China Inc.'s Synaptics Bid Boosts Effort to Build Tech Industry

  • State-backed investors commit $39 billion to buying U.S. firms
  • Synaptics deal would help phone makers compete with Apple

Chinese interest in Synaptics Inc. and Western Digital Corp. shows Beijing is accelerating efforts to buy the building blocks for a domestic technology industry.

In the last two years, state-backed investors have committed about $39 billion to buying U.S. tech companies, according to a Bloomberg calculation. Synaptics rebuffed a $4 billion offer from a Beijing-backed investment group but talks are continuing, according to people familiar with the matter.

Acquiring Synaptics, which makes touch screens, would help Chinese phone makers compete with Apple Inc., while a $3.8 billion investment in Western Digital announced Wednesday would give China a stake in data storage. Those moves are part of a larger, multiyear effort by China to lessen its dependence on foreign technology, much the way Taiwan and South Korea did in the 1980s and 1990s. Efforts to build an industry organically haven’t paid off, said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co., so the Chinese are looking to buy instead.

“The Chinese have been making a much bigger push,” Rasgon said. “They’ve got the capital to deploy.”

Stalled Foray

A big part of China’s spending has been aimed at kickstarting a stalled foray into the $300 billion chip industry, where it’s struggled to create challengers to the likes of Intel Corp. and Qualcomm Inc. or replicate the production prowess of Taiwan Semiconductor Manufacturing Co. or Samsung Electronics Co.

China buys more than half the semiconductors sold each year but not one domestic chip manufacturer makes it into the global top 10. Homegrown chips account for less than one-tenth of local demand, and in 2013 China spent more money on chip imports than on oil, according to Sanford C. Bernstein. Now Beijing is aggressively playing catch-up.

“We heard that they have a mandate by 2020 that 40 percent of consumption of Chinese semiconductors were going to come from Chinese companies,” said Kevin Cassidy, an analyst at Stifel Nicolaus & Co.

The Beijing-backed shopping spree started in 2013, when Spreadtrum Communications Inc., a fledgling competitor to Qualcomm, was snapped up for $1.4 billion. The following year, RDA Microelectronics Inc. was sold for $770 million.

Pace Pickup

The pace really picked up this year with the $1.9 billion purchase of OmniVision Technologies Inc., the $731 million acquisition of Integrated Silicon Solution Inc. and Tsinghua University’s investment in Western Digital.  In July, Bloomberg reported that Tsinghua University was preparing a $23 billion bid for Micron Corp. Two weeks ago, China Electronics Corp. bid about $3.4 billion for chipmaker Atmel Corp., Bloomberg reported.

For Chinese investors, getting hold of U.S. technology will require more than convincing corporate boards and shareholders. U.S. officials at the Committee on Foreign Investment in the U.S. will have to be convinced that the acquisitions don’t threaten national security.

“There’s no way around it,” said Harry Clark, a lawyer at Orrick, Herrington & Sutcliffe LLP. “All else being equal you take the very same deal deal and it’s a Chinese government buyer on one hand and it’s a Luxembourg buyer on the other hand, there’s just no question the former will viewed more critically.”

Now China Inc. has Synaptics in its sights. The state-backed investment group bid $110 a share, a 70 percent premium to the company’s closing share price Tuesday. Synaptics, which is based in San Jose, California, isn’t interested in selling at that level, one of the people said, and may be holding out for as much as $125 a share.

Cassidy said buying Synaptics would help China compete with Apple’s new Force Touch technology, which lets users apply different levels of pressure to a screen. Synaptics has something similar and could share the know-how with Chinese handset makers such as Xiaomi Corp. as they try to combat the success of the iPhone in China, he said.

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