In the news: Qualcomm invests $280 million in China JV, Haier buys GE's appliance unit and local power plant approvals cause trouble
January 20, 2016 | BY
Katherine JoThis week Qualcomm inked a deal to develop server chips in Guizhou province, Haier proposed a $5.4 billion takeover of GE's appliance business and China's plan to give local governments the authority to approve projects backfired
Qualcomm has signed a joint venture in China with the local Guizhou government. The San Diego-based chipmaker will take a 45% stake in the new company, which will develop advanced server chips for the Chinese market. The move is an attempt at breaking rival Intel's dominance of chip sales for server computers. Intel, the biggest overall semiconductor maker, enjoys more than 99% market share for powerful processors that run data center machines and is able to charge more than $7,000 for some models – more than 7 times the price of even its most expensive desktop offering. Qualcomm will license its proprietary server chip IP and provide R&D processes to the venture. This allows the company to cater to Chinese customers and maintain direct relationships with regulators, and China to acquire more Western semiconductor technology and develop a high-tech plant in one of its poorer provinces. China is grooming the area to be a major cloud computing hub (companies like Alibaba and Uber have set up operations there). Overall, the deal is a win-win. Looks like Qualcomm is back in the government's good books.
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Haier Group's proposed $5.4 billion takeover of General Electric's appliance business hands the state-owned Chinese manufacturer a substantial position in the U.S. after a decade of trying. The deal vaults Haier past rivals Electrolux and Whirlpool in the U.S. appliance market and is set to be the largest acquisition of an American business by a Chinese firm. Haier will take over GE's nine appliance-manufacturing facilities, 12,000 U.S. workers and the long-established brand. Haier lost out to Whirlpool in buying Maytag in 2005 and, in 2008, tried to buy the same GE business (the deal was pulled amid the global financial crisis). GE would have sold its unit to Sweden's Electrolux for $3.3 billion in 2014 if U.S. regulators hadn't blocked the transaction. This acquisition will also be subject to antitrust review, but a rejection is unlikely. Haier's U.S. market presence is so small and an appliance deal has no real security threat. This is a strategic purchase by Haier to not only grow overseas, but rebrand and reinvent itself.
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The Ministry of Environmental Protection (MEP)'s March 2015 decision to grant more power to local governments regarding decisions on new power plants appears to be backfiring, as local officials have interpreted the move as a green light to build more highly polluting facilities. In Shanxi province alone, 23 coal-fired power plants were approved from March to October last year, including two, owned by ChinaCoal Pingshuo Group and China Resources Power, that the MEP previously rejected for being too dirty and failing to meet central government environmental standards. This decision clearly did not send the right message when China handed local governments the right to approve projects. The MEP continues to stiffen regulatory requirements for environmental impact assessments, but it is up to the provinces to properly enforce the standards and monitor the projects. Events like these are discouraging to China when it is trying to decentralize power and improve efficiency.
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