Qualcomm is set to start production on custom chips for the Chinese market later this year.
According to a Wall Street Journal interview with Qualcomm president Derek Aberle, the company has entered into a joint venture with the Chinese government in Guizhou province to produce custom chips starting in the second half of this year. The Guizhou government reportedly owns 55 percent of the venture, while Qualcomm owns the remainder.
Though Qualcomm is the world’s top supplier of smartphone chips, the chips made for China will be used in servers to run websites, store data and power data centers, Aberle said.
Aberle said the move comes as Qualcomm looks to build up its server business in China. Aberle told the Journal server demand in China is expected to ramp up and exceed U.S. demand for the same. The venture, he said, is going to be the “primary vehicle” through which the company builds its data center business in China.
Aberle said the company is aiming to “win the market” in China, rather than continuing to license old technology.
Qualcomm’s technology licensing agreements account for nearly 60 percent of its operating income.
Qualcomm’s strategic shift in China follows a spate of trouble last year when the company had trouble collecting royalties and securing new license agreements in the wake of an investigation by China’s National Development and Reform Commission.
The commission alleged Qualcomm had a monopoly that allowed it to charge Chinese companies excessive licensing fees for handset technology. Qualcomm agreed to pay $975 million and undertake a rectification plan to settle that dispute.
In December, Qualcomm had a breakthrough when it signed a 3G and 4G patent license agreement with Chinese smartphone company Xiaomi.