China, India outspending U.S. in semiconductors
3/19/2013 2:01 AM EDT
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."
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.
There's money to be made in chip startups, says Lip Bu Tan who hopes to show more examples.
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.