Same Idea, Just Opposite Ends of the Spectrum

Travelling the Silicon RoadSHANGHAI — Today was an interesting day; it offered two ends of the semiconductor industry spectrum in China. I visited with two companies, both of which in their own way representative of the industry here at the moment.

At one end of the spectrum is Apexone Microelectronics, a Chinese start-up based here in Shanghai, a fabless chipmaker specializing in high-end analog and mixed signal applications. They’ve got an impressive track record for a start-up that’s been around for less than three years, attracting VC funding from outside China, moving chips, and being named to Red Herring’s Top 100 Private Companies in Asia.

The company was founded by one James Gao, a Chinese engineer who studied in the United States and worked in the chip industry there for some 15 years, before returning to China to start Apexone. He is part of a growing number of Chinese EEs and others in other fields returning to China instead of remaining abroad, because of the opportunities here.

But true to his nationality, Gao comes across as a pragmatist; he didn’t give me any sort of “Yes, we Chinese are returning in droves because China is resurging from the ashes like a mythical phoenix!” or some such blather. Rather, he observed that he came back because he saw an opportunity; right now, the opportunities are here in China. In the future, eventually, those opportunities will be elsewhere — eventually back in the United States — and Chinese graduates educated there will remain there, following the opportunities.

Lesson reinforced: the Chinese are nothing, if not practical. Which is why, it occurs to me, that they have had such success over the years in manufacturing — manufacturing is nothing if not a practical exercise — but have struggled to turn R&D into commercial applications . Inventing a better widget is a little bit more of a nebulous enterprise than simply making 10 million existing widgets.

AMAT Does It One More Time

At the other end of the spectrum is good old Applied Materials Inc. Applied is also symbolic of what’s going on in China right now: a large foreign company — and investor — with operations on the ground and a vested interest in the growing Chinese market. Applied owes much of its current success to its legacy of performing well in foreign markets, gaining a foothold ahead of its competitors.

It did this in nearly textbook fashion in Japan, and appears to be doing it again in China.

In their own ways, both Apexone and Applied Materials both begin with the letter A. … Sorry, had too much wine with dinner tonight, I think. Anyway, both companies could be offered up as models for doing business in China.

For those domestic companies looking to get started, they might do well to emulate Apexone — go after high-end applications with technology that no one else has at the moment, investing heavily in creating your own intellectual property. Forget about low-end, low-margin, high-volume applications; that market is saturated and a startup is more than likely going to fail dismally against larger, established companies.

Formulate a unique business plan and get the VC capital. Of course ultimately the jury is still out on Apexone, but so far, as you’ll read here soon, they’re off to a pretty good start.

It’s All About the Guanxi

As for foreign companies looking to get involved in China, well the thing to emulate from Applied is also the one thing that Apexone and Applied have in common: good relationships. The reason Applied is so entrenched in China and has a considerable chunk of the process equipment market, is because they have been here so long — they were in China before it was cool — and established good relationships with both industry and government.

And business in China is much more than “you’ve got what I want, here’s a bunch of money, let’s sign on the dotted line, deliver the goods, everybody’s happy.” Long-term relationships are of paramount importance in business in China, more so than in the West, whether it’s dealing with local government or dealing with customers or suppliers, being plugged in is a necessity to be successful in the long run.

In Apexone, they are staying close to their customers, recognizing their unmet demands, says Gao. In Applied’s case, it stays close to the government as well as their customers (they have dedicated customer support staff for their biggest customer here, SMIC), and get closely involved in the community, investing in research programs and scholarships. Now you may be sitting in Silicon Valley thinking, “Well my company does the same thing here, so no problem.” But here, it’s about much more than the PR benefit.

Electronic News Travels to China
Here it really does mean something; relationships matter. I’m learning that as a journalist; here it’s not just a matter of calling up some PR or marketing type and saying “Hey, I’m Jeff Chappell, editor with E-News, blah blah blah, I need to talk to Joe Senior VP.” The Chinese want to know why I’m here, what my goals are for the trip, they want to see this Web address, etc., etc.

The business deal goes far beyond the dotted line on the purchase order, here. Foreign companies looking to do business in China would do well to remember that.

Editor’s Note: As explained at length elsewhere on this site, this is a blog entry of mine that originally appeared on the now-defunct Electronic News’ website, which is long gone. While its former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge), as far as I know, this blog content isn’t hosted anywhere else on the Internet, hence my reproduction here.

