the same kind of political rumblings that the Micron and Western Digital ones did. That’s because Analogix is far younger and less well-known than those other two names, and its size is much smaller. A Micron deal would have been worth up to $23 billion, while the other deal would have seen Western Digital sell 15 percent of itself to Tsinghua’s Unisplendour for $3.8 billion.

The Okmetic deal earlier this year moved forward without much controversy, perhaps in part because it occurred in Europe and not the more sensitive US market. But the company’s small size and relative youth were almost certainly important factors that helped that deal from becoming politicized. I expect this latest deal will follow down a similar road, and perhaps that such acquisitions of smaller companies below the $1 billion threshold will become the new preferred method for China’s global chip buying spree.

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