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EETE JULAUG 2012

UNCOMMON MARKET Four reasons why it’s ‘game over’ for foreign chip firms in China By Junko Yoshida Multinational seMiconductor coMpanies are no be ready when market demand spikes. speed is the key. “You longer able to compete with china’s fabless chips vendors in need to be able to live with the ups and downs on the chinese the consumer electronics ic business, according to Vincent tai, market,” he said. ceo of rda Microelectronics inc. “it’s game over” for them, tai asserted in a recent interview with ee times here. Ground truth rda Microelectronics, founded here in 2004 and listed on rule #3: chip makers must survive on lower gross margins. the nasdaq exchange since november 2010, is a leading chi- Many local chip companies can live with a 35 percent gross nese fabless ic vendor supplying rF and mixed-signal chips for margin in order to achieve a 20 percent operating margin, said cellular and broadcast communications used by china handset tai. But for most multinational chip companies to achieve the manufacturers. same 20 percent operating margin, they need a 50 to 55 per- rda is a major supplier to the chinese mobile handset cent gross margin. “that’s no match with the locals.” market. tai, quoting iHs isuppli estimates, claimed rda already has rule #4: system vendors in the leading market share in power china are less technical. Hence, amplifiers, Bluetooth, FM tuners and they require more hand-holding. dVB-s tuners for the domestic white the success of taiwan’s Medi- label market. atek here can be attributed to the still, rda has a long way to go to turnkey solutions it offers Chinese compete with the likes of Broadcom system companies. in the global semiconductor market. still, according to tai, being a leader tai said multinational companies in the chinese market is a good place retain a model that requires 100 to be. engineers to develop a new system rda’s enviable position foreshad- every six months. “We are seeing ows a growing trend here for com- chinese system guys pump out a panies like rda to dominate global new product every three months electronics markets, tai noted. as with just five to 10 people.” Tai said, evidence, he cited the fact that mul- “that’s very disruptive.” tinationals such as analog devices and texas instruments backed out Foreign companies are not only of china’s baseband chip business. slow to upgrade their products While technically not chinese com- but also are slow to respond to panies, Mediatek and Mstar, two tai- customer complaints. “i can send wanese giants, grabbed that market someone to my customer’s site by leveraging their chinese ties. right away and do quick diagnos- indeed, tai boldly predicts that the tics,” he said. “a multinational’s days for multinational chip compa- core r&d team is still in the united nies are numbered, especially in the states, and it takes more than a “Chip makers must survive on lower gross chinese mobile handset and set-top few e-mails back and forth to solve box markets. “it’s because the supply margins to compete in China” problems.” chain in china can’t allow you to have a 50 percent gross margin,” he explained. Many in the West focus on the cost advantages of chinese When the entire ecosystem of foundries, design houses companies. instead, they should be focusing on the agility of along with packaging and system oeMs resides here, “You chinese chip vendors and system companies in their domes- need to be a local to play the game,” said tai. tic market. as tai noted, “i am local. i have a core r&d team the rda chief described four rules for surviving in the chi- here, and I have field application engineers here. I have a huge nese market: advantage” over multinationals. rule #1: the “cycle time” for chinese handset manufactur- rda increased its annual revenue in 2011 by 51.1 percent ers is extremely short. While it takes six months (or a year in the to a record $288.9 million, compared to $191.2 million in the case of nokia) to design a new mobile handset outside china, previous year. the company’s gross margin was 34.5 percent chinese cellphone makers are spinning out new models every compared to 29.8 percent in 2010. In the first quarter in 2012, three months. rda’s revenues totaled $72 million, with a gross margin of at rule #2: chinese handset vendors provide chip suppliers will 35.9 percent and a 20 percent operating margin. the company little information about market demand. therefore, chip suppli- has $143 million in cash and no debt. it currently employs 320 ers need to be “in touch with the market,” said tai, so they can workers. 4 Electronic Engineering Times Europe July/August 2012 www.electronics-eetimes.com


EETE JULAUG 2012
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