China’s provincial government in the Southwestern region Guizhou is at the forefront of the latest initiative from American semiconductor company Qualcomm (NASDAQ:QCOM). The global firm announced details of a joint venture with the provincial administration in a release on Sunday.
Strategic move by Qualcomm, win-win for both parties
A strategic cooperation agreement signed in Beijing between the People’s Government of Guizhou Province and global player Qualcomm would see the latter work on designing and developing chips for use in server systems. This would be a significant step towards Qualcomm’s goal of making a shift to the smartphone market, from its current dominance in the semiconductor space. This development also shows Qualcomm’s commitment to strengthening its relations with China, the second largest market worldwide for server technology sales. For Qualcomm this should also help ease the way for future investments as they win over the local and national government.
China too has lots to gain from this association. Guizhou is a region that is in need of job creation and better wages. With a GDP per capita that averages RMB 26K, compared to the country’s average levels of RMB 46K, Guizhou trails other more affluent corners of China.
The presence of Qualcomm could give the area just the boost it needs. Innovation and R&D investment along with the know-how that Qualcomm brings could help the country achieve its target of creating a larger semiconductor business. The presence of a major multinational should also provide impetus for more firms to set up shop in the province. The area has large reserves of coal and a ready supply of water, both of which can help cut electricity costs that form a big part of the bill for semiconductor firms like Qualcomm.
Joint venture marks first step of a long-term partnership
On the occasion, a joint venture - the Guizhou Huaxintong Semi-Conductor Technology Co. Ltd - was also announced. An initial registered capital amounting to the equivalent of USD 280 million with 55 percent ownership by the investment cell of the provincial government and the balance with a Qualcomm subsidiary, has been announced .
Company President Derek Aberle went on record to say that Qualcomm was licensing server technology as part of the JV, along with working on R&D and helping with implementation expertise. This went far beyond simply injecting investment by way of capital inflow. Plans are afoot for Qualcomm to set up a dedicated investment company out of the province, to enable further investments in new business opportunities that could emerge in the future too.
Qualcomm has had ties with the country for about two decades now, but this latest move marks the first major step in deepening relations.