One of the greatest concerns regarding China-backed Hua Capital Management Co. Ltd.’s proposed acquisition of OmniVision Technologies Inc. is that it would give OmniVision an unfair advantage over other image-sensor vendors, with Chinese firms favoring Omnivision products over others. But, according to IHS, this scenario is unlikely to play out.
In August 2014, Hua Capital, along with CITIC Capital Holdings Ltd. and GoldStone Investment Co. Ltd., made an offer for OmniVision. Now, OmniVision’s board of directors has agreed to the acquisition for a price totaling about $1.9 billion. The deal puts the third-ranked global image-sensor company in the hands of a consortium that is funded largely by the Chinese government.
The question is whether the Chinese government or Chinese companies might favor a China-based OmniVision over non-Chinese image sensor firms. But Brian O’Rourke, senior principal analyst for consumer devices and MEMS and sensors at IHS, believes this is not an issue that will likely draw the ire of foreign governments.
First, China has been a member of the World Trade Organization (WTO) since 2001. The U.S., in particular, has been keenly interested in China complying with the WTO’s trade rules because China runs a significant trade surplus with the U.S.
“It seems unlikely that China would invite further scrutiny by favoring China-based companies over U.S., European or Asian-based firms, but it certainly cannot be ruled out,” O’Rourke says.
Kevin Wang, director of semiconductor value chain and mobile devices and networks at IHS, says the CMOS sensor market is an open and competitive market in China. As a result, Wang does not believe Chinese companies will use OmniVision products simply because the company is under Chinese ownership. He says the funding groups bought OmniVision mainly for a “capital operation” and will have the company listed in the China stock market to gain a sizable return.
Second, the vast majority of OmniVision’s current business is already in China. O’Rourke says about 75% of OmniVision’s 2014 revenues came from China-based companies.
“In this situation, there’s not a great deal of room left for OmniVision’s growth in China," O’Rourke says. "Thus, the question of Chinese companies or the Chinese government favoring it may be irrelevant.”
IHS does not believe the U.S. government will seek to block the acquisition. A precedent was set in 2004, when PC OEM Lenovo agreed to acquire IBM’s PC division for $1.25 billion. The deal was finalized in May 2005 with little more than pro forma involvement from the U.S. government.
If this pattern holds for the OmniVision deal, the acquisition could be completed as early as the end of 2015. IHS expects OmniVision’s emphasis in terms of product offerings, target markets and regional to remain relatively unchanged going forward.
Wang says he believes OmniVision will invest heavily in the near term—including spending more on R&D to develop high-end products—in order to help the company catch up with image sensor heavyweights Sony and Samsung.
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