Agilent: Old Dog Learns New Tricks in Chengdu

Travelling the Silicon RoadCHENGDU, China – Being in the right place at the right time — a cliché, except perhaps in business, where timing and geography can often mean the difference between success and failure.

Especially for a U.S. technology company looking to take advantage of the booming market here.

So when Palo Alto, Calif.-based Agilent Technologies Inc. announced a joint venture (JV) 10 months ago with a fellow test and measurement instrument maker based here, Chengdu Qianfeng Electronics Ltd. Corp., it raised a few eyebrows in the West. Why form this JV now? After all, Agilent, and before that its progenitor company Hewlett-Packard Co., have a long history in China.

HP was one of the first U.S. tech companies courted by China; in 1977 Dave Packard was one of a select group of non-governmental Americans invited to visit China. He returned in 1979 when joint venture talks began. The Hewlett-Packard Representative Office in China began selling HP products in the country in 1981; then China Hewlett-Packard came along in 1985, becoming the first Sino/U.S. high tech JV.

And why choose land-locked Chengdu, in the Sichuan province of central China? Why not a more obvious place, say Shanghai or Beijing?

The decision to form a JV with an indigenous test and measurement company all came down to speed and access to the local Chinese market, according to Agilent and HP veteran Max Yang. Yang is VP and GM of the JV, dubbed, Agilent-Qianfeng Electronic Technologies (Chengdu) Co.; he’s been with Agilent/HP since 1981. Born in mainland China and raised in Taiwan, he lived and worked in the United States for more than 20 years before returning to Asia to work for China Hewlett-Packard.

While the nearly $2.5 billion Chinese electronics industry and consequently the whole supply chain is booming, the primary value that China brings to the global industry is low cost manufacturing. Thus one of the principal demands of the Chinese electronics manufacturer – as well as those in other parts of Asia – and consequently one of the principal drivers of the test and measurement market here, has been cost effectiveness.

“Low-cost solutions are critical to the Chinese market; that is what they [are] needed locally,” Yang observed. “The areas we’re focused on here are things like inspection and maintenance, education and bench repair.” But Agilent historically has concentrated more on lucrative high-end markets in test and measurement, such as high-speed oscilloscopes.

Yang is quick to note that low cost doesn’t mean low quality, an issue that Agilent is obviously sensitive too, setting up manufacturing in China. “In my mind, the quality has to be of Agilent standard or even better,” he said. Low quality means a high failure rate, and that means rising manufacturing costs – “the customer has to see our Chinese product as good or better.”

So all these things indicate the necessity to establish a local Chinese production facility, one that could serve the needs of the local Chinese market, but other parts of Asia as well, such as South Korean and Taiwan.

But building from scratch would take two to three years, and Agilent, once it decided it needed local production capacity, wanted to act quickly. Indeed, in terms of the rapidly developing electronics market here – the forecast annual growth rate for China’s electronics industry is around 16 percent for the next three years — two or three years is an epochal period of time.

So going the JV route was an obvious choice. “The whole purpose was speed,” Yang said. As for its choice of partner and location, one of the principal drivers in the Chinese domestic electronics market is telecoms and RF applications, and that’s not likely to change soon. This is a country where half of the 1.3 billion population doesn’t have access to a phone, either land-line or mobile, and the central government plans to continue rapidly expanding the country’s communications infrastructure.

Qianfeng, a privately owned Chinese test and measurement company that has been around for nearly as long as Agilent/HP, happens to make communications test equipment. After researching the market players in China, there were two or three good candidates for a JV partner, but Qianfeng was an obvious choice, Yang said.

The fact that it is not a state-owned company was an important aspect. “Our experience is, it’s very hard to cooperate with state-owned companies,” he explained. There is a level of bureaucracy involved in state-owned corporations that one doesn’t find in privately owned companies, which can get things done more quickly and efficiently.

Chengdu: A Well-Kept High-Tech Secret

As for Chengdu, why put your electronics manufacturing business in a land-locked city in central China? This capital of Sichuan province is more likely to evoke thoughts of wonderfully spice cuisine in the Western visitor’s mind, rather than the high-tech lust inspired by the gleaming new towers of Shanghai, or the blossoming special economic zone of Shenzhen.

For one thing, it is one of many other growing technology/manufacturing centers outside of Shanghai, like Xiamen or Xi’an. Much like Portland, Ore., or Austin have become alternatives in the United States to Silicon Valley, places like Chengdu offer many of the benefits without some of the problems of Shanghai.

In the past the Chinese central government, with a nod to national defense, put key technology areas well inland, where they could not be easily attacked; Chengdu was home at one time to China’s national aerospace efforts; much of the electronics industry here today can be traced to those roots.

