Over the last three years, “some startups – including GigaDevice, GalaxyCore, RDA and Rockchip – have grown very fast,” according to Datong Chen, co-founder and managing director of West Summit Capital in Beijing. There is no dispute about that.
The question, however, is how sustainable it is for these companies to continue to grow so rapidly. How many more years can Chinese companies continuously keep gross margin low and perpetually work harder in order to bring down the cost of their products in hopes of beating out foreign competition?
In the top 20 fabless IC companies’ ranking for 2011 (put together by IC Insights), only two from China, HiSilicon and Spreadtrum, showed up.
Top 20 fabless IC companies in 2011
source: IC Insights
Datong has experienced firsthand the rise of the Chinese chip industry, as he was the co-founder and CTO of Spreadtrum Communications. Prior to Spreadtrum, Datong was the co-founder and senior vice present for Omnivision, a leading developer of CMOS imaging sensor.
For Chinese fabless companies to sustain current growth, Datong said, “They need a bigger platform.” By “platform,” he means, “Money, a larger market size, and a bigger customer base.” Then, he added, “Of course, it’s better if they do IPOs – because that will allow them to get fair market value, it would make it much easier for them to do acquisitions, and they will get more trust from the market.”
The potential for Chinese fabless companies to reap greater rewards are already here, according to Allen Wu, president of ARM China. ARM-based SoCs, designed by Chinese fabless companies and shipped globally, jumped from 30 million units in 2007 to 615 million units in 2011.
And yet, Wayne Dai, president and CEO of VeriSilion, calls the Chinese semiconductor industry a “no-man’s-land of fabless companies.” He explained that most of the 400+ China fabless companies are living through a 'no man’s land,' which he describes "an inflection point for a start up’s life cycle."
In his view, "[Chinese fabless companies] are too big to be small, but too small to be big." In other words, "If they can’t continue to grow, evolving into firms that dramatically change their marketplace or define a new category, they have to either stay small or sell to a larger company. Otherwise, they are going out of business within the next two years."
In essence, most Chinese fabless companies remain too stubbornly small to exploit the market’s size. There lies the conundrum.
In part two of this article
, we’ll discuss prescriptions—what steps Chinese fabless companies must take, and conversely, what actions multinationals should take to survive among all those Chinese go-getters.
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-How Leo Li led Spreadtrum’s turnaround
-Four reasons why its 'game over' for foreign chip firms in China