SMIC once hoped to challenge Taiwan Semiconductor Manufacturing Co. (TSMC) as the world's top contract chip maker, but the company has struggled to make a profit.

Part of SMIC's problem was a dependance on DRAM. When the newly established SMIC embarked on an ambitious plant construction program several years ago, it signed deals with DRAM makers to ensure it would have enough customer demand to keep these factories running. But DRAM is a brutal business and, unlike the logic chips that TSMC primarily produces, commodity memory chips command razor-thin margins and can sometimes be unprofitable.

Earlier this year, SMIC stopped making DRAM and decided to switch to producing logic chips in a bid to end a streak of loss-making quarters.

Whether the tie-up with Datang Holdings and focus on TD-SCDMA will bring in the revenue that SMIC expects remains to be seen.

China has yet to issue 3G licenses and it's not clear when commercial licenses will be released. At present, TD-SCDMA networks are currently being tested in 10 Chinese cities, and it's widely expected that China Mobile, the country's biggest operator, will eventually be given a license for TD-SCDMA services.