As for the Agilent JV, Qianfeng has substantial facilities in Chengdu, as well as a pretty good RF team, Yang explained.

“As a side benefit, it’s a very cost effective location,” Yang said, noting that housing costs are about 30 percent of what they are in Beijing and Shanghai. And because there are fewer large multinational firms here, it is easier to retain talent.

A lot of that talent comes out of the University of Electronic Science and Technology of China (UESTC), which traces its roots back to the creation of the Chengdu Institute of Radio Engineering in 1956, the first electrical engineering college in China. Today a multidisciplinary university and still one of the top electrical engineering schools in China, it graduates several thousand EE undergrads a year, a thousand or more graduate students, and a few hundred PhDs.

In the past, graduates of UESTC often had to go elsewhere in China to find jobs. “Our experience in the last few months has been that we’ve attracted a lot of good engineers, experienced engineers, because they want to come home,” Yang noted. “I don’t think we have a concern … about sourcing the talent locally.”

Employee retention isn’t a big issue either, as there aren’t many multinational companies competing for engineering talent here. As Agilent-Qianfeng closes in on its first year of operation it currently employs nearly 170 employees – some 60 dedicated to R&D – and the attrition rate has been near zero for the company, Yang said.

But there are other high-tech concerns to be found in Chengdu though; Qianfeng is hardly isolated. There is a lot of semiconductor packaging business in Chengdu. In fact Intel Corp. recently built a huge packaging factory here, and Chinese foundry Semiconductor Manufacturing International Co. plans to build a packaging foundry here, as well. Another U.S. tech company with an early presence in China, Motorola Inc., has facilities in the city.

There are drawbacks to being located in this inland city of some 4.1 million people. Far from a major port, the city does have a river running through it, but it doesn’t serve as an artery for shipping traffic.

For an electronics company that sells a lot of low-cost consumer electronics that depends on high-volume sales, the transportation infrastructure would be an issue, Yang conceded. But for an instrument maker like Agilent-Qianfeng, it’s not a significant issue. In fact, being a smaller, inland city, the English language skills of the workforce are not what one would find in Shanghai or Beijing, he noted, and being a multinational in China, having a multilingual workforce is essential.

Like many Chinese cities, the government here is working hard to court high-tech industry. Yang came back to Asia in 1985 to serve as HP’s controller and administration manager, responsible for the negotiation and formation of China Hewlett-Packard.

Electronic News Travels to China“The difference between now and then is unbelievable,” Yang said. “The difference in attitude is day and night.” Twenty years ago, getting a business license meant jumping through a series of bureaucratic government hoops, a process that took more than a year and half, he recalled. Agilent and Qianfeng inked their agreement in November of last year; they had their business license by the end of January, when they officially launched the joint venture.

By the time the company will be celebrating its year anniversary at the end of next January, it should be readying the launch of its first test and measurement instrument specifically geared for the Chinese market.

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.

Open Architecture vs. Open Standard

Editor’s Note: I included this story, along with the other two bearing this date, October 14 (Open Qualifying Technology; Can Chips Make You a Better Person?) not because I thought they were particularly brilliant journalism, but because they bore datelines from three different countries — one from entirely separate continent — all in the same issue. Pretty cool, no? I doubt I’ll ever win a Pulitzer, but at least I can lay claim to this.

ITC Debates One for All, All For One ATE

BALTIMORE — Not only has the dust not settled in the automated test industry, but the open architecture movement has stirred it up even more.

Alas, Electronic News (the print edition): we hardly knew ye!Last year at the International Test Conference (ITC) it was evident that change was blowing in the wind. This year it would seem that the ATE industry is changing in some ways almost as much as the devices it tests.

Last year, the question was what to standardize: the test socket, the tester architecture, the tester language, EDA software, and so forth. Design-for-test (DFT) and test costs, a perennial ITC topic, was on everyone’s lips.

This year, all of the large ATE companies now have, or are migrating to, a single platform, and several have injected their platforms into the open architecture fray. NP Test became the latest ATE vendor to do both. That fray grew in scope, of course, last summer when Advantest Corp. announced the creation of the Semiconductor Test Consortium (STC), which has vowed to take the open architecture idea one step further and create an open architecture standard for the entire industry, independent of any one vendor. Teradyne Inc. founder Alex d’Arbeloff made that topic the theme of his opening keynote address, thus setting a theme for this year’s ITC.

Just where all this open architecture dust will settle and which companies will be left standing remains to be seen. In any event, the ATE industry continues to evolve.

d’Arbeloff co-founded Teradyne in 1960 and is now involved in academia at MIT. During his keynote, he took to task the open architecture standard being pushed by Advantest, Intel Corp. and others involved with the STC. This business model will cut ATE company revenue, d’Arbeloff said, and will thereby slow R&D, while it will leave the headache of system integration up to chipmakers.

