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Intel Corp. share price down, continues push into mobile with a $1.5-billion Chinese chipmakers deal

Intel Corp. said in a statement on Friday that it intends to spend as much as 9 billion yuan ($1.5 billion) to acquire a stake in state-affiliated Tsinghua Unigroup Ltd in a push to gain a greater foothold in the Chinese mobile chip market.

“China is now the largest consumption market for smartphones and has the largest number of Internet users in the world,” said Intel CEO Mr. Brian Krzanich. “These agreements with Tsinghua Unigroup underscore Intels 29-year-long history of investing in and working in China. This partnership will also enhance our ability to support a wider range of mobile customers in China and the rest of the world by more quickly delivering a broader portfolio of Intel architecture and communications technology solutions.”

According to the companys statement, Intel will spend around $1.5 billion for a stake of approximately 20% in Tsinghua Unigroup Ltd, which controls two Chinese chip designers – Spreadtrum Communications Inc. and RDA Microelectronics Inc. Tsinghua Unigroup Ltd. is a subsidiary of Tsinghua Holdings Co., Ltd., a state-owned company affiliated to Tsinghua University.

“It has become a national priority of China to grow its semiconductor industry,” said Tsinghua Unigroup Chairman Zhao Weiguo, cited in Intels statement. “The strategic collaboration between Tsinghua Unigroup and Intel ranges from design and development to marketing and equity investments, which demonstrate Intels confidence in the Chinese market and strong commitment to Chinese semiconductor industry.”

As explained by Intels Chief Executive Officer, the acquisition of the 20% stake will allow the tech giant to support a larger range of mobile customers in China, the biggest mobile market worldwide.

Intel has always been known primarily for making chips used in personal computers. The company, however, has been trying to push into the flourishing smartphone and tablet market which is where the Tsinghua purchase comes in. Under the deal, Intel and Spreadtrum will create a new line of Intel-based chips, allowing the US-based company to penetrate deeper in the Chinese mobile chip market. The products, planned to be released for sale in the second half of 2015, will be sold to domestic phone-manufacturing customers.

Intel Corp. fell by 1.76% on Thursday to close at $34.14 per share, marking a one-year change of +44.05%. The company is valued at $172.05 billion. According to CNN Money, the 36 analysts offering 12-month price forecasts for Intel Corp. have a median target of $34.55, with a high estimate of $50.00 and a low estimate of 417.00. The median estimate represents a +1.20% increase from the last price of $34.14.

How do you evaluate Intels efforts to compete with the leaders in mobile chips?

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