Qualcomm and Brazil: Semiconductors in Sao Paulo

Screen Shot 2018-02-12 at 16.59.24Qualcomm is San Diego’s claim to fame in high tech.  The company was founded by Irwin Jacobs and held naming rights to our major stadium until the Chargers decamped to Los Angeles last year.  Currently, the company faces a hostile take over bid from its competitor Broadcomm.  It is not clear, at this point, if the Broadcomm will have success but Qualcomm has also faced litigation with Apple over patents and royalty payments

In the larger scope of Qualcomm”s endeavors, Brazil has not been that significant although the company has had a presence there at least since the 1990’s with its Omnitrac system, which the corporation sold several years ago.

Qualcomm now has just announced plans for an important joint venture to build a major semi-conductor module  factory in Sao Paulo.  Investe Sao Paulo, which has also worked with All Abroad Consulting has provided significant support to Qualcomm and their Chinese joint venture partner ASE.  My friend, Sergio Rodrigues Costa, the Managing Director at Investe Sao Paulo stated: “The implementation of this project has the support from Investe São Paulo, the investment promotion agency of the state government, which is advising Qualcomm and USI on site location, environmental, infrastructure and tax matters. We are proud of serving this investment, offering strategic information key to the success of the project,”  More information can be found at http://www.investesp.org.br

Here is the press release from Qualcomm and ASE:

Qualcomm and USI Enter Agreement to Form Joint Venture for Semiconductor Module Factory in Brazil FEB 5, 2018SAO PAULO Qualcomm products mentioned within this press release are offered by Qualcomm Technologies, Inc. and/or its subsidiaries. In São Paulo today Qualcomm Technologies, Inc., a subsidiary of Qualcomm Incorporated, and Universal Scientific Industrial (Shanghai) Co., Ltd. (USI), a subsidiary of Advanced Semiconductor Engineering, Inc. (ASE), signed an agreement to form a joint venture. This joint venture, which remains subject to various closing conditions, would focus on an installation of a semiconductor module facility in São Paulo dedicated to the design, development and fabrication of modules and components for smartphones and IoT devices in Brazil. The agreement formalizes the non-binding memorandum of understanding signed by the two parties in March 2017 with the Ministry of Science, Technology, Innovation and Communications (MCTIC), the Ministry of Industry, Foreign Trade and Services (MIDC) and Investe Sao Paulo, representing the Sao Paulo State government. The agreement to form the joint venture is a result of ongoing collaboration among Qualcomm Technologies, USI and the government entities who have been working together to lay the foundation and foster the growth of the semiconductor industry in Brazil, as well as set the conditions for the possible creation of this joint venture. Building on the heritage and industry leading Qualcomm® technologies, the flagship products of the joint venture will be a line of system in package modules powered by Qualcomm® chipsets and the modules include, in a single component, the radio frequency and digital components for smartphones and IoT devices. These products are designed to help dramatically simplify the device engineering and manufacturing processes, and should also provide cost and development time savings to OEMs and IoT device manufacturers. Manufacturing these components in Brazil may also assist in the reduction of the import deficit of integrated circuits, by expanding and diversifying the Brazilian production of semiconductors. “The platforms and solutions of Qualcomm Technologies continue to support and accelerate the mobile industry and beyond,” said Cristiano Amon, president, Qualcomm Incorporated. “The collaboration between Qualcomm Technologies and USI aims to develop best-in-class solutions for smartphones and IoT system platforms by offering connectivity, security and accessibility that customers need to create innovative products and better user experiences.” “This project should help foster the adoption of IoT in Brazil, as some of the technology platforms being supported by this joint venture will be designed with an eye towards helping to facilitate the development and manufacturing of connected devices beyond smartphones across the country,” said Rafael Steinhauser, senior vice president and president, Qualcomm Latin America. “USI has been at the forefront of miniaturization technology for more than 15 years. Our track record and experience make us an ideal collaborator for the manufacturing of highly integrated multi-component modules used in smartphones and IoT devices,” said Mr. C. Y. Wei, president of USI. “Brazil is the largest economy in Latin America with a significant growth potential for integrated modules. USI will be utilizing the technological competence of its parent company, ASE, to help build up the semiconductor cluster in Brazil and Latin America. We are excited to be a part of this joint venture that could help boost local employment in the next five years,” he added. “The creation of this joint venture by world class companies is a major step towards the insertion of Brazil into the global semiconductor chain, accelerating the development of high technology products and creating important competencies in our country by bringing highly specialized jobs to Brazil in the areas of design and manufacturing of semiconductor modules”, says the Minister of Science, Technology, Innovations and Communications, Gilberto Kassab. The joint venture is likely to be set up in the state of Sao Paulo as a result of the effort and collaboration between the State of Sao Paulo, USI and Qualcomm Technologies. Assuming successful formation, the joint venture is expected to start manufacturing in 2020. About Qualcomm Qualcomm’s technologies powered the smartphone revolution and connected billions of people. We pioneered 3G and 4G – and now we are leading the way to 5G and a new era of intelligent, connected devices. Our products are revolutionizing industries, including automotive, computing, IoT, healthcare and data center, and are allowing millions of devices to connect with each other in ways never before imagined. Qualcomm Incorporated includes our licensing business, QTL, and the vast majority of our patent portfolio. Qualcomm Technologies, Inc., a subsidiary of Qualcomm Incorporated, operates, along with its subsidiaries, all of our engineering, research and development functions, and all of our products and services businesses, including, our QCT semiconductor business. For more information, visit Qualcomm’s website, OnQ blog, Twitter and Facebook pages. About the ASE Group The ASE Group is among the main independent suppliers of semiconductor manufacturing services in mounting, testing and conception of materials and design fabrication. As a global leader, it meets the growing demands and necessities of the industry for more performance in faster and smaller chipsets by developing and offering an ample portfolio of solutions and technologies that include design of integrated circuit test programing, front-end engineering tests, wafer probes, flip chips, systems in package, final test services and manufacturing of electronics through Universal Scientific Industrial Co., Ltd. and its subsidiaries, members of the ASE Group. For more information, visit the website www.aseglobal.com. About USI USI is a global ODM/EMS leading company providing design, miniaturization, material sourcing, manufacturing, logistics, and after services of electronic devices/modules for brand owners. USI is a member of ASE Group and has been listed in Shanghai Stock Exchange in 2012. It has many years of experience in the electronics manufacturing services industry and leverages the industry-leading technology of ASE Group, which enables USI to offer customer diversify product in the sectors of wireless communication, computer and storage, consumer, industrial, and automotive electronics worldwide. Through the sales service network in North America, Europe, Japan, China, Taiwan, and manufacturing sites in China, Taiwan and Mexico. USI has about 15,000 people worldwide. For more information, please visit the website www.usish.com.

