The deal between Montage and Pudong Science and Technology has just been finalized. With 14.3% premium over Montage's closing price Monday it is hard to argue that this is a bad deal for shareholders. But it is a bad deal for China. And by China, I mean for the medium-to-long-term development of China's fabless sector. Now the state has gobbled up the most promising of the local companies. A nice exit for Montage's investors it is, but five years from now will Montage be able to maintain any ability to innovate under state ownership? Miracles may happen, but it would be the first such state-owned fabless firm to do so. Even Newave, Howard Yang's original start-up, went into steep decline as IDT Newave (in terms of its design capabilities) once Howard left, and IDT Newave was owned by a multinational not a Chinese state firm.