Consortium buys US chip producer OmniVision

Purchase seen as part of larger shift in industry's supply chain, manufacturing

A Chinese consortium led by private equity firm Hua Capital Management has announced the acquisition of the United States-based smartphone and tablet chipmaker OmniVision Technologies Inc for $1.9 billion.

The Chinese investor group, which also includes investment management firm CITIC Capital Holdings Ltd and Hong Kong-based GoldStone Investment Co Ltd, will pay $29.75 per share for the company.

Reuters reported last August that Hua Capital Management group originally made an unsolicited bid at the time for Nasdaq-listed OmniVision of $29 a share, which was worth about $1.7 billion.

"We are pleased to have reached this agreement, which we believe realizes significant value for our stockholders and offers new opportunities for our employees to develop more innovative solutions for customers," said Shaw Hong, chairman and CEO of OmniVision, in a press release.

OmniVision, whose customers include Apple Inc, expects the deal to close before the end of the fourth fiscal quarter of 2016. The transaction is still subject to regulatory approval in the US and China.

Shaw will maintain his position in the company after the buyout.

The Chinese market has been crucial for the Silicon Valley-based company as OmniVision generates most of its revenue from China.

The company has a design center and testing facility in Shanghai. Last year, its largest customer was contract manufacturer Hon Hai Precision Industry Co Ltd, better known as Foxconn.

"We believe our unique industry knowledge and operational expertise can help accelerate OmniVision's presence both in China and globally," said Yue Liu, managing director of Hua Capital Management.

Neil Shah, research director at market research firm Counterpoint Technology Market Research, said: "The entire component supply chain and manufacturing industry is shifting from West to East. So it definitely makes sense for Chinese investors to acquire OmniVision to their portfolio and then maybe sell out for a higher payout to other interested Chinese firms in the future."

In the last two years, State-owned investment firms have purchased several US-listed chipmakers including Montage Technology Group, Spreadtrum Communications Inc and RDA Microelectronics Inc.

Neil Flynn, portfolio manager at Alcuin Asset Management, said: "The key reason for these acquisitions is to gain access to the intellectual property. This allows improvements to technology such as smartphone and cellular networks."

In October, China announced it had established an investment fund to boost the development of the integrated circuit industry. The fund's main objective was to invest in chip production and boost output in the sector as well as promote mergers and acquisitions.

Flynn said: "China's semiconductor industry has grown at an annual rate of 26.5 percent over the past 13 years, and it is expected to grow at over 20 percent annually over the next seven years.

"Domestic investment and seed funding can only maintain growth to a certain industry size, but larger investment in leading international technology is required to sustain growth as the industry matures and expands."

China's plans to upgrade the national semiconductor industry and its search for acquisitions overseas are viewed with suspicion in the US.

Following the announcement of the OmniVision acquisition, US media speculated over the possibility of national authorities not giving the green light to the deal over rising concerns of the transfer of intellectual property and manufacturing knowledge.

Shah said : "I think there is not enough evidence that the series of acquisitions in the component industry is related to the Chinese government's political ambitions, but rather is a classic example of consolidation in the industry."