SANTA CLARA, Calif. – The governments of China and India will each announce plans to pump billions of dollars into their semiconductor industries this year, said Lip-Bu Tan, the chief executive of Cadence Design Systems Inc. and a veteran investor, bemoaning the decline of U.S. venture capital funding for chips.
In a roundtable with tech journalists before his keynote at the annual CDN Live event here, Tan shared his opinions on the lack of startups, the rising cost of chip design and the need to reposition the EDA industry for growth.
“China and India are pouring money” into semiconductors and “the U.S. government should do the same,” said Tan. If it doesn’t, some day U.S. engineers “will have to go to China to work, and its painful to see your kids go to the other side of the world,” he said.
Tan said the U.S. was once home to as many as 30 VCs active in semiconductors, but now has five or fewer, including Walden International, Tan’s own company that has many investments in the U.S. and China. “It’s very alarming for me personally to see, so I am trying to reverse the trend,” he said.
“If the VC trend is not reversed, innovation will be threatened, so it’s important to see more startups funded,” said Tan. “The China and India governments are making semiconductors a strategy industry, but I would hate to see those countries have the most semiconductor companies."
There's money to be made in chip startups, says Lip Bu Tan who hopes to show more examples.
Cadence's board of directors has discussed starting its own internal VC fund, following in the footsteps of larger companies such as Intel and Qualcomm. So far it has resisted what it sees as a risky business outside its core, but it may opt to loan startups design tools they can pay for once revenues come in, he said.
For the past decade, VCs have turned to Internet software and services companies such as Google and Facebook that have lower startup costs and higher return potential than most chip startups. Even Tan has participated in the trend as a member of the board at Weibo, a China social networking site that gained 500 million registered users in two years.
Tan points to Walden startups such as Ambarella as examples of viable chip ventures. With investments of less than $25 million, such companies grow to profitable firms that could be acquired for upwards of $100 million, he said. “If you can demonstrate that, the VC money will come back,” he said.
"There's money to be made in chip startups," the big EDA companies are usually not much interested in startups where there isn't much money to be made. Atleast this is my experience in dealing with a major EDA company on behalf of a startup, several years back.
The major cost barrier for any semi startup is the EDA tool cost. Maybe the big EDA companies should do something to address this issue first. Something like give away the tools at very low cost and collect back royalties, when any money is made.
"and its painful to see your kids go to the other side of the world" don't get it.. talking like a priest there, what about people who went the other way.. nothing wrong in going to India or China to work..
“but I would hate to see those countries have the most semiconductor companies." HATE, why??
Lip Bu Tan: US is not the start and end of the world. They are the biggest market, don't make it sound like a war cry just yet.
Why hate, maybe cos the US is the best and famous when we think about semi. Right now us is still the king on semiconductor although US not lead in production them. About more than 500 semiconductor companies is from US from giant to start up, IDM to fabless.Its not easy to succeed in this industry although you have the right products because large boy will try to put you down in many ways. And same also in China and India, were I think much of the players is fabless not IDM and fabless companies usually face very though competition and environment to succeed. Look in the US how fabless players going right now, its very though and competition with big player is intense only a handful will benefited. Thanks
Although I agree and did mention that US is a massive market and key driver of the semicond industry. All that has been possible partly due to a massive brain drain from India and China. The rhetoric where he tries to pitch it like a US vs India-China thing is unfortunate. We all know that the whole world is involved in design and development of almost every gadget, this kind of divisive talk is uninspiring to me.
Some additional reflection on this issue: In this country, investors are obsessed with quarterly returns. Oversees, there has been more of a long-term view - what is the outlook over five or ten years. The source of the funding is less relevant that this essential difference in outlook by investors in the US vs. Asia.
In managerial point of view, manufacturing, or even performing R&D, elsewhere isn't much of a matter. The ultimate question always come down to to where the money will come, never from where.
Previously, we have learned that production goes will trigger production related R&D is leaving. As the management, sooner or later, realizes the company might work more efficiently when R&D is actually closer to the production and QC people. As soon as China and India becomes the most profitable market, product manager will go. Now, most of the key resources are moving to elsewhere. Shall the management/ executive teams move too?
The trend is an inevitable change of market life cycle. It is a good thing that part of the semi-conductor companies go to elsewhere since it will free up the resources in US for other innovation. The question is what the next innovation is. Stay Tune! ;)
xactly those kind of efforts will allow china and india to assure the major role player in the world's mircoelectronics industrie,
This news will certainly encourage companies considering moving their operations or outsourcing to China and India or even for anyone planning a venture there, as well as those who still hesitate to invest or already taken their first steps...