Original Comments

at 10/19/2005 7:32:53 PM, Vern, Cincinnati, OH said:

The Economist reported earlier this month that China’s manufactured output is half of the U.S.’s in terms of value, despite there being six times the manufacturing workforce in China. If the domain was restricted to the chip industry, I wonder what results we would see. Because of how relatively nascent this industry is in both nations, might there be a more level playing field? If not, might there be some room for “low-end, low margin, high volume applications” done American-style? (Not trying to pontificate here or anything with that question…just throwing ideas around…)

From BMWs to Neusoft: Greetings from Shenyang

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

Travelling the Silicon RoadSHENYANG, China – Welcome to Shenyang, origin of the Quing dynasty and a microcosm that reflects what is happening throughout China at large.

The high tech industry is blossoming here, but it’s more about the code than about the chips.

This busy city in Northeast China, the capitol of the Liaoning province, takes up some 13,000 square kilometers, and has a population of some 7.4 million people. A Mongol trading center for centuries, it has played an important part in Chinese history; it was the Manchu capital before the Manchus captured Beijing, establishing the Quing dynasty – the last of China’s dynastic rulers.

Later, this critical industrial city was held by the Japanese during its occupation of China for several decades, and briefly by the Russians after the defeat of Japan in World War II.

Today, some 57 different industries are represented here, everything from cars – BMW makes its 3 Series and 5 Series here – to advanced vacuum equipment used in high-tech R&D. While Shanghai may grab the headlines outside China and Beijing may be the heart and soul of this ancient nation, Shenyang is part of its muscle and sinew.

Both the central and local government has done much in recent years to foster growth here, and it shows: the city’s gross domestic product (GDP) was approximately $23.5 billion (190 billion yuan); GDP growth has been in the double digits since 2001. Foreign investment meanwhile has exploded, from $700 million in 2000 to $2.4 billion last year. The first foreign bank in Shenyang, a South Korean concern, opened a branch here in 2004 as well.

Like much of China, Shenyang is also a city in transition: there is construction everywhere and cranes dot the skyline in every direction; a gleaming, Western-style Holiday Inn hotel catering to business travelers looks down over the city center that hosts a large statue of Mao Zedong.

Street markets, where everything from combs and hand mirrors to fruit and squid on a stick are sold, flourish blocks away from new office buildings; old men using bicycles to tote construction materials share the road with luxury automobiles.

And like the rest of China, while manufacturing is still of great importance here, Shenyang is looking to build a technological future, and much of it in software. Start-ups concentrating on embedded applications for such things as industrial automation – a natural here in this industrial city — as well as CAD applications for manufacturing can be found here. There are 428 research institutes based in and around Shenyang – some local, some provincial and some national in nature; some are attached to the 30 colleges and universities based here. The city plays host to some 150,000 students besides.

It also plays host to large software companies that came from modest origins within a university, and flourish in part from all the local talent coming out of the university system here. Sound familiar? Like a certain place on the West Coast of the United States? It might look familiar too.

Deja Vu … Where Are We Again?

If one drives south of Shenyang’s city center, the old gradually gives way to the new. Some of Shenyang’s government buildings for example, look as if they date back to the 1950s, when the central government first set out to remake Shenyang as a diversified industrial city. And yet south of the city, tall, gleaming apartment and office buildings are taking root as are high tech parks and corporate campuses in the new Hunnan district.

Long, wide newly-paved roads lined with new saplings and well-manicured lawns adorned with corporate logos could make visitors here familiar with Silicon Valley wonder if they were south of Shenyang or northwest of San Jose. There are familiar names to be found here too, such as Tycho and Philips.

One of the crown jewels of Shenyang’s high-tech business is also found here, Neusoft. The company’s beginnings are the stuff of tech industry legend: it began in 1991, having incubated for several years in China’s Northeastern University, with three people, three computers and about $5,000 (30,000 yuan) in start-up capital. Last year, Neusoft Group Ltd. achieved total sales revenue of nearly $300 million (2.4 billion yuan) and now employees more than 7,000 people.

It boasts Alpine, Toshiba and Philips among its investors; in 1996 it became the first software company listed on the Chinese stock exchange. While it has branched out into other things, such as IT education and training and medical systems, software and services still provide the lion’s share of its revenue. It supplies software across a broad range of industries, supplying such things as database management and network security products to dedicated applications for tobacco and transportation concerns to systems integration.

