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Analysis: China's quest for chip stardom

Posted: 26 Nov 2008 ?? ?Print Version ?Bookmark and Share

Keywords:China IC industry? chip market? semiconductor fabless?

iSuppli Corp. recently reported that more than 550 fabless semiconductor companies in China, but at least 100 will disappear within two years.

Vincent Gu, iSuppli China research analyst, wrote, "China's fabless IC industry is polarized with about 50 companies achieving success and the remainder struggling to survive."

This analysis parallels similar conclusions I reached working on the story, "China chip industry: The Bomb, or just a lot of firecrackers?" When I started my research, we had two simple questions in mind: Will China find a way to build its own semiconductor industry? If so, who will become China's Intel?

I've long been fascinated with the birth of national chip industries since I started my EE Times career as a Tokyo correspondent. Japan had strong government backing that helped boost its semiconductor industry, along with a strong consumer electronics sector. Tokyo's financial support and protectionist policies eventually provoked a U.S.-Japan trade war.

South Korea followed a similar set of industrial policies, including special emphasis on government support, mass production and emulating its foreign competitors. This combination resulted in vertically-integrated giants like Samsung Electronics.

TSMC boom
In searching for China's Intel, my first instinct was to look no further than Chinese engineers who spent time in the United States, then returned home. After all, the birth of Taiwan's chip industry would not have worked without talented returnees like Morris Chang, who developed a daring business model called the "foundry." The success of foundries like Taiwan Semiconductor Manufacturing Co. Ltd made Taiwan not only a hub for manufacturing chips but also a center for the development of next-generation process technologies.

Taiwanese politicians are often credited with triggering the boom after they helped acquire semiconductor process technology from RCA in 1975. But TSMC's Chang has said: "That didn't mean that Taiwan entered the semiconductor industry," adding, "All it meant, this license of RCA ... was that Taiwan got the then-RCA's current technology, which was probably a generation behind the leading technology in the U.S. then. Now, after Taiwan got it ... a group of people were sent [to RCA] by Industrial Technology Research Institute and were there for several months ... they brought it back to Taiwan, and they continued to work on it in the laboratory."

Chang concluded, "It was not business. It was not production. And in 1980, they spun off a company. And so that company [United Microelectronics Corp.], of course, used the technology to some extent. And then seven years later, 1987, TSMC was started."

What fueled Asian chip development was the confluence of social, political and economic developments, including Taiwan's booming capital market in the 1980's; the collapse of U.S. basic research laboratories like Bell Labs, which released many Chinese researchers; and the Taiwan government's own chip initiatives that coaxed many Chinese engineers in the United States back to Taiwan.

"Taiwan got full benefit from Chinese returnees, and a booming capital market in the 1980's," said Alex Hui, president and CEO at Pericom Semiconductor Corp.

Many Chinese returnees were either senior executives here or were being groomed for management jobs at top U.S. semiconductor companies such as Texas Instruments, Hui said.

Will China follow?
The next logical question: Who will become the Morris Chang of China?

We haven't found one yet, but there are plenty of Chinese-born executives in the United States, learning the trade, honing their skills and eager to innovate.

Compared to countless Chinese fabless companies, enterprises run by Chinese executives headquartered in Silicon Valley do one thing very well: They retain employees. Weijie Yun, president and CEO at Telegent Systems, claimed, "We've had 60 to 70 people working in China over the past three years. Only one or two people left."

Knowing how to hold a team together in an entrepreneurial environment like China is the first step to creating a successful company.

In China, we are beginning to see the emergence of globally successful, vertically-integrated companies such as Huawei. HiSilicon Technologies Co., Huawei's former ASIC design center established in 2004, was recently ranked as the top Chinese IC maker. HiSilicon appears well connected to systems companies making network equipment, wireless terminals and digital media. Headquartered in Shenzhen, HiSilicon has design divisions in Beijing, Shanghai, Silicon Valley and Sweden.

It's just one company, but one with all the right elementsa harbinger, if you will, of a bright future for the Chinese electronics industry.

- Junko Yoshida
EE Times





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