Rule #3: Chip makers must survive on lower gross margins. Many local
chip companies can live with a 35 percent gross margin in order to achieve a
20 percent operating margin, said Tai. But for most multinational chip
companies to achieve the same 20 percent operating margin, they need a
50 to 55 percent gross margin. “That’s no match with the locals.”
#4: System vendors in China are less technical. Hence, they require
more hand-holding. The success of Taiwan’s MediaTek here can be
attributed to the turnkey solutions it offers Chinese system companies.
said multinational companies retain a model that requires100 engineers
to develop a new system every six months. “We are seeing Chinese system
guys pump out a new product every three months with just five to 10
people.” Tai said, “That’s very disruptive.”
are not only slow to upgrade their products but also are slow to respond
to customer complaints. “I can send someone to my customer’s site right
away and do quick diagnostics,” he said. “A multinational’s core
R&D team is still in the United States, and it takes more than a few
e-mails back and forth to solve problems.”
Many in the West
focus on the cost advantages of Chinese companies. Instead, they should
be focusing on the agility of Chinese chip vendors and system companies
in their domestic market. As Tai noted, “I am local. I have a core
R&D team here, and I have field application engineers here. I have a
huge advantage” over multinationals.
RDA increased its annual
revenue in 2011 by 51.1 percent to a record $288.9 million, compared to
$191.2 million in the previous year. The company’s gross margin was 34.5
percent compared to 29.8 percent in 2010. In the first quarter in
2012, RDA’s revenues totaled $72 million, with a gross margin of at 35.9
percent and a 20 percent operating margin. The company has $143 million
in cash and no debt. It currently employs 320 workers.
Long term I don't think China can build a sustainable chip industry on its ability accept lower margins and work harder.
Similarly, I don't think Western chip makers can sustain their higher margins and easier paces.
IMHO the two will have to meet in the middle in a future global industry.
Of course they can pump out a new phone every 3 months with 5 to 10 people but the question is do you want to use it knowing that it is going to breakdown when you most want to use it? They don't care if the product is buggy or unstable becaues it is going to be replaced in three months. In addition, a lot of the design work are cut and copy which will of course cut down on the design cycle.
Judging from the comments posted here, I realize that a lot of people are still stuck in the last decade -- when we all believed that China's products equal poor quality.
That may have been the case in the past, but I think it's time to rethink that. Not all products made in China are buggy. There were times when anything made in Japan was synonymous to cheap products in poor quality.
Can't understand it. As the title says "'game over' for foreign chip firms in China". I was expecting a reaction of how it was wrong that almost all the western semi con companies had put all their eggs in the same basket. Does the term "monopoly" ring a bell? Honestly, are we not concerned that technology will someday be beholden to one country that can dictate its release depending on their interest and own internal policies?
Tai is right on the money and Junko is right. I've worked during the past 5 odd years in China, competing with the likes of RDA and I can tell you first hand I couldn't have picked more major reasons as Vincent articulated here. Let me share a few personal perspectives. Whenever I returned from my long stay in China to my bay area office it was like a day and night and I was entering into a strangely out-of-touch world here in bay area. Not generalizing, but I've seen this attitude of "China phone quality is bad, they can't sustain," from so many people in semi companies here in the bay area, that I confess feeling if I am siding with the losing team. Look, it's a hard lesson to hear when you are out here in the valley but hear me on this. We crow about the cheap quality of Chinese-made phones, but how many of us really think that it is really bad? How many actually used them? Have you used them in China Mobile network? The U.S. mobile service companies and phone companies have trained all of us into paying them exorbitant amounts of money for products and services and for that what do we get? Crappy service with dropped calls, and try switching phones from one network to another. In China, it is very common for the consumer to switch phones as often as they wish and China Mobile service is the best cell service ever I've experienced in all the world. How about that for better consumer experience? I guarantee you, you take one of these high quality iPhone/Android phones with a reasonable, 300Yuan phone from China and compare the consumer experience in AT&T network, you would be hard pressed to find many differences. Bells and whistles yes but basic functionality? No difference. So when we talk about China phone quality, we need to take into account the entire consumer experience and then evaluate. As a logical consequence, when we talk about China competitiveness, we need to look at how they service the markets and why they win.