Outsourcing is a foundation of the company, it began with a partnership with Japanese electronics company Alpine. It lists many big American names among its partners as well, IBM, Sun, Oracle and Microsoft among them. Neusoft primarily helps tailor outside companies’ products for the Chinese market; its outsourcing revenue was $36 million last year, and should hit $50 million this year.

Literally down the street and around the corner from Neusoft are the offices of Shenyang Only-Info Tech Co. Ltd. Like its neighbor it is a growing software concern that was spawned in academia, in this instance the Shenyang Chemical College in 1993. In 1997 the company was spun out of the college as a private company; today it employees 300 people and has annual revenue between $25 million and $37 million.

While the company’s history lies in IT products and services, like Neusoft, it has recently turned to software outsourcing, specializing in things like telecomm value-added software, digital gaming, and perhaps most notably, outsourcing software for Japanese software suppliers for the Chinese market.

Japan was once a bitter enemy of China thanks to its occupation, and memories are long here; mention Japan in a historical or political context and even many young people in China may react with guarded hostility. But the Chinese, being pragmatic, don’t let that get in the way of business, and Shenyang’s software companies are good examples of that.

Only-Info just launched its Japan-oriented software effort last year; it already represents a significant chunk of its revenue. As Only-Info’s Zhao Jun Hong explains, Shenyang, given its history and Japanese influence, has an advantage when it comes to the outsourced Japanese software market.

But like Neusoft, with which it has a joint venture operation, Only-Info plans to expand to more international outsourcing opportunities, launching U.S. and European-oriented software programs next year, Zhao said.

Manufacturing Alive and Well

While software may be a wave of the future for industrial Shenyang, it isn’t straying too far from its roots; manufacturing is still welcome here. In fact, much of its burgeoning software development is geared around manufacturing.

Take for example NEU Information and Technology Co. Ltd., another Northeast University startup that was formed by three professors from the university. It currently employs 22 people and another 20 students, and has assets of $3.7 million.

The company focuses on co-designing hardware and embedded software “to improve the intelligence of equipment” in industrial applications, according to Deng Qingxu, VP of the company. Among its products are emissions monitoring equipment that can be found in power plants throughout China.

And like its older brothers in the university-startup fraternity, NEU Info and Tech is looking beyond Shenyang and China to develop joint ventures with foreign companies, namely in the United States and the United Kindgom. In one case, it would like to license the technology in the gas control units of a U.S. company, and tailor it specifically for the Chinese market.

Even older companies in Shenyang have found their way into high-tech. Sky Technology Development Co., Ltd. was first established under the Chinese Academy of Sciences in 1958. Entirely stated owned at that time; now its employees own 35 percent of the company. Specializing in vacuum equipment, today it has helped simulate the vacuum of space for the Chinese manned space program, as well as providing components for a host of high tech applications, such as molecular beam epitaxy, electron beam and ion-beam deposition, chemical vapor deposition (CVD) and plasma-enhanced CVD.

Sky Technology has also been ahead of the curve in international cooperation; it has supplied parts for Applied Materials Inc. subsidiary AKT, as well as newcomers in the domestic chip market. And like seemingly every other high-tech company in Shenyang – and perhaps all of China – they are keen on more joint venture opportunities with foreign companies, in particular the United States.

The phrase “win-win” crops up frequently when talking business in Shenyang.

And there may be a new manufacturing market coming to Shenyang in the near future: chipmaking. Zhang Qing Feng, director of the Shenyang Science and Technology Bureau, a unit of the local Shenyang municipal government, identified the chip industry as of the new industries that the bureau sees as critical for the future of the city.

Electronic News Travels to ChinaShenyang has had discussions with a foreign chipmaker about the possibility of building the city’s first chip fab, a 200mm or perhaps 300mm factory, he said. While nothing has been signed yet, the land has been set aside, as the city has actively courted companies from South Korea, Taiwan and Canada.

Shenyang is doing all that it can to make the city attractive to foreign companies; “In the next few years we’re going to formulate incentives,” Zhang said, such as chopping the tariff on importing equipment into China, and providing easy access to government loans.

Not Quite What I Expected

Travelling the Silicon RoadBEIJING — Just a few days into this trip, I’ve met with two government officials here, and I have to admit, they were not what I was expecting. And I was a little surprised at what they had to say.

