The business adage ``if you can't beat them, buy them" hasn't worked out too well for China recently. The nation's efforts to develop native technology in everything from operating systems to semiconductors have fallen flat. Buying has proved a dead end too, with U.S. regulators scuttling a series of deals.
So now China's come up with its own formula: ``If you can't buy them, license them."
The government, through the Chinese Academy of Sciences, has struck a deal with Advanced Micro Devices to form joint ventures and license advanced processor technology from the U.S. chipmaker. The $293 million it's paying upfront is a bargain, equal to about a 10th of what the Chinese entity would have to pay for a takeover.
We don't know whether a Chinese bid for AMD was ever on the cards, though any investment banker worth his or her salt would have been pitching it. The chipmaker would be an enticing purchase for any Chinese entity, from serial technology acquirer Tsinghua Unigroup to any of the numerous state-linked semiconductor makers. For such a prize, President Xi Jinping would surely have ensured the funds were found. No matter: The U.S. government would never allow it.
While unprofitable AMD trails far behind Intel in the global market for PC and server chips, don't be fooled into believing its products are vastly inferior. The semiconductor technology AMD has developed is far closer to the front of the pack than anything China has come up with on its own.
For AMD, the deal looks like the best choice from a meager set of options. Having at times beaten Intel in processor technology, the company's competitiveness and profitability have fallen away over the past decade in the face of stronger sales, marketing and product execution from its bigger rival. Intel has also struck investment, licensing and venture deals in China, though of more limited scope.
At least by licensing its technology to a Chinese entity, with ongoing royalties to feed the bottom line, AMD gets to tap a huge growth market while maintaining the independence it needs to keep plugging away at product development. The chipmaker expects a $52 million licensing gain from the deal this year.
The agreement will also serve as a model for further foreign technology transfers to China, especially given that M&A prospects are slim. That may be bad news for bankers, but it'll surely keep the lawyers -- and the Chinese -- happy.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Intel in January struck a joint venture licensing deal ``to meet specific requirements for data center infrastructure in China." Intel in 2014 also took a stake in a Tsinghua Unigroup affiliate that invests in Chinese chip designers.
To contact the author of this story:
Tim Culpan in Taipei at email@example.com
To contact the editor responsible for this story:
Matthew Brooker at firstname.lastname@example.org