Qualcomm launches server chip joint venture in China

The move may assist Qualcomm in diversifying away from consumer chips and strengthening within the enterprise market.

Qualcomm has announced plans to set up a joint venture with a Chinese authority to begin a strategic shift into the server chip market.

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On Sunday, the US chip maker revealed the joint venture at an event held in the China National Convention Center, Beijing.

The new company will be owned by both Qualcomm and Chinese officials from the Government of Guizhou Province. The company, dubbed the Guizhou Huaxintong Semi-Conductor Technology Co., Ltd, will focus on the design, development and manufacture of server chipsets.

Guizhou Huaxintong Semi-Conductor Technology will start up with an investment of RMB 1.85 billion (roughly $280 million), and will be 55 percent owned by the Chinese government's investment arm while Qualcomm will take 45 percent ownership.

The Qualcomm server chips joint venture will be registered in Guian New Area, Guizhou, with operations in Beijing. As part of the deal, Qualcomm will provide research support and offer server chip technology licenses to the joint venture.

In addition, the chip maker plans to establish an investment firm in Guizhou for future Chinese investments.

Derek Aberle, president of Qualcomm commented:

"The actions announced today are important steps for Qualcomm as we deepen our level of cooperation with, and investment in, China. We have worked actively with our partners in China for more than 20 years; however, the strategic cooperation with Guizhou represents a significant increase in our collaboration in China."

In July 2014, the company launched a $150 million investment fund for Chinese startups focusing on mobile technology solutions.

The Chinese market remains a steadfast avenue for US companies to profit in the technology sector, but securing local partners makes the ride less turbulent and avoid issues caused by the country's regulations and censorship rules. Chinese businesses rely on server processors shipped from the US, and so establishing a local JV could push Qualcomm towards improved profit by taking advantage of this trend.

In December, the US chip maker brushed aside calls to split into separate firms catering to the processor and patent sides of the business.

While continual pressure from shareholders prompted the company to consider ways to improve stock value, Qualcomm ultimately decided -- despite a drop in profit thanks to slowing mobile device sales -- that the firm's current structure "best positions Qualcomm to maintain its technology leadership and product strength, so as to drive the greatest long-term stockholder value."

In Q3 FY 2015, Qualcomm failed to meet analyst expectations by reporting a net income of $1.2 billion, or 73 cents per share.

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