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Qualcomm Inc. has agreed to establish a joint venture with a Chinese province to develop chips for server systems, the latest step in the U.S. company's high-stakes strategy to move beyond selling semiconductors for smartphones.

Amid a wave of Chinese economic turbulence, officials from Qualcomm and the province of Guizhou announced plans on Sunday for the new semiconductor company at a ceremony in Beijing. The province's investment arm will own 55% of the venture; Qualcomm will hold the remaining 45%. They will make financial contributions proportional to those ownership stakes to provide the new company initial funding of about $280 million (RMB 1.85 billion), Qualcomm said.

The alliance follows a series of steps by Chinese government officials and companies to build a bigger domestic semiconductor industry. The joint venture also plays into Chinese policy makers' recent efforts to transform Guizhou—a south-central province of 35 million residents—into a high-tech hub for cloud computing as part of the country's economic transformation.

Worries about the Chinese economy and technology demand have contributed to sharp drops in global stock markets. Qualcomm rival Intel Corp. on Thursday said caution about China factored into a projection for first quarter results that was lower than some analysts had expected.

But Intel said the worries were mainly focused on the personal computer market. Handel Jones, an analyst at International Business Strategies Inc. who tracks the Chinese technology market, on Friday said that Chinese plans to keep building data centers and buying servers have shown no sign of a slowdown.

While Chinese companies assemble many electronic devices, many chips that control key functions in them are designed and manufactured abroad. China's reliance on U.S.-made chips is particularly dramatic in servers, the computers used for purposes such as running websites and back-office functions at companies. Intel, based in Santa Clara, Calif., accounts for well over 90% of server chips used for such chores.

A handful of companies have tried to break into that market—with little success so far—by developing chips that use technology licensed by ARM Holdings PLC, the dominant standard in smartphones. Qualcomm, by far the largest proponents of ARM-based servers, first announced plans to enter the market in November 2014 but hasn't yet shipped a product.

"Data center customers would prefer more than one participant in the supply chain," said Anand Chandrasekher, a Qualcomm senior vice president, in reference to Intel. "Having multiple players will speed up innovation."

Qualcomm has other reasons for trying to make friends in China, the world's largest smartphone market. The San Diego company has frequently been a target of antitrust investigations examining its practices in licensing patents on mobile communications technology that generate more than half of its profits. China's antitrust authorities investigated the company for 14 months before reaching a settlement in February 2015 under which Qualcomm agreed to pay $975 million and modify some of its patent-related policies.

The company announced a series of partnerships with Chinese entities during and after the investigation. In July 2014, for example, Qualcomm announced a commitment to invest up to $150 million in Chinese startups. The same month, it announced a pact with China's Semiconductor Manufacturing International Corp. to collaborate on producing some Qualcomm chips, a deal the companies followed up in June 2015 with another venture to develop next-generation production technology.

Qualcomm last May said it had signed a memorandum of understanding with Guizhou province to set up a chip company there but didn't disclose the plan for a jointly owned venture. That announcement took place at a big-data conference organized by the Guizhou government that drew senior Chinese policy makers and top executives of high-tech companies including Qualcomm, Alibaba Group Holding Ltd. and Uber Technologies Inc.

Under the latest agreement, Qualcomm will license server chip technology and provide research and development processes to the joint venture. Though much of the initial technology will come from Qualcomm, the venture might eventually develop server chips that are unique to the Chinese market, Mr. Chandrasekher said. "We wanted to enable them to do that," he said.

Write to Don Clark at don.clark@wsj.com and Eva Dou at eva.dou@wsj.com

(END) Dow Jones Newswires

January 17, 2016 19:45 ET (00:45 GMT)

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