China fabless firm looks West as mobile slumps
Like many fabless chip companies in China, Union got its start trying to design a cheaper version of components made by Western semiconductor giants. Union’s story provides a cautionary tale about the lack of design skills that dogs all aspects of China’s electronics industry, including its foundries which Union finds subpar.
The 12-year-old analog chip company expects revenues of about $40 million this year, down from nearly $50 million in 2011. Apple and Samsung made huge in-roads in China’s smartphone market this year, taking share from China handset makers such as Haier, Huawei, TCL and ZTE as well as a number of smaller companies who make unbranded phones.
Macro-economic sluggishness and rising costs in China have added to a tough year. Union lost as many as ten percent of its customers as many small companies closed their doors in 2012, said Gary Y.H. Yang, Union’s chief executive in an interview with EE Times here.
“We had a difficult time late last year and early this year, but we have been coming back since July,” said Yang, a candid and upbeat former microelectronics professor turned entrepreneur. “Our strategy is to invest more in new products.
“When business is good, you don’t have so much energy for new product design–I don’t even have enough time to review designs,” said Yang, who handled everything short of customer service in Union’s early days. “During the down cycle, I can spend more time on new product design,” he said.
“We’re also exploring new customers in security, wireless hotspots and Ethernet,” added Yang. “These customers are all new for us–that’s why we started expanding into North America and Europe almost four years ago."
About half of China’s electronics business is in making systems designed in the U.S. or Europe, Yang estimates. So it made sense for Union to go West in its search for design wins.
“Many people think China’s market is big enough for their company, but if you want to move up the food chain, you need to expand,” Yang advised. A focus solely on China “is not sustainable” at a time of dropping prices and heavy competition, he added.
Nevertheless, winning sockets in U.S. and European designs is no cakewalk. “It’s a tough job because we are a Chinese company and people lack confidence in us,” he said.
China chip companies have one advantage when working with Western distributors, said Russ Almand, director of North American sales for Union, based in Silicon Valley. They can track design wins when manufacturing is turned over to China ODMs who sometimes replace specified parts with similar but cheaper components made in China—changes Western OEMs often miss.
“We have a flashlight in the black hole of China,” Almand said.
Starting with a single product
Maxim’s Jack Gifford lured Yang out of his academic post in Shanghai to become a market researcher for the analog company, exploring its potential in China. “We identified some opportunities, but mostly we saw mismatch,” said Yang.
Maxim wanted to make high margin products for industrial markets, but China’s focus was and still is mainly on consumer products. “For their own system designs, China’s engineers choose components that are good enough, so TI and National are more successful in China than Linear Tech and Maxim who want high margins,” Yang said.
After spending almost four years with Maxim, Yang quit to found Union with his own money and $200,000 in seed capital from a venture capitalist. “It was a crazy time of the Internet boom, my VCs had just cashed out, made a lot of money and were eager to make more–they didn’t even know the details of semiconductors,” said Yang.
A team of six people initially focused on just one product. “It was almost the same spec as a part from TI and Maxim, only at a lower price, but it was very difficult for us,” Yang said.
Yang quickly found out he had to please two customers, the hard-negotiating China buyer who just cared about price and the China engineer who was more concerned about performance and features.
“We found the engineer was not happy with one aspect of the TI and Maxim spec, the output voltage level, so we upgraded our design to increase the output voltage swing 50 percent,” Yang said.
The budding CEO convinced a lead engineer at China’s top maker of power meters it was a good part. The engineer recommended the part to his buyer who asked Yang how much it cost.
“I said, ‘you tell me the price,’” recalled Yang. “He said, ‘TI sells it for a dollar, so I’ll give you 80 cents,’ and I said OK because our cost was ten cents–everyone was happy."
The high profile design led to others, and the company survived on the single product for three years. By 2003, Union snagged $2 million in a second VC round to expand its portfolio into related interface parts. It now has a catalog of well over 100 parts in four broad areas and is self-sustaining.
Evaluating China’s foundries
Union still tries to fly under the radar of big suppliers such as Maxim and TI. It expects some day it and other emerging analog companies in China such as Silergy Corp., (Hangzhou) will grow to compete head-on with the big boys.
In the meantime, it does its best to cope with a lack of seasoned design engineers.
“It’s tough to find experienced design engineers, but many are good enough for block- level work,” said Yang. “I have a technical background, so I cut big projects into small pieces and ask them to deal with the small pieces–the senior engineers integrate them together," he said.
“There are not so many experienced designers in China–that’s partly why Huawei and ZTE set up design centers in the U.S.,” he added. “There is more and more design activity in China now, but there is still a lot of room for improvement."
The same is true for China’s foundries. Yang compares China’s fabs to big ODMs like Foxconn that can handle manufacturing but have no significant design expertise.
“They buy a recipe from IBM or Imec and run an ODM business,” Yang said. “They don’t know how to change or tune their process which is OK for a digital design but it’s not enough for analog."
Yang said China’s largest foundry, Semiconductor Manufacturing International Corp., (SMIC), has improved a great deal since naming Tsu-Yin Chiu CEO last year. "But [SMIC] copies TSMC’s and UMC’s business model and only focuses on digital 45-65nm processes—not analog,” Yang said.
Union makes some of its parts at Shanghai’s Advanced Semiconductor Manufacturing Corp., “We just use them as they are, there’s no process tuning, so sometimes we have to trade off our performance for their process,” Yang said.
Mainly, Union goes to Taiwan’s UMC, attracted by its design support. “If our product fails, we sit together to debug the problems—the lack of that capability is a weakness of the Chinese foundries,” he said.
Meanwhile, Yang is keeping an eye on possible sources for the future—Korea’s Dongbu and Germany’s XFab, which supports organic semiconductors and SOI for high voltage parts. China’s analog foundry, CSMC Technologies Corp., (Wuxi), might get on Union’s list if it could develop its own expertise for tuning its processes, Yang said.
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