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Analysis: China IC industry battles slowdown

Posted: 10 Dec 2008 ?? ?Print Version ?Bookmark and Share

Keywords:China IC industry? semiconductor? market downturn? digital TV?

Stateside management
For Lin Yang, chairman of the board and president at Legend Silicon, the benefit of keeping management stateside is clear. It's "the quality of top talent in Silicon Valley, performing corporate-level functions," he said.

Legend Silicon, a Fremont, California-based fabless chip company, pioneered underlying technologies called Time Domain Synchronous OFDM (TDS-OFDM) for China's terrestrial digital TV broadcast standard.

Legend Silicon CEO Hong Dong shuttles between China (where the company has strong ties with Tsinghua University) and Fremont, while Yang mostly stays put in Silicon Valley.

When Yang spoke of "top talent" in Silicon Valley, he was referring to senior engineering managers' ability to understand the very nature of a "product." Presumably, China-based executives close to the local market know what products are needed. But this is not necessarily so, Yang said. Local Chinese engineers often lack experience framing the questions to define the required products.

Pericom's Hui concurred. "Chinese engineers are fundamentally very solid," he said, "but they need more experience and exposure."

Pericom, which makes serial connectivity chips for computer, consumer and communication devices, maintains substantial engineering teams in Taipei, Sichuan, Hong Kong and Shanghai. But the company maintains a solid U.S. team, responsible for developing "architecture" and "product definition."

Going global is also a common dream among second-wave Chinese chip companies.

Weijie Yun, president and CEO, Telegent Systems, stressed the point: "We built Telegent as a global company from day one."

Telegent, founded in 2004, has "six offices in the world," Yun told EE Times. It offers single-chip solutions making television mobile, delivering both analog and digital broadcast reception.

"China is very important to the success of this company," he said. "But we find it significant not because of its market size, but rather because it's the most dynamic market."

Open to experiments
By "dynamic," Yun meant "open-minded." Unlike U.S. cellular operators, often rigidly conservative in defining feature sets for their subsidized mobile phones, Chinese operators are more willing to experiment. Their flexibility encourages local handset manufacturers and distributors to be more aggressive, he explained.

For example, two months after the first mobile phones featuring Telegent's analog TV tuner were launched in China last year, Yun found the same models with the same features for sale in Africa. Chinese vendors, he concluded, are far more creative in pushing their products into remote corners of the world.

Yun: China is significant not because of its market size but because it's the most dynamic market.

And long before Telegent's founding, Pericom had paved the way for Silicon Valley-based Chinese companies to succeed through association with Chinese OEMs, leveraging a foothold in China into the global market. Pericom, which started in 1990 and went public in 1997, made a killing when engineers at China's Huawei started to use Pericom products for their networking gear, after learning that Cisco was using Pericom chips as a second source

From 1997 to 2000, Pericom grew at a compound annual growth rate of 34 percent, thanks to China-based telecom customers such as Huawei and ZTE. Pericom's presence in Asia also helped foster relationships with computer OEMs such as Dell, HP/Compaq and IBM"the PC food chain is very global," said Hui.

Not for cheap labor
Second-wave Chinese chip vendors, in general, have fastidiously studied the weaknesses and strengths of the Chinese engineering environment. One point of consensus: "You go to China not for cheap labor, but for brain power for the market," said Pericom's Hui. "China isn't a sweat shop any more."

Over the past five years, in digital design, the engineering talent gap between China and Silicon Valley has "significantly narrowed," said Telegent's Yun. "But when it comes to RF design, Silicon Valley still has an edge."

Legend Silicon, for example, went to China to tap engineering resources at Tsinghua University. Dong and Yang, top management at Legend, are Tsinghua graduates, and Yang is still listed as a professor there.

Why, then, didn't they start up a company in China in the first place? Yang was clear: "We'd have never gained knowledge of how best to design digital TV if we had not worked at Cadence Design Systems for several years."

Indeed, many Legend engineers, including Yang, come from Cadence. During the mid-1990s, Cadence's design service group had customers such as LG and Samsung working on digital TV, 3G and WiMAX. Without that background, Legend, together with its Tsinghua team, wouldn't have been able to propose a Chinese terrestrial digital standard, said Yang.

"The heavy lifting of technology development is still carried out in the United States," he said. Most important, Yang's Cadence experience has taught Legend's team to work on "design for testability" and "design for manufacturability."

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