The proposed investment is reported at approximately 200 million US dollars with funding coming from the BNDES, Qualcomm and ASE Group.  It is also important to note that this announcement was first made in March of 2017 and hopefully with Investe SP and the new announcements, the project is ready to move forward.  On the positive side, it definitely shows that Qualcomm has a long term commitment to Brazil, while the downside could be a change if the Broadcomm acquisition goes through and leads to a change of plans.  Semiconductor plants and their functioning depend on the rapid evolution of technology and production processes.  Such plants can quickly become obsolete if the technology is not continually upgraded.  It is unlikely, in my opinion, that Qualcomm will be making the latest versions of its Snapdragon chips.  Nevertheless, the project represents technology transfer and the creation of high tech opportunities which Brazil needs and welcomes.

 

 

 

 

 

Invest or not to Invest

After the US and China, Brazil has been a favorite target for foreign investment.  Over the past years, the country has been receiving around 60 billion a year in FDI (foreign direct investment).  These funds prove important in supporting the government’s cash flow, reserves and balance of payments.  Brazil is currently running a trade deficit and the investment dollars make a difference.  More important, the ongoing flow of capital into the country validates the atmosphere of optimism and expectations of positive growth in the country of 200 million people.  Certainly, there are many, many investment opportunities and capital for in Brazil. In spite of difficulties, many investors are well rewarded as the consumer market grows both at the top and, in the middle, with the entry of new players into the market.  The role of consumption in the overall economy is approaching that of the US or around 70% of the GDP.

Nevertheless, the last couple of years have been challenging and perhaps some of the assumptions are changing.  The Economist provided its own self-fulfilling prophecy.  The magazine placed Brazil on the cover with Christ on Corcovado flying to the capiton “Brazil takes Off” in 2009.  Now the curse of being on the cover kicks in and the magazine shows Christ flying out of control and heading for a crash landing.  The new caption is that “Brazil blows it”.

Brazilians, like newspaper sellers, love a good story and such stories almost always involve narratives that tend to exaggerate the extremes.  So Brazil growing at 7.5% in 2009 was great and having grown only 0.9% in 2012 is the opposite extreme.  Over the 50 years that I have been working in Brazil, the country has gone from democracy to dictatorship and back to democracy.  The electorate has grown from less than 30 million to over 100 million.  People rapidly moved to the cities and the country is now 85 percent urban with a mass consumer culture.  TV, radio and sports have pretty standardized language and culture across a geographic expanse comparable to the USA.   Brazilian agriculture leads in numerous areas as the country has become self sufficient in food and a major supplier to the world.

The challenge is to improve the political framework and make the politicians more accountable.  Of course, this is a challenge that we see everywhere as we sit through the government shut down in the United States.

Brazil attracts and repels.  If you are in business, would you neglect a growing market of 200 million consumers?  Will you put up with the obstacles and lack of clarity?  Do your homework and then make the call.