This is probably as much, if not more of a reflection on me and my culture than on them and theirs. What was the title of the previous blog post? This Isn’t Your Father’s Communism? Indeed.

Being 36 years old, I’m old enough to remember the Cold War between the U.S. and the former Soviet Union. It seemed like when I was a kid, there were headlines every other week in the newspapers about nuclear missiles and tensions between the God-fearing, democratic West and the godless, oppressive totalitarian communists of the Soviet Union.

I remember the headlines spawned by the SALT missile treaty talks, and asking my parents to explain what was going on, and coming away with the impression that nuclear Armageddon was imminent. I don’t remember the Korean War, but I remember Vietnam, and my father trying to explain the domino theory to me.

We were the good guys, communists were the bad guys. There was a reason James Bond was always tangling with Soviet agents back then. Ah, the simplicity of youth and propaganda.

Of course, while the Soviet Union was the No. 1 U.S. bogeyman in our collective consciousness back in the day, Red China was certainly No. 2. And even though the world has changed a lot since I was kid, and me along with it, I suppose I still carried some of those preconceived notions with me here to China.

Probably like many Americans my age and older, I have a certain view of what a communist country should look like. And it is true that Beijing does have its fair share of sprawling, gloomy, non-descript tenement buildings that seem to be a hallmark of institutionalized communism. And yet, Beijing is so much more than that. Perhaps it fit the stereotype I have in my mind once upon a time, but if it ever did, that was obviously a long time ago, judging from what I’ve seen in just a few days.

And I also carried preconceived notions of what government officials would be like. I’m not sure what I was expecting, to be honest; I suppose I expected stiff and formal government automatons and bureaucrats spouting the party line. Well, to be frank, that notion got shot to hell in short order here in Beijing this week.

Now bear in mind, I’ve only spoken with two officials, one of them in the municipal government here in Beijing, and one a long-time official involved in the Ministry of Information (MII). I’ve also met two private businessmen and entrepreneurs (!) who once worked in the forerunner government organizations that were merged to create the MII.

Hardly a representative sample, to be sure, and I’m sure those mindless, doctrine-spouting officials exist somewhere in China; after all, we have more — much more — than our fair share of those in the U.S. But as I started out saying, the government officials I’ve met so far were not what I expected at all.

Far from the grim party members I think I had expected, these men were passionate and eager to talk openly. In fact, Liang Sheng, a city official, made it clear that he wanted to skip — and I quote, albeit through an interpreter — the “blah blah blah” of government officials and have a frank discussion. Liang is the section chief of the Department of Information Industry of the Beijing Municipal Government, as well as the deputy director of the Beijing Semiconductor Industry Association.

Nope, no not quite what I had expected. In fact, both Liang and Yang Xue Ming, an analyst with the Institute of Chinese Electronic Industry Development, both reminded me much more of senior executives in Silicon Valley — they’ve glimpsed a bright future and they see a way to get there, and they are determined to follow that path.

But the one common thread between my discussions with both Liang and Yang was that China right now is interested in helping China — it doesn’t really care about becoming a super power, at least in the chip industry, nearly so much as it is concerned with managing its growth in the coming years.

China has such a huge, vast domestic market, that it needs to be able to help itself, and yet it realizes that it is going to need private — and foreign — investment to do that. It can’t go it alone, and that is what is behind the changes in China in recent years, and the motivation to a more market-based economy.

There is other evidence, too, that this isn’t the communist nation of our parents’ generation. The Chinese government recently approved its next economic five-year plan, and in it he government acknowledged that one of their goals was to improve the gap between rich and poor. If there is one negative thing I’ve seen here so far, it is that gap — in fact, it seems as wide, perhaps wider, than it is back home in the States.

And on a personal note, while walking down a famous boulevard here in Beijing yesterday — streaming with natives on their way home from work, and foreign tourists perusing the shops and the ubiquitous street vendors hawking watches, DVDs and the like — I was talking with a native of Beijing. She was asking me why some people in the West view China as a threat. She genuinely didn’t seem to understand why; Chinese people are peace loving, she said; they just want to help themselves. That seems to be a common theme on my trip so far.

Electronic News Travels to ChinaOur conversation swung around to Mao Zedong. My friend suggested that Mao was great leader in many respects; a simple farmer who happened to be a brilliant tactician when it came to guerrilla warfare and inspiring his people. But that when it came to economics and social engineering, “he was not so good.”

Nope, this is not what I expected. And I’m beginning to think that China isn’t what most people in the United States would expect.


