IEEE Solid-State Circuits Magazine - Fall 2017 - 9

further suggests that, under the current administration, CFIUS is acting
more cautiously. CFIUS is responsible
for reviewing whether foreign takeovers pose a risk to U.S. national security. Therefore, Chinese companies and
investors that focus on U.S. assets may
hit a snag. Meanwhile, as Chinese
companies have made frequent purchases overseas, the Chinese government has also restricted domestic
capital outflows.
"What China's integrated circuit
industry needs is the experience of
overseas M&A. Since there was no
capital or technology accumulation,
there was no condition for overseas
M&A," stresses Prof. Shaojun Wei, the
leader of Technological Development
"Core electronic device, High-end
general chip and Fundamental software products" and director of the
Institute of Microelectronics of Tsinghua University. Funds are a great
challenge for the "go out" M&As of
China's IC industry.
China's IC industry development
had a late start relative to the United
States, Japan, and the European Union
countries as it largely depended on
financing and loans to grow the business and thus still lacks sufficient
accumulation of capital to forge M&As
on its own. Thus, it is necessary for
China to use high leverage. For example, China Electronics Technology
Group Corporation had to withdraw
its proposal for a merger with Atmel
Corporation after considering various
investment risks, including financial
stress. Prof. Ming Zhang, director of
the Department of International Investment at the Institute of World Economics and Politics, Chinese Academy of
Social Sciences, explains in "Report
of China's Overseas Direct Investment
in Q2 2016" that the overseas M&As of
Chinese enterprises (especially stateowned ones) mainly rely on external
financing, especially the support of
domestic banks, which brings heavy
debt burden and operational risks.

How to Go Public After Successful
Acquisitions Is Also a Problem
China's overseas M&As typically take
two steps. First, acquire overseas

assets. Second, list assets in the mainland. Semiconductor overseas M&As
are being strictly scrutinized because
of the "purchase restriction" of all parties. Meanwhile, how to list acquired
assets at home is a problem. Even if
the M&As are completed, there are still
doubts about whether the advanced
technology can be transferred to domestic enterprises and if new technologies
can be further developed based on current technologies.
So far, only Tsinghua Unigroup's
acquisition of H3C and NFME's acquisition of AMD's semiconductor assembly and testing services are regarded
as successful by industry insiders.
Jiangsu Changjiang Electronics Tech
Company completed its acquisition
of STATS ChipPAC but is now faced
with the problem of how to digest its
large operation loss. Ingenic Semiconductor's acquisition of OmniVision,
Uphill Investments' acquisition of
ISSI, Zhejiang Wansheng's acquisition of Analogix Semiconductor, and
HC SemiTek's acquisition of MEMSIC
were all thwarted from the China
Securities Regulatory Commission.
NXP as well as other projects that
JAC Capital acquired have not go
public, and the company's future
remain unclear.
"Compared with other aspects,
the lack of follow-up funds, especially the R&D investment supporting re-innovation will badly restrict
the development of China's integrated circuit industry. In this case,
the advanced technology purchased
overseas may not be able to pay its
way. With domestic implementation
of deleverage and the tightening of
foreign direct investment, the Chinese
IC industry, which still has a long way
to go, needs new design of policy support," says Prof. Tianchun Ye, leader of
national integrated circuit technology
development and director of Institute
of Microelectronics at Chinese Academy of Sciences.
In fact, the IC industry is a "bottomless pit" that requires huge amounts
of continuous investment. Gartner
analysts point out that IC companies
need to compete with industry development; namely, the output of the

investment needs to maintain the
investment of technology research
and development in the next round.
If there is no output after disposable investment, additional funds are
needed to catch up with the evolving
technology. Now, quite a number of
Chinese overseas IC acquisitions are led
by capital firms, which generally have
reserves after M&As. However, when
the understanding for product development is not thorough, reserve funds may
be insufficient and the predicted investment period can be prolonged, resulting in a huge funding gap. Although the
state strongly financially supports the
development of the IC industry, the biggest limitation of financial input is that
it is disposable, which means that the
follow-up support for the same project
is limited.
On the one hand, the international
political and M& A environments
become increasingly complex, and
domestic capital overseas M&As turn
more difficult. On the other hand, the
local IC investment remains popular,
and multiple forms of cooperation
between domestic and international
companies are increasing. With the
establishment of the national funds
and the implementation of various policies, local governments have been
proactive. Beijing, Wuhan, Shanghai,
and Sichuan have established IC local
funds in the past two years.
The heat wave of investment in
the IC industry will continue in the
foreseeable future. The investment
in production lines, industrial parks,
and public service platforms will likely accelerate. Due to the restriction of
the international situation, industrial
capital will turn to the merger and integration of domestic enterprises, and
the upstream and downstream industry ecology will be built based on platform enterprises. At the same time,
overseas M&As may start to shift to
different forms of cooperation, such
as establishing joint ventures between
international enterprises and domestic enterprises and searching opportunities for M&As of high-quality

IEEE SOLID-STATE CIRCUITS MAGAZINE

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Table of Contents for the Digital Edition of IEEE Solid-State Circuits Magazine - Fall 2017