China chips: Bomb, or just a lot of firecrackers?

SAN JOSE, Calif.--The mad rush to cash in on the emerging Chinese semiconductor/electronics industry is slowing down.

The investment fever has been in fact cooling since a year ago, well before the credit crisis hit the global market.

This is a result of "a hangover from the huge euphoria [of investors] over the past several years," said Ken Tsang, managing director at The Hina Group, an investment banking and private equity firm based in Palo Alto, Calif.

"You go to China not for cheap labor but for brain power. China isn't a sweat shop any more." —Alex Hui, Pericom

However, many industry experts put the blame squarely on Chinese domestic chip companies.

The top three Chinese IC vendors--Actions Semiconductor, Vimicro and Spreadtrum Communications--have been unable to build enough force to blow up anything substantial in the global market, suggesting that China's seemingly infinite potential was just so much fireworks.

The three companies' stocks have spectacularly fizzled. Vimicro's stock dove to $1.88 last week, while Actions' sank to $1.44 and Spreadtrum's to 8 cents.

The three companies "were a big disappointment for investors and for Chinese foundries like SMIC [Semiconductor Manufacturing International Corp.]," said Lip-Bu Tan, chairman of Walden International, a San Francisco-based venture capital fund.

Tan believes their poor performance--missing targets quarter after quarter over several years--is what triggered today's "somewhat moderated" interest in the Chinese electronics industry.