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Karaoke chip duo takes act to China

Posted: 16 Jan 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Mike Clendenin? chip-design? karaoke? David Hu? John Yu?

It might seem improbable that two high-school buddies would build a chip-design company in Shanghai based on the notion of bringing karaoke to millions of phones.

In China, where karaoke is as much a part of the culture as rice and noodles, that's exactly what David Hu and John Yu have done. "That was the spark of our company," said Yu, COO of Chipnuts Technology Inc. "We had another founder that had developed a catalog of more than 30,000 songs in various languages and we wanted to port that to a mobile phone and run it on our chip." Hu is Chipnuts' chairman and CEO.

Aside from the arguably scary accomplishment of freeing off-pitch crooners from the crowded, smoky singing parlors and enabling them to go mobile, Hu and Yu are also noteworthy because they're part of a second generation of chip designers popping up in China.

Unlike their predecessors, who set up shop from 1999 to 2002 and tapped China's raw engineering talent to do simple designs, these Chinese engineers returning from stints abroad are hoping to design more-sophisticated chips that will help their startups compete against much larger global companies and simultaneously buffer them from the low-end digital designs of most local shops.

If such startups can get some traction, it would be good news for a local semiconductor industry dealing with a reality check. The oft-told story of China's blistering economic growth, gargantuan end-markets and cheap, supersmart engineers is falling on deaf ears when it comes to IPOs these days. And that matters, since Chinese companies, lacking a homegrown Nasdaq they can tap for expansion cash, must woo foreign investors to survive.

But a malaise has gripped chip-related IPOs in China for the past three years. In all sectorsfoundry, system design and fabless chip designinvestors have been unconvinced that the first wave of tech startups has long-term value. So the startups' shares have all fallen in value since opening day. But the cold shoulder shouldn't last too long, especially for the country's fabless industry. Savvy China watchers argue, for instance, that the problems besetting the handful of companies that have gone public were fairly specific to the particular sectors in which they compete.

Still, they all did have low-cost strategies as a common denominator, an advantage that can easily slip away in China. So a new crop of Chinese entrepreneurs is leading the next stage of fabless companies here, driving home the imperative to raise the level of innovation in their products if they stand any hope of long-term survival.

Garage startup
Chipnuts is one of those pegged as a fast riser. Like a lot of other small companies, the operation started in a rundown residential apartmentthe equivalent of a Silicon Valley garage startupin 2003. There were eight engineers on board when Yu, who was managing Cadence Design Systems Inc.'s California Design Center, took a few weeks' vacation to visit his childhood friend from Homestead High School.

After working with Philips Consumer Communications and Avaya in the United States, Hu had returned to China, where he co-founded a mobile-handset design center in Shanghai in 2001.

Two years later, Yu made his visit.

"I spent 10 days with these guys and was really impressed. They had about eight to 10 years of experience in their respective fields and were just about to finish up the architectural design of the first chip, so I reviewed it, gave them a few pointers, created a checklist for them and drew out a schedule," Yu said. He signed on a few months later, after persuading his wife that greater opportunities lay in places like Shanghai's Pudong district, not the Valley's Peninsula.

But in its early days, the company had trouble with its first product because of a design snafu. The MIDI processor, which had the basic MP3-based karaoke feature, lacked a critical ability: It didn't control the LCD, so to synchronize the song lyrics, the chip had to access the baseband processor, which caused system-integration problems for customers.

"To be honest, with that chip, not a whole lot of people used the karaoke feature. They just used it as a MIDI processor or MP3 ringtone processor, so it wasn't really that successful," Yu said. "But what it really helped us do is build a design team, a supply chain, a partnership with vendors and gave us an idea of what karaoke ought to look like in a mobile device."

It looks and sounds pretty good, with pictures of pale Chinese models serving as a backdrop while speakers warble out a love song and lyrics roll into view. Chipnuts moved quickly to develop an integrated multimedia processor for audio, video and storage, which seems to be one of the first from a Chinese design house. That will be the basis of its future road map and will put the firm up against such Taiwan companies as Sunplus, MediaTek and Winbond.

In addition to chip design, the company has also built up a strong system design team. It's developed a reference design, including software, for local mobile-phone vendors, many of which need turnkey solutions. Down the road, the company is looking to boost its processor performance so it can handle mobile TV and video capture, and the possibility exists that it may expand its product line into mixed-signal designs.

Chipnuts will do $7 to $8 million in revenue this year, after ramping its first multimedia processor July last year. It expects 3x to 4x growth next year as two more processors come to market. Perhaps more important, the new processor line will enable mobile phones to play karaoke videos, not just a slow montage of pictures.

RDA Microelectronics has also made a lot of progress rolling out a couple of RF chips in the TD-SCDMA and PHS markets in China. But one thing is still missing: a sign in the lobby with the company's name.

It's an indicator of the relatively low-key approach Tai is taking to building up his business in China. "I don't want people to think I'm one of those guys who just talks. We still need to prove ourselves," he said. It seems the company is about to do just that, with a high likelihood of profitability sometime in 2006, just two years after its founding.

- Mike Clendenin
EE Times

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