Several Chinese fabless companies have quit Nasdaq and sold out as quasi-state enterprises, having received little affection from the U.S. investment community while being drawn to a pot of gold promised by their government (see China to funnel up to $15B on IC industry).

Spreadtrum Communications and RDA Microelectronics have taken advantage of the Chinese government's hunger for a stake in the semiconductor industry. Montage Technology of Shanghai is being acquired by another Chinese fund. That deal is expected to close this fall. Actions Semiconductor could follow suit, though no intended acquirer has emerged.

Call it phase two of the Chinese fabless evolution.

China's current fabless chip market—fragmented among too many little players fighting for the low-margin smartphone, tablet, and set-top box chip business in the domestic market—isn't sustainable. To break that cycle, fabless companies require fresh focus, more distinct market/product differentiation, fewer and more patient investors, and probably a few more grown-up managers.

By going private, these companies become state-owned entities and look for a fresh infusion of state funds. But this tactic doesn't guarantee success. It's simply the latest angle Chinese fabless companies are taking in hopes of growth and profitability.

Jeremy Wang, Asia-Pacific executive director at the Global Semiconductor Alliance (GSA), told us delisting from the US financial market is a predictable trend. "Historically, there was no suitable Chinese financial market" when the first fabless companies were planning IPOs a decade ago. "Now the government has been emphasizing innovation and technology in which semiconductors play a key role."

Some conventional winners in the Chinese stock market (such as real estate and banking) have been slowed by new regulations and a shift in national focus. The stock market "could add new ingredients to prevail again," he said. "Semiconductor can be one of the options."

By: DocMemory
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