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Is China's fabless model sustainable?

6/19/2012 01:11 PM EDT
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junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/19/2012 4:19:28 PM
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I think many of us have our own impressions (and ideas) about the Chinese semiconductor industry...some of them are old-fashioned (based on the old information) and others could be plain false. When I met with Jian-Yue Pan at Synopsys in Beijing, I myself discovered a lot of things that I didn't know before. Jian-Yue has a knack of telling a story in a very smart, cohesive way. The interview was very informative and educational. I will finish writing the part two of this story soon.

PHW_#1
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re: Is China's fabless model sustainable?
PHW_#1   6/20/2012 1:18:28 AM
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Junko, If you have chance to probe the hiring part, it will be good to offer all US engineers an alternative choice. My personal experience, the salary (total compensation like bonus & stocks, not just salary) is not lower than US companies in Asia, but it is a really hard work. Tons of start-up people try to make their product work and make the company successful. Open our mind and embrace the new world and new opportunity. We can't count on government to help creating jobs in US, at least, make ourself available to the whole world.

junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/20/2012 4:46:25 AM
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Agree. I will definitely work on the hiring issues. While it is true that the cost of a design engineer is undoubtedly rising in China (especially in a concentrated city area), one guy told me that the salary for middle management jobs in China, like vice president of engineering, for example, has been stabilized in the last few years.

apummer945
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re: Is China's fabless model sustainable?
apummer945   6/19/2012 7:38:31 PM
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well some people estimated once that the Chinese needs five years to get a space station..

cidbarca
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re: Is China's fabless model sustainable?
cidbarca   6/19/2012 7:55:51 PM
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Great article and perhaps timely in regard to the unsolicited efforts of CY to force a change of control on Ramtron. I know Ramtron does business in China and other Asian locations but do you think any of China's semi companies would look at Ramtron as a possible tarket? I look forward to your follow-up article.

Bert22306
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re: Is China's fabless model sustainable?
Bert22306   6/19/2012 8:07:16 PM
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I dunno, Junko. There's no doubt in my mind that a country with a population of 1.2 billion people can compete in just about anything they please. My only question is, why did it take "Policy 18" from the central government to get anywhere? I shudder to think that there are people here, in the West, who will take from this that we must also wish for our governments to write our own "Policy 18s" for us. As of now, the way they are apparently growing is what our labor union leaders here would term "on the backs of the workers." Hence the long work weeks and the dorm lifestyles. There's no such thing as a free lunch. One thing too. My reaction to news sources that perpetually lack an element of self-criticism is disbelief. This struck me during the Beijing Olympics, actually.

PJames
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re: Is China's fabless model sustainable?
PJames   6/20/2012 1:16:52 AM
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Quick... someone needs to tell them that Libertarian principles dictate that their success is an illusion. South Korea as well. Obviously Samsung is a house of cards about to crumble due to the level of government industrial policy over the years in South Korea.

Bert22306
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re: Is China's fabless model sustainable?
Bert22306   6/20/2012 1:26:59 AM
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Yeah, truly, it must have been a miracle that companies like IBM, GE, Ford, GM, Goodyear, Microsft, Apple, etc. etc. ever became world leaders at anything. We know better now. We need a "dear leader" to guide us.

PJames
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re: Is China's fabless model sustainable?
PJames   6/20/2012 2:16:38 AM
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Certainly our semiconductor industry has benefited hugely from government involvement over the years... both support at the basic science/engineering level through funding at universities and national labs as well as huge involvement under the guise of defense which not only subsidized industries/technologies but often developed the basic business models and common platforms. The fabless model itself has its roots in MOSIS which was government funded. Many of the structured techniques of VLSI design and EDA flows came from government funded efforts. Neither here nor in China is a "dear leader" trying to dictate what the next angry birds app will be, but looking around the world, government policies and support have been hugely influential in the success of high tech companies. That is not, however, an argument that governments cannot also do harm with bad policies or by trying to circumvent or defy free markets rather than support them.

junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/20/2012 4:49:56 AM
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I agree, PJames. In any early stage of industrialization in any nation, it did take the government's will to start up something big. But of course, that requires matching talent and enthusasim by the local people.

pinhead1
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re: Is China's fabless model sustainable?
pinhead1   6/20/2012 6:33:09 PM
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As someone who used to work for IBM, trust me, they are not shy about accepting (make that, chasing) government funding. And in my eyes, there's nothing wrong with that.

junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/20/2012 4:48:09 AM
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The government subsidy is a big issue in China as well. You don't necessarily want to be too close to the government, but you don't want to ignore it either. It's a matter of balance; and you need to be smart about dealing with the government and its money -- which is true anywhere in the world.

DMcCunney
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re: Is China's fabless model sustainable?
DMcCunney   6/19/2012 8:26:09 PM
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"[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." It sounds like China will recapitulate the US market, for the same reasons. One thing that occurred to me in watching many US startups was that were I them, my business plan might just be "Establish myself as a competitor with a compelling technology, and position myself to be acquired by a bigger, better heeled outfit that would find it easier to buy me than to develop the capacity in-house to do what I do." Growing big enough, fast enough, by myself to remain independent and compete and compete might just not be possible. I expect to see such acquisitions taking place in China in the not too distant future.

junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/20/2012 4:37:44 AM
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To an extent, such acquisiions have begun taking place. Look no further than some of the acquisitions Spreadtrum has been making. And I do believe it's the key to success for China's fabless companies.

rick merritt
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re: Is China's fabless model sustainable?
rick merritt   6/19/2012 8:29:48 PM
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GigaDevices. I love it when I hear a name for the first time. Piques my curiosity. I liked Pan's history, too, but I have heard about some bumps along this path post IPOs as well. More stories to tell!

junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/20/2012 5:50:53 AM
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Definitely a lot of bumps along the way, and Chinese companies are learning hard lessons. It would be really interesting to watch where all these China's hot fabless companies will be in five years from now. The landscape may be entirely different.

Marketing Guru
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re: Is China's fabless model sustainable?
Marketing Guru   6/19/2012 11:50:01 PM
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Junko, My comment may link to another story you recently did on China.... Just today we had a Chinese customer here to inquire about having us do 2 ASIC chips for them. We were honest and told them they could probably get it done in China for a lot less. When we asked, "why us?", their answer was a straight forward "because you won't steal our idea." It will be interesting to see how it all pans out (no pun intended).

ibm221
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re: Is China's fabless model sustainable?
ibm221   6/20/2012 12:16:57 AM
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good one, it's a jungle there...

ibm221
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re: Is China's fabless model sustainable?
ibm221   6/20/2012 12:19:39 AM
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so the next trend Junko might want to take note is how those chinese semis are picking up moral values these years. ie. smic is copycating mostly TI's ethics, HW should have some moral as well.. oh no, maybe Junko is not good at writing about ethic/moral topics...

microe
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re: Is China's fabless model sustainable?
microe   6/20/2012 11:35:24 PM
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you comment speaks for itself how well you respect others. what a ethic/moral judge

junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/20/2012 4:42:33 AM
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That's a great anecdote, Marketing Gurue. Thanks for sharing. The fact that this is what your Chinese customer told you does tell us something. The more they create their own IPs, the more they are concerned about protecting them.

HS_SemiPro
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re: Is China's fabless model sustainable?
HS_SemiPro   6/20/2012 6:15:58 AM
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I would like to see some New Technology or Design Platform coming out of China, Most of the news is about making existing IP/design made cheaper in China. However, Chinese Engineers in USA, generate lot of research and new IP & technologies. Something has to be said about Chinese work atmosphere.

junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/21/2012 8:25:35 AM
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Unfortunately, I think many of us are still tied to this pre-conceived notion that everything about China is about uisng exisiting IP/design and making it cheaper. I don't think that holds true any more. I will definitely dig deeper.

mmmmh
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mmmmh   6/20/2012 11:40:58 AM
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Regarding the point "like many other China fabless executives today who were born in China and came to the United States for graduate degrees, before going home again to help nurture the Chinese industry." At least it is not 100% true. I think there are quite a few graduate back China as enforced to leave the western country where they pursued the degree. For example, the recent policy change made by home office in the UK has tightened the visa requirement for them.

junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/20/2012 2:39:33 PM
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I am not saying that this is the case for everyone, of course. But it is also true that a lot of Chinese fabless companies today are being run by those "returnees."

timbroadfoot
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re: Is China's fabless model sustainable?
timbroadfoot   6/20/2012 12:57:54 PM
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This is interesting stuff. I am relatively new to the Asia market. All this comment is really helping, keep it up! Thanks Tim www.slaters-electricals.com

MrBEE
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re: Is China's fabless model sustainable?
MrBEE   6/20/2012 5:26:03 PM
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It is just naive and ignorant to believe that China would not be able to have companies just as famous and big as USA. Just wait and see. It is with excitement I'm looking forward to the future and the new global market place development. //BEE

PJames
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re: Is China's fabless model sustainable?
PJames   6/20/2012 6:53:40 PM
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I don't disagree with the sentiment. Huawei is a good example of a hugely successful Chinese company that is competing in the international arena. However, China will have to loosen government control and allow transparency and the rule of law to solidify before they can truly take their place as an equal on the world's free enterprise economic stage.

junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/21/2012 7:59:26 AM
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I couldn't agree with you more, Mr.BEE. When I see so many engineers in China eager to win, and win big, it's inevitable that their creative juice flows to inventions.

chipmonk0
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re: Is China's fabless model sustainable?
chipmonk0   6/20/2012 6:16:17 PM
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Do the Chinese really need to be creative to succeed ? Not so long as the West gets hollowed out by outsourcing and small companies here have no choice but to sell their IP. But it is doubtful if a large country like the US can maintain its social order w/o manufacturing by just turning into a R&D shop for China. We are neither like tiny Switzerland / Singapore ( precision instruments ) or parasites like the UK ( middle-men between the English only US and the non-English speaking worlds ). Size matters - both ways.

junko.yoshida
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re: Is China's fabless model sustainable?
junko.yoshida   6/21/2012 8:02:43 AM
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A really good point. I don't think as big a continent as the United States can afford to stay just focused on developing IPs or R&D. You need to make stuff. Only then, you are creating more jobs in a community that supports manufacturing.

cdhmanning
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re: Is China's fabless model sustainable?
cdhmanning   6/24/2012 9:11:40 PM
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Just making stuff or creating jobs does not work. First you have to see a way to create value. If you can only manufacture a product for $5 that can be imported for $1, then you need some sort of protectionism to force people to buy the $5 product. So what does the customer get? Well they're getting a $1 product and just paying a $4 tax. Far too many Westerners have an inflated sense of entitlement. On the global market, an auto worker is worth, say, $20k per year. Yet an autoworker in USA might bet paid as much as $100k per year. That's an extra $80k that is not providing any value and just for being American.

cdhmanning
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re: Is China's fabless model sustainable?
cdhmanning   6/24/2012 9:00:19 PM
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What the hell does "sustainable" mean anyway? A sustainable business practice is one that can be kept in place for many years and continue to function. That does not work in this industry. This is the industry of change and we have to work with what we have now and modify our approach as things move on. Is the current Chinese model likely to keep going for much longer? Probably not. Just take a look at Japan. In the 1950s, Japan was that place that make crap toys which broke a few days after Christmas and their cars were rubbish. Now Japan is associated with high quality and some of the strongest brands in any industry they play in: Toyota, Sony, JVC, Toshiba, ... The same then happened in Korea. Samsung, Hyundai,... Now Chinas brands are emerging: Huawei being an obvious example. Meanwhile many Western brands have just stagnated over the last few years and are just riding on their brand recognition. What has Intel or Microsoft done in the last 5 years? Far too many Westerners are to focused on adversarial issues. China is far less of a command economy than it ever was, allowing entrepreneurship to flourish. But some command can be a good thing too. It is the command period of the 1960s etc that gave the USA much of the leg up it needed to get going in electronics etc. The adversarial approach also sees so many US companies in court. The primary goal of fighting over IP is to beat up competitors. Rather protect your junk product line than allow your competitor to play on an even playing field and force you to make better products.

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