“Customers, while congratulating themselves on driving test equipment down from 2 [percent] to 1.5 percent of sales, will spend 10 or 20 times that in trying to make everything work. Worst of all, the pace of technology will slow down,” d’Arbeloff said. This will in turn commoditize ATE, making it resemble the PC industry with all of its related problems, he argued.

But by leveraging R&D of all the vendors through an open standard architecture on which various third-party, plug-and-play instrument modules can be utilized, advanced modules can be brought to market much quicker, countered Sergio Perez, VP of sales for Advantest’s U.S. subsidiary.

In any event, the STC is progressing rapidly. It announced several new supply chain vendors as members and plans to unveil its proposed architecture by the middle of next year. At the same time, STC ATE vendors are developing several tester modules designed for the architecture that are being developed concurrently.

As for the major ATE vendors, Perez said there has been dialogue between them and the STC. He suggested that smaller vendors must pave the way for participation in the consortium so that the large vendors feel comfortable with the model.

The big players still have reservations. “Tell us how to do it so you feel comfortable. Don’t tell us you don’t like it, tell us specifically what you don’t like about it,” Perez said.

But customer interest remains high, according to Advantest. “Customers are down this road further than I expected,” he said.

In the meantime, the ATE industry, both vendors and customers, continues to gravitate toward single-platform systems that have an open architecture in the sense that they are open to third-party instrument suppliers; even as the architecture itself is proprietary.

“A massive platform convergence is underway. The revolution is occurring, not across the industry, but across each ATE company,” d’Arbeloff said.

NP Test Inc., formerly Schlumberger Semiconductor Solutions, announced here that it would roll out such a platform during Q1.

At the same time, NP Test announced that it was migrating the capabilities of its high-speed digital tester, the ITS 9000ZX, to its EXA3000 platform. This gives NP Test a platform scaleable from 200MHZ to 3.2Gbits/sec. data rates, with a pin-count of up to 1,280 pins, explained Jean-Luc Pelissier, VP and general manager of NP Test.

“[Currently] some of the chipsets … are coming with fairly high-performance buses,” Pelissier said. Some of these high-end devices also require pin-count beyond the 1,024 pins commonly found on testers designed for this market segment, he added. By upgrading the EXA3000, this provides high-end performance at a relatively low price-point, he said.

But STC proponents question the proliferation of competing open architecture platforms. If a single vendor supplies scaleable testers for the multitude of devices produced by a large chip company, it puts the chipmaker at risk, Perez suggested. With a single open standard, that risk is moved, he said.

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.

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.

Crossing the Cultural Divide, Part 2

Editor’s Note: this is the second part of a two-part series. Here is the first part of Crossing the Cultural Divide.

Japanese Overcoming Nationalism on Both Sides of Pacific Ocean

TOKYO — As the semiconductor industry helps the world become a smaller place, it has suffered the growing pains of the very changes it helped foment.

Alas, Electronic News (the print edition): we hardly knew ye!Those growing pains involve transitions that haven’t always been easy for companies on either side of the Pacific. Nevertheless, the United States and Japan, two of the world’s economic powerhouses, have each managed to learn from the other as they head into the 21st century.

By the 1970s Japan had emerged from its post World War II rebuilding period as an economic giant. It took what it had learned from America and put it to good use, noted Kiyoshi Miyasaka, senior managing director for Tokyo-based Advantest Corp.’s automated test equipment and handler interface business groups. Forced by economic necessity to respond, American industry in turn looked to its perceived nemesis in the 1980s in order to learn.

“Americans were so clever to combine American ways with Japanese ways,” Miyasaka said, adding that in the 1990s, U.S. corporations managed to surpass their competition outside the United States by incorporating not only Japanese but also European business practices to become truly global entities.

“For myself, I’m thinking about how to mix the cultures not only from the States, but from the European people and the Indian people as well,” Miyasaka said.

It is often a dilemma for companies like Advantest, which really have no choice but to grow beyond their country’s borders if they wish to continue to grow. “Fortunately or unfortunately, 70 percent of our sales comes from foreign trade,” explained Toshio Maruyama, executive managing director and senior vice president of Advantest’s automated test equipment sales division.

In theory, business should be business regardless of borders. After all, Japanese chipmakers face the same market demands and problems that their U.S. counterparts do, such as lowering the cost of test. “Quality and price are the same. In that sense, there is no difference,” Maruyama said. “To my mind … it’s seamless. Business is business. The product is the same. That’s my message to my staff,” he added.

Japanese executives from Advantest and Tokyo Electron.

Following that belