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Texas Instruments, Qualcomm to Tap China Chipmakers (Update1)

http://www.bloomberg.com/apps/news?pid=10000103&sid=a9l.ejQKnvbE&refer=us

Nov. 19 (Bloomberg) -- Texas Instruments Inc., the largest maker of chips that power mobile phones, and rival Qualcomm Inc., said they aim to award their first contracts to semiconductor manufacturers in China as early as next year.

Texas Instruments is preparing to start production with Shanghai-based Semiconductor Manufacturing International Corp., said Doug Rasor, vice president of the Dallas-based company, in an interview. Qualcomm, based in San Diego, California, may use existing suppliers that are opening factories in China, Chief Executive Officer Irwin Jacobs said.

The chipmakers want their production to be closer to China's market of 315 million mobile phone users, the world's largest, and the plants of customers including Nokia Oyj. Semiconductor Manufacturing, founded by a former vice president of Texas, is banking on its location to grab business from contract manufacturers in Taiwan and Singapore.

``You've got to make chips in China if you want to sell to the handset makers,'' said Winson Fong, who counts shares in Semiconductor Manufacturing among the $2.3 billion he helps manage for SG Asset Management in Singapore. ``China has the leverage of its market.''

Chipmakers use foundries to limit the risk of investing in semiconductor plants that can cost more than $3 billion and take years to build. Manufacturers were reluctant to increase investment after a three-year industry slump that started in 2000.

Contract Manufacturers

Texas and Qualcomm count Taiwan Semiconductor Manufacturing Co. -- which is starting production at a plant in Shanghai this year -- as a supplier. Taiwan Semiconductor chairman Morris Chang and Semiconductor Manufacturing chairman Richard Chang are both former Texas Instrument vice-presidents.

``Sometimes, people joke that the TI in Texas Instruments stands for training institute,'' Rasor said yesterday at the 3G Congress & Exhibition 2004 in Hong Kong. ``It's great to leverage their knowledge of Texas Instruments and our knowledge of them.''

Texas hopes to start having its chips made in China by early 2005, he said.

Nokia, Siemens

Semiconductor Manufacturing shares, which started trading in Hong Kong in March, fell 1.1 percent to HK$1.80 at 12:28 p.m Hong Kong time. The stock has slumped from its initial public offering price of HK$2.72.

Qualcomm, unlike Texas Instruments, has no chip plants of its own and is seeking to increase its chip suppliers, so-called semiconductor foundries.

``At some point, we hope we will be able to use foundries in China,'' Qualcomm's Jacobs told reporters earlier this week. ``Those may include current suppliers that are starting production in China.''

Handset manufacturers such as Nokia, the world's biggest, have been moving more production to the nation to cut manufacturing costs. Siemens AG, the world's fourth-largest maker of mobile phones, said in May it will invest 1 billion euros ($1.3 billion) in China in the next few years.

Worldwide sales of mobile phones will rise 18 percent this year as Nokia boosted shipments by cutting prices, market researcher ISuppli Corp. said. Global handset sales will rise to 675 million units this year, compared with an earlier forecast of 670 million, El Segundo, California-based ISuppli said.



To contact the reporter on this story:
Alan Patterson in Taipei at [e-mail]

To contact the editor responsible for this story:
Iain Wilson in Tokyo at [e-mail]
Last Updated: November 19, 2004 00:03 EST