Editor’s Note: As explained at length elsewhere on this site, this is a blog entry of mine that originally appeared on the now-defunct Electronic News’ website, which is long gone. While its former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge), as far as I know, this blog content isn’t hosted anywhere else on the Internet, hence my reproduction here.

Original Comments

at 10/12/2005 1:39:57 PM, Kay said:

Absolutely agree…..

at 10/12/2005 2:40:33 PM, Bob said:

These people are indeed hard-working and when they do get out from under opression by the regime their sheer productivity and innovation will likely easily surpass that of the U.S.. Thus this is what we may now have to fear about the “communists” of old. They have not yet been spoiled to expect everything to be given to them on a platter like some of those “poor” folks in the West and the rest around the world that our tax dollars keep rising to support.

at 10/12/2005 2:55:40 PM, unbelievable said:

Yet another useful idiot referring to a communist (Mao)responsible for the death of millions (via terror famine) as an agrarian reformer. And you say THEY’RE not spouting the party line. You are spouting the party line! When the Chinese recognize Taiwan as an independent state, hold free elections WITH party opposition, and no longer shoot demonstrators in Tienemen square, then I’ll believe their not same China.

at 10/12/2005 3:29:28 PM, jeff said:

JEFF, GOOD LUCK ON TRIP AND KEEP WRITING. It is clear your horizons are getting broadened every day. As we found out on a recent trip, those Capitalistic Communists in China get a big kick out making money.

at 10/12/2005 4:24:57 PM, Clayton Werner said:

Jeff, Its good to see the blinkers coming off. Sure there’s lots to be scared about – the whole of the future. But if we can recognise our common humanity with the Chinese, the Africans, the middle easterners and all – we’ll all be a lot better off. Tis a well learnt lesson from Dawkins “The Selfish Gene”, its the genes that can cooperate with other genes that share a slice of the future! Regards Clayton

at 10/12/2005 4:41:55 PM, G. S. Soriano said:

Well said, Jeff. I’ve been to China (Beijing) myself and worked for two weeks in MII building with other Chinese telecom vendors for Interoperability testing of our equipments. My first time in China was a real surprise. What I long thought, read, seen on TV news, documentary, and so on about China were not really that accurate. I’ve so far travelled to the big cities in China in 6 occassions and never had issues with the locals – day and night. I just came back from a 2 week trip from Venezuela where a co-worker and I got mugged – by the police. The way I saw it, China will be on top pretty soon if they keep doing what they do. I am talking about the Government and its people.

at 10/12/2005 5:30:50 PM, DrASK said:

Your remarks about “sprawling, gloomy, non-descript tenement buildings that seem to be a hallmark of institutionalized communism” made me think of the train ride into Tokyo that passes hundreds of these buildings, or driving on the highway towards Manhatten past the Bronx and seeing the very same sructures, all the same, indistiguishable save for the big numbers on the side. I always remarked to friends that these were examples of “gulag housing”. Remember it’s not just China, they’re everywhere.

at 10/13/2005 1:25:26 AM, Wmay said:

I have to say that the writer has got a sharp sight. It is really not easy to find some stuff like this, which is sth. true, instead of out of mere imagination or prejudice. I just hope more western people come and have a look at today’s China with their own eyes, before making any comments on China.

at 10/13/2005 8:01:23 AM, Jeff Chappell said:

Dear Unbelievable … I’m not going to get in a flame war with you, but yes, the officials I talked to did not spout the party line. And nowhere did I say or claim that China’s government did not have a miserable record when it comes to human rights … let me ask you this: would you judge 1 billion people on the actions of their government? I know I don’t want to be judged on the actions of my government right now … and I may be an idiot, but at least I’m not afraid to put his name above what he writes. If you’re going to flame people, at least don’t be a coward and hide behind anonymity.

at 10/13/2005 9:49:06 AM, Jeff in China said:

Glad your trip has been an eye-opening experience so far. Having lived on the mainland for over a year now, it’s always interesting for me to hear about the first impressions people have about China. However, what I have also found is that China tends to be so far from many Westerners’ expectations, as it is developing so quickly, that they latch on to that and ignore the ways it hasn’t changed.

Might I point you, for example, to the recent Newsweek article, Guilt By Association. Usually though, it’s more subtle than that. The somewhat recent resurgence in tensions between the Chinese and the Japanese is fueled by the government. On September 18th of this year, for example, I awoke to screeching air raid sirens that sounded for a full ten minutes in celebration of the 60th anniversary of end of the War Against Japanese Aggression (you might know this war as WWII).

Let ‘s just say that blaring sirens make it hard to forget the Japanese. And this is just one topic of many where you will find the majority of people touting the party line. Perhaps when it comes to business endeavors, things are different. One final note, if there is one thing I’ve learned about China from my experiences here, it’s that its obsessed with facade. A building might look nice and new, but upon closer examination you’ll notice that there is no indoor heating, no hot water, no caulking anywhere, big gaps in the door frame, etc.

People are the same way’if you ask someone in Shanghai for directions, they might point you in a direction, but that doesn’t necessarily mean they have any idea how to get there. They just don’t want to lose face. My suggestion, then, is to always look closer, and try not to get carried away with the momentum of quick development.

at 10/13/2005 12:56:56 PM, You’re really killing me! said:

I am sorry! Jeff I am sorry too (two)! I am sorry three! Jeff What are you sorry for (four)? I am sorry five!

at 10/14/2005 4:53:58 AM, buck hyre said:

Most American’s ideas about China are based on what we see, hear and read in the media. I envy you being there and getting to know the real China, it’s people, culture and government. I spent the early Seventies in England and came away with a much different opinion of the English than I had going there. It also made me appreciate more growing up in the U.S.. More Americans should go abroad for extended periods of time to see what really is going on in the world instead of believing the evening news on tv. Thank you.

at 10/14/2005 6:23:12 AM, Walter Duranty said:

While I think much of the market reforms underway in China are good things, I do understand Unbelievable’s concerns. It is a dictatorship, after all. Some survivors in this world are more than a little touchy about correspondents who, perhaps having harbored cartoonish delusions about the behavior of thugs, become seduced by schmoozers who smile and extend a warm welcome to them.

Maybe it is time to Google on “Walter Duranty,” (if the Chinese Government hasn’t blocked searches) who when accepting his Pulitzer prize in the 1930’s stated: “Despite present imperfections,” he continued, he had come to realize there was something very good about the Soviets’ “planned system of economy.” And there was something more: Duranty had learned, he said, “to respect the Soviet leaders, especially Stalin, who [had grown] into a really great statesman.”

I’m not equating you with Duranty, just trying to explain the raised eyebrows. To this reader your blog projected a kind of naive honesty as in “Jeepers, I met some folks who worked for Mr. Capone and they seemed really friendly and generous –not at all like those gangsters I see in the movies. Heck they just want what’s best for their kids…” Of course there are millions of fine folks in China — as there were in 20th century Russia and Germany.

Let me ask you this: would soft-peddling Stalin as an Agrarian Reformer so as to not be seen as ‘judging 1 million people on the actions of their government” have been the right thing to do? Certainly, the discovery that there were millions of good hearted, decent Russians would not have been an argument for promoting the policies of Stalin. I think that was Unbelievable’s point. I read his post several times and did not see any negative “judgments” of the Chinese people.

It struck me that, very likely , he is one of them. Before you start calling people cowards you might understand that , if he is a citizen of China, he may be wise to remain anonymous when criticizing his government. -Walter P.S . FYI, I believe the term “Useful Idiot” was a term coined by Lenin when asked about the value of American Socialists who argued that the Communists weren’t so bad. It’s about naiveté, Jeff.

at 10/14/2005 5:45:19 PM, Jeff Chappell said:

Dear “Walter Duranty:” Hmmm … why do people always insist on reading what they want to see in something, rather than just taking what it says at face value? Nowhere in this blog or my stories have I defended the Chinese government or its policies, nor did I suggest for one second that just because the officials I met seemed warm and sincere, that this justifies the policies of the Chinese government.

I didn’t, and it doesn’t. And is it naiveté, “Walter,” or is it an open mind? Have you traveled to China? Have you met the people that I have met?

As for “Unbelievable” being Chinese, or yourself, for that matter, that would be the only excuse I would accept for hiding behind anonymity. Otherwise, if you are going to post insults accusing me of being an idiot, naiveté and — this is my favorite, imply that I’m a pawn of the Chinese government, unwitting or otherwise — have the courage to stand by what you have to say and put your name to it. I do it every day, after all. Aside from fear of becoming a political prisoner, which is still a real, valid concern here in China, there is no excuse.

This Isn’t Your Father’s Communism

Travelling the Silicon RoadBEIJING — Imagine a high-tech startup company run out of an apartment. A company that has offices scattered around the country, and yet still only has 10 employees and will likely see revenues of about $6 million this year, if all goes well.

Competition is so tough among low-end telecomm applications in which it started out that profit margins are exceedingly small, and the company’s founder realizes that the future of the company lies in new technology — technology that no one else has. It is a company that has to change as quickly as the technological and business culture in China changes.

Imagine a startup founded by an entrepreneur in a country of entrepreneurs, one that doesn’t like politics and cronyism, but one that follows his own economic muse. One who lives and dies by his company; one that observes: “I can’t do bad. If I do bad, I go hungry.” One that would offer this advice to someone fresh out of college with an idea and the urge to start their own company: “Work hard. That’s what I did. I did everything myself. I slept three or four hours a day.” And yet, one that realizes that if his company continues to grow, in the future it may be necessary to bring in someone that is more business savvy; someone who understands more about economics than technology.

It’s almost mythical sounding, isn’t it? It could be a story from Silicon Valley from the early days of the chip industry, or again from the mid to late 1990s during the dotcom boom. But it is a story from Beijing circa 2005.

Dakeli Technology Co. Ltd. isn’t a name that comes to mind when you think of high tech companies in China; most readers, unless they happen to be in the telecomm business in China, have likely never heard of Dakeli. It certainly isn’t a or a CEC or a Lenovo, to be sure. But it and the many companies like it that have sprung up in China in recent years are surely the new face of business in China as surely as those large, familiar names.

Dakeli started out in 1997 as a distributor of telecomm equipment, primarily test equipment; its founder is a former member of the Ministry of Post and Telecommunications (MPT), one of the forerunners to China’s current Ministry of Information Industries (MII). He decided to go into business for himself, after founding two technology import companies, the first in Singapore, the next in Japan, on behalf of the MPT. In each case, he was given the equivalent of three months worth of expenses to start the businesses.

“I adjusted to business with no financial backing,” recalls Zhong Jian, manager and founder of Dakeli. “Why not start my own business?” It is a sense of entrepreneurship that seemingly keeps him going. “I like freedom; I don’t like politics,” Zhong says. “That’s why I left the ministry to start my own business.”

Competition from other companies, however, has forced Dakeli to branch out into other areas, getting involved in the design of chipsets for PHS mobile phones with a Japanese company, for example, and even consulting with other foreign companies. You’ll be reading more about Dakeli shortly here on E-News’ Silicon Road site. But I wanted to mention the company here first, as my first interview at the point of embarkation on the Silicon Road yesterday (Sunday, Oct. 9), It was not quite what I had expected.

When my colleagues from Electronic Business China — Alma Wang, executive editor, and Darcy Liu, who have been helping me set appointments while in Beijing — walked me into a residential apartment complex for the Dakeli appointment to meet Zhong, who was dressed in khakis and a short-sleeved shirt, I was a little nonplussed. But as we walked into the apartment, and I saw several people in front of PCs working away on a Sunday afternoon, with binders full of technical specs and stacks of marketing materials and product manuals stacked everywhere, in between empty coffee cups and coke bottles — the accumulated detritus of a small but obviously busy business — I quickly realized that here was an interesting story.

Electronic News Travels to ChinaHere was the flip-side of the Chinese tech industry; the foil to the gleaming skyscraper office buildings and the sprawling fabs and a rising middle class with disposable income that everyone speaks of with awe and excitement back in the United States. Here was surely an analogue to a U.S. entrepreneur and the mythical Silicon Valley startup.

China may still be a communist nation, but this isn’t the communism of our parents’ generation, to be sure.

Editor’s Note: As explained at length elsewhere on this site, this is a blog entry of mine that originally appeared on the now-defunct Electronic News’ website, which is long gone. While its former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge), as far as I know, this blog content isn’t hosted anywhere else on the Internet, hence my reproduction here.

Original Comments:

Argh! With 20 comments, this was the second-most commented blog post I made during this project. Unfortunately, when I captured the microsite with Adobe Acrobat, it grabbed more than 1,000 pages – but not the comments from this post, of course. D’oh. I guess that’s a reminder that I shouldn’t have waited until five years later to do this conversion.

Japan Inc. Rethinks Its Semi Strategy

Tough Economic Times Force Changes at Equipment Companies

TOKYO —  It is evident here at Semicon that Japan’s continued economic woes are changing the way Japanese equipment companies do business.

Alas, Electronic News (the print edition): we hardly knew ye!Even in the midst of a lengthy recession, executives and analysts cling to evidence of a recovery for the latter quarters of 2002. Yet, even if this takes place, the days of Japan Inc. and its us vs. them mentality are over, and the Japanese readily acknowledge and accept this.

Perhaps the most visible aspect of this phenomenon is Canon Inc.’s embrace of two-year-old Austin metrology start-up nLine Corp. Canon announced that its sales and distribution subsidiary, Canon Sales Co., would function as a sales partner for nLine, selling its newly unveiled direct digital holography Fathom tool in Japan.

Canon Sales is the distributor for a number of third-party tools in Japan, not just Canon’s own semiconductor equipment, explained Hiroshi Shibuya, director and group executive for Canon’s semiconductor equipment sales. Many companies approach Canon’s sales arm to represent them in Japan, but they must meet very strict criteria, Shibuya said. But he found nLine’s technology impressive, suggesting that it has strong potential, and he felt that the two companies would be able to establish a mutual trust between them, he said.

Kyodai Brothers perform outside Tokyo at SEMI Japan 2001
Tradition meets Tech: The Kyodai brothers of Michinoku, Japan, played the shamisen at the opening of Semicon Japan outside of Tokyo. The Kyodai brothers are well known throughout Japan.

While it’s too early to declare a trend, perhaps, the agreement is not without precedent. At last year’s Semicon Japan, Japanese OEM giant Tokyo Electron Ltd. (TEL) announced that it would handle sales and support throughout the world for start-up NuTool Inc. and its copper electrochemical mechanical deposition tool and technology. The move raised a lot of eyebrows in the industry, but TEL heartily endorsed the Silicon Valley start-up. Tetsuro Higashi, TEL president and CEO, said that NuTool’s technology would permit the Japanese OEM to penetrate the market for interconnect process technology.

The idea of Canon’s and TEL’s embrace of American companies and technology would have seemed laughably ridiculous not too many years ago, when Japanese automobiles and electronics dominated America and there was talk that the United States would exit the chip industry all together.

Now, the roles have been reversed. Japan is struggling to move away from the troubled DRAM-dependent semiconductor business model and expand into other areas—system LSI, as opposed to system-on-a-chip, is the current buzzword on this side of the Pacific.

Canon and TEL aren’t the only ones looking west. Specialty etch tool OEM Tegal Corp. announced at the show joint development partnerships with three Japanese microelectronic companies. They look to Tegal for manufacturing process expertise in order to enter the market for nonvolatile memory.

Meanwhile, U.S.-based OEMs August Technology, Ultratech Stepper and Kulicke & Soffa, and European OEM Unaxis Balzers announced that they were joining Japanese tech and OEM companies Dainippon Screen Manufacturing, Ebara and Casio Computer Co. in the newly created Advanced Packaging and Interconnect Alliance (APiA). APiA wants to accelerate the development and implementation of commercially viable advanced packaging technologies.

Semi Japan 2001 in Chiba, outside Tokyo
While participation may be down, particularly among other Asian countries, many exhibitors expressed surprise at the number of Japanese customers at Semicon Japan particularly interested in advanced technologies, even though there is little, if any talk of equipment purchases at the current time.

Many of the OEM executives involved in these partnerships noted that as chip technology becomes more complex, it becomes more costly to invest. While Tegal’s Japanese subsidiary has been established in Japan for 16 years, its new partnerships weren’t struck solely on Tegal’s reputation. The Japanese economy has been hurting for so long that it has created opportunities for foreign companies to become more involved in the domestic Japanese semiconductor business, said Jim McKibben, VP of worldwide marketing and sales for Petaluma, Calif.-based Tegal.

This trend may be most dramatically evident in Japan, but the phenomenon isn’t limited to this side of the Pacific, suggested Mike Parodi, Tegal chairman, president and CEO. “I see a change in the complexion of the industry … It’s driving relationships that wouldn’t have occurred before,” he said.

The business climate has changed so much here, that some U.S. OEM executives are openly wondering what will happen to the Japanese chipmakers during the next upturn. With investment in technology seemingly at an all-time low in tech-hungry Japan, they question if the Japanese will be able to compete with the global market, or if they will eventually be forced to exit not just DRAM, but the chip market altogether.

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.