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China fabless firms plot long-term road map

Posted: 02 Apr 2007 ?? ?Print Version ?Bookmark and Share

Keywords:fabless industry? MP3 chips? China design houses? mobile TV?

After skyrocketing to the top of mainland China's fabless industry last year, MP3 chip designer Actions Semiconductor Co. Ltd could be a candidate for one-chip wonder.

It's a familiar story in Taiwan: Pinpoint a maturing, mainstream product; design a cheaper chip; and, with hard work and a little luck, watch explosive growth follow.

Not long after, however, momentum usually falters due to anemic investment in R&D or an inability to expand into more-complex products. Companies without long-term vision and road maps become sitting ducks and are soon undercut by someone willing to tolerate a smaller margin in a rapidly commoditized market.

It's not quite a rise-and-fall scenario, but some jokingly call it rise and stall. "In the beginning, you combine technology, market opportunity and timing for success," said David Lee, a senior executive at Actions. "But frankly speaking, seldom have people had those chances more than once."

The odds may be long, but that isn't deterring China's leading fabless companies. It may be the dawn of the chip industry here, yet early success at a handful of China design houses has them searching for strategies that will lead to long-term growth.

Call it their second acts: Actions, Vimicro International Corp. and even a few much smaller companies in China are transitioning their businesses with broader product lines that can act as a driver for growth. At Actions, that means moving from commodity MP3 chips into more sophisticated multimedia chips for personal media players and cellphones. It's also taping out a mobile-TV controller, hoping to catch early adopters in Europe and prepping itself for what mobile TV might look like in China.

At Vimicro, management is steering the company into multimedia chips for handsets and is funneling R&D dollars into a multistandard mobile-TV demodulator that will include support for China's homemade format.

"At this stage, we aim to be a global company with a Chinese angle, so we need to balance our R&D focus between domestic and international markets," said Mike Yu, general manager of Vimicro's advanced multimedia business.

Early movers in the mainland sense that while the old cost-down mantra of Taiwan may get them in the game, it isn't enough to keep them in it. But not all China executives and investors are interested in longevity, some observers argue.

Fast-cash mentality
"The mentality in most China companies is that you put money in and make it back as fast as possible. In the U.S., investors want to see that you have a road map and some real technology built in," said Ouyang He, president of Jade Technologies Co. Ltd, a Shanghai-based designer of multimedia processors.

The dilemma is that if a company makes money too fast, management often loses interest in spending money on new or risky R&D projects, even though that may increase their margins in the future. "The tricky part is keeping the balance between the long-term and the short-term, break-even and sustainable growth," He said.

Shown are China's top IC design companies.

Another factor influencing the direction of some China companies is that U.S. and European chip designers are increasingly savvy when tapping Asian resources. Their design costs are being reduced through development centers in India and China, and they definitely get better wafer pricing than mainland China's startups, or even those in Taiwan.

"Fabless companies in the U.S. are getting bigger and becoming more competitive than they were five years ago," said Lung Chu, president of Asia Pacific operations for Cadence Design Systems Inc. "So if you don't have a comprehensive strategy, you can maybe have one product that survives for a little while, but then eventually, you are not going to survive."

Shanghai-based Chipnuts Technology Inc. looks to be a survivor. A few years ago, it was tinkering with MIDI processors; it is now in full swing with a line of applications processors that target China's growing smart-phone market. But what sets Chipnuts apart is its move last year to buy a 100-person software design team, enabling the company to offer a Linux-based SW/HW platform for porting Microsoft embedded applications. "The software is really the key on this model and will set us apart in the future," said COO John Yu. "But in China, with software alone, you don't get much value. So it made sense for us to buy the team because we had the hardware platform."

Other small companies, such as Montage Technology, are taking a two-track product approach from the get-go, fielding unrelated chip lines like TV tuners and high-end memory buffers for servers. "Some of the technologies are leveraged," said Stephen Tai, a co-founder of Montage. For example, "some of the PLLs that we use on the buffer side are also used in the RF technology in our DTV tuner."

RDA Microelectronics, in less than two years, has laid down a core wireless product line that includes SCDMA, GSM/GPRS, PHS, TD-SDCMA and an FM tuner. It is also working on Bluetooth. "The China market will be big for us, but we also hope to convince some of the multinational players, like Nokia, to work with us after we have built up credibility," said Vincent Tai, chief executive of RDA.

Chart shows how revenue and growth shape up for fabless China companies.

Yet many China companies still struggle. Often, teams focus on getting to tape-out and then relax, thinking the toughest part of the job is done. "But as you know, that is only the beginning. You must sell the chip," Chu said.

"Managing the supply chain is the key challenge in terms of intellectual property, EDA, foundry, test and packaging," said Jun Tan, president of ARM China.

Success story
Actions' ability to tame China's unruly supply chain is a key part of its success story. Actions put a premium on easy-to-use development kits and field application engineering support for Shenzhen's fleet-footed system designers, many of whom need a helping hand through the first few rounds of design-in. Once that groundwork is laid, the companies are lightning-fast in getting products out the door.

Actions' understanding of the "China platform," or supply chain, enabled it to ramp up its MP3 chip business quickly and transform itself from underdog newcomer to China's largest fabless company. Actions is now looking to scoop up small design firms, both domestically and overseas, with a recently approved $80 million budget for acquisitions and investment. The move is an unusual one; companies in mainland China and Taiwan usually prefer organic growth to mergers or acquisitions, especially when it comes to buying foreign companies that may be a difficult cultural fit. But Actions' move is a strong indicator that it is pondering its long-term position.

- Mike Clendenin
EE Times

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