Pan, however, isn’t suggesting that Chinese fabless companies need to invent everything from scratch. Chinese management shouldn’t shy away from actively hiring engineering talent from Japan and Europe, he explained. “Look at how Samsung learned semiconductor expertise from Japanese engineers.” Pan is referring to the somewhat infamous practice – maybe a couple of decades ago – when Korean companies invited Japanese engineers to Korea over weekends; Koreans ask a few questions, Japanese engineers answer, they play golf together, and the Japanese engineers go home — leaving their trade secrets at the “19th hole.”
Of course, this poses an even bigger challenge Chinese fabless companies face: a lack of experienced management skills. WestSummit’s Chen said, “Yes, a lot of Chinese fabless companies today are run by so-called ‘returnees.’ But many of them have little marketing expertise and practically no management experience.” Chen said that the question is: “How fast can they learn?” Chen himself returned to China after getting his higher education in the United States and worked in Silicon Valley; he co-founded Omnivision in 1995, and he was also Spreadtrum’s CTO.
Synopsys’ Pan has similar views. Lack of management capabilities is a big issue, he noted. “To run a $1 billion company, you need a different skill set from the one you used in running a $100 million company.” Take the example of a fabless company, say, founded by three members of the same family. “You may be able to grow that business with no process and no system in place – simply by working very hard, to a 20-people company or even a 100-people company,” he said. But that won’t work with 2,000 people. Pan said, “Chinese executives are good learners. But the question is how fast can they learn? It could take years.”
ARM’s Wu sees that this lack of executive experience can sometimes manifest itself in misdefinition of a market. The inability to clearly define a particular segment of the market to go after with new products could cost the business dearly, or result in a blown opportunity.
However, some of the success stories emerging from the current generation of China fabless companies have a common thread: an ability to pull off mergers and acquisitions.
One good example is Spreadtrum’s late 2007 acquisition of Quorum Systems, a San Diego-based fabless semiconductor company that specializes in the design of highly integrated CMOS radio frequency transceivers. Last year, Spreadtrum also acquired 48.4% of MobilePeak Holdings Ltd., a fabless chip company that designs UMTS/HSPA+ modem chipsets from bases in San Diego, California and Shanghai, China.
Kidding aside, the M&A waves are spreading fast. Earlier this year, RDA Microelectronics in Shanghai (a fabless semiconductor company that designs, develops and markets Radio Frequency and mixed-signal semiconductors for cellular, connectivity and broadcast applications) signed an IP license and development agreement with Trident Microsystems. RDA will pay US$16 million in cash to secure a non-exclusive, worldwide, non-transferrable license to develop, manufacture and sell derivative versions of the Trident SX5 Digital TV SoC platform for a period of 10 years.
Vincent Tai, RDA’s CEO, in a recent interview with EE Times, said the company’s entry in to the DTV SoC market isn’t planned until later. Its IP acquisition was more a defensive move, he explained. But he remained confident: “Even if we are a latecomer to the IPTV market, I know I have a huge advantage. Being a local, we know the local market.”
There’s no denying the rise of not only engineering costs but also the cost of infrastructure in China. Asked how long China’s fabless companies can sustain their business, Synopsys’ Pan, with a little hesitation, first said, “Five years.” But then he immediately corrected himself, “Perhaps another 10 years.”
It's China's speed, stupid!
His optimism comes not from China’s cost-competitiveness, but from speed. He has faith in China’s ability to respond to the market quickly. With all the key component suppliers and the manufacturing base on hand in China (not to mention OEM customers in China), a vast, locally available eco-system lets Chinese fabless companies do business much more effectively. No time lag, no lengthy conference calls and no delayed decision making. It also allows them to expand from simply rolling out me-too products to offering value-added systems or even developing software.
Another source of optimism for fabless China comes from the recent success of MStar and MediaTek – two Taiwanese giants who took the global semiconductor market by storm for mobiles and digital TVs. The so-called “M brothers” drew a blueprint for success that many Chinese fabless companies are trying to emulate. MStar and MediaTek have figured out the significant importance in providing their customers with turnkey software and hardware solutions. “The two companies kept the cost structure relatively low and yet totally globalized theiroperations, by using global supply chains,” observed Pan.
wow, this could be a good discussion, but what a collection of misunderstandings, politically motivated comments, and odd ramblings. back to the subject:
My impression from travel and business in China is that the state of chip design is far behind silicon valley. But without a doubt, the gap is closing slowly. Chinese system engineers I speak with are well aware of the difficulties in designing chips in China.
The comments from Synopsys Mr. Pan and others about the need for more business sophistication ( innovation and differentiation) seem correct.
All of the above comments pertain to fabless semiconductor chip design. Now, why it has taken China so long to get competent fabs is a whole other story. The foibles of SMIC could be a whole other series of articles. The challenges to making a real state of the art fab are technical, economic, and political. It takes many things to make a successful venture. Japan could have made a joint venture to take on tsmc 10 years a go, but the will was just not there.
It is really very shocking news, I am also wondering why any of the Chinese company has not stood up for a fab. But at the other end Taiwan and Malaysia are not too far from China at all the angles Politically as well as Geographically both ways. So it will not be that hard feature for the fabless companies in China.
the push for building a fab, at these times when setting up a class fab is expensive, can not come from the industry alone. Local government and industry collaboration can make such enterprise possible. Governments are usually interested when either a lot of jobs can be created or national defense is under threat.
China has much older fab equipment. They may not be suited for cuttinf-edge applications, but may find much usefulness in the health-care, education, "quality-of-life" fields. Many smaller Chinese fabless can seek growth via these areas. Of coiurse, one cannot preclude the adoption of the "samsung model" by ne of the giant private/state-own companies!
mmmmh, thanks for your note. I think it's more prudent for a reporter to go after topics and subjects, especially in foreign countries, from the ground level -- one step at a time.
We are all mindful that we don't know everything, and we probably won't know everything.
In my mind, a reporter's responsibility is to talk to as many people as he/she can, verify facts, and approach any topic with an open mind. Don't assume anything.
Many appreciate your quick response. It is necessary to clarify that,
there is huge cultural difference between Japan and modern China (i.e. since 1977)
Although not an expert, I think China is on a absolutely different way as Japan. For example the 'great wall' figure in your report, which is fortunately built hundreds year ago. Nowday, you won't be able to see any engineering work last for a half century. e.g. http://www.telegraph.co.uk/news/worldnews/asia/china/5685963/Nine-held-over-Shanghai-building-collapse.html
It is a phenomenon of the conventional culture deteriorated in the country.
Amoung of those CEO's own history that you learn, have you ever varify those stories? Did you really get hidden stories underground?
I can fully understand the obstacle confronted as it is difficult to be 'Ai Weiwei' who take the risks of being prison to investigate and tell the truth. http://en.wikipedia.org/wiki/Ai_Weiwei
Agree that we should treat each company individually. Rather than promote those fabless firms, why not do an investigate on the plain fact, such as a chinese foundry engineer's life after Sichuan earthquake, how one-child policy change the way of semiconductor in China, etc, etc.
Just to be clear, the quote above is not through an interpreter; we were both speaking in English.
I am sure that there were times when China was focused on reverse engineering (like in early days of the Japanese semiconductor industry). But in this context, we are talking about new products based on China's own designs.
I was mindful of learning about each CEO's own experience, history, how they started their own companies in China. None of the stories was same; each very personal and interesting. Let's not generalize Chinese companies.
Hi Junko, please correct me if my point is wrong. The interpreter did not translate following comment correct.
"if a company has 100 engineers in China, it can design a product at a sixth or an eighth the cost of the United States, and in one-third the time."
As should be
if a company has 100 reverse engineers in China, it can duplicate a product at a sixth or an eighth the cost of the United States, and in one-third the time.
Here is a cultural gap, if you wonder the true thought from said CEOs, you must investigate their background thoroughly, i.e. how did they get the fabless company established in the very early day.
Join our online Radio Show on Friday 11th July starting at 2:00pm Eastern, when EETimes editor of all things fun and interesting, Max Maxfield, and embedded systems expert, Jack Ganssle, will debate as to just what is, and is not, and embedded system.