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Shenzhen's startups deal with cost, competition

Posted: 02 Jun 2008 ?? ?Print Version ?Bookmark and Share

Keywords:Shezhen startup? China IC market? electronics manufacturing?

Hu: People come to us looking for help differentiating their products.

Shenzhen is making slow but steady progress as a growing center of silicon and software engineering. Interviews with the CEOs of two chip design startups give a picture of business in the hub city in Guangdong province, one of China's biggest centers of electronics manufacturing.

Peter Shi and Norman Hu started their chip design companies in 2000 as the dot-com bubble burst, and both have been more successful than most. They agree that Shenzhen's semiconductor business thrives, thanks to its connection to China's domestic market, but that the link is not enough to nurture the many small chip companies that have sprung up in recent years.

"After several years of development in IC design, we are making significant progress in Shenzhenas well as in Shanghai and Beijing," said Shi, CEO of Arkmicro Technologies Inc., which makes a variety of mainly video chips for TVs, PC cameras and portable devices. "We are getting more confident, getting more of our own technology developed so we can build more SoCs."

The 180-person Arkmicro made about $10 million in revenue last year and snagged another $10 million in a second round of venture financing, mainly from U.S. and other foreign investors. That will help pay an estimated $1 million for a mask set for its first 65nm product, now in the works.

The financials for Hu's company, Anyka Microelectronics Technology Co. Ltd are a bit stronger, with revenue hitting $20 million last year and venture funding of $30 million to date. The company makes a range of processors for cellphones and other mobile devices, focusing on media capabilities such as H.264 codecs and mobile TV.

"My biggest concern is that Anyka is still a small company, but this business consumes a lot of cash, and competitors like Samsung have a lot of money to get to 65nm and even 45nm technology," said Hu. "You need a lot of cash even just for the mask sets."

Shi: We are getting more confident, getting more of our own technology developed so we can build more SoCs.

Small startups, small hope
China has given birth to some 600 chip design startups, most of them tiny 10- to 20-person shops with little hope of making it on the global stage. Many of the small startups focus on products such as USB controllers, fingerprint-recognition chips and LCD drivers.

"The lifetime of these companies can be very short, and their technology is not what we want, so we have no interest in acquiring them," said Shi. "When we get to revenues of $20 million to $30 million, we may try to go public, and then we may be more interested in acquisitions to keep revenue growing."

Hu added, "I don't know how these small companies will survive in the future. It's not easy."

The main formula for success, both CEOs agree, is making inroads with China's big system companies.

Anyka has a design win in a smart phone made by Chonghong that Hu carries with him. The startup courts China's other big handset makers, such as Amoi, Bird, Lenovo and TCL.

In China, consumers buy phones directly from retail outlets, so the handset makers wield more market power than service providers. The situation is just the reverse in the U.S. and Europe, where chipmakers often court design wins with the Vodafones and Verizons, which specify devices for their networks.

Shenzhen is making slow but steady progress as a growing center of silicon and software engineering; but heavy cost pressures and global competition are tempering its rise.

China's handset market is also unique because much of the electronic system design is done by independent design houses, such as Wingtech, Longcheer, Simcom and Techfaith. But the design houses are going through a period of consolidation, forcing chipmakers like Anyka to stay close to the big system companies to keep abreast of market trends and new design starts.

Shi depends on the large consumer companies in China and Hong Kong to guide him on what will be the big productsand chip opportunitiesfor the following year. "This year and next, you will see digital photo frames expand quite quickly. I think it could be a cash cow," said Shi, whose company is preparing a second-generation chip for the devices.

Both executives agree that the chip design subsidiaries of Huawei and ZTE are probably the biggest and most successful silicon engineering groups in Shenzhen today.

Intense cost pressures are the biggest problem for chip wannabes in Shenzhen, said Shi.

"When I started here eight years ago, products were very low-end, with ASPs of less than one yuan for clock ICs for low-end products," he said. "Now we are targeting DVD players, portable DVD players, DTVs, digital photo frames and MPEG-4 capabilities," raising ASPs to a still small but survivable $2 to $8 for companies like Arkmicro.

The problem is big retailers like Best Buy Co. Inc. put out bids to China's system houses pushing for the lowest price. The OEMs then hammer the local chip designers to help them shave every penny possible.

Hu said Anyka simply refuses to play the game. "We only target the middle- and high-end products, not the low end. People come to us looking for help differentiating their products. It's not about cost," he said.

- Rick Merritt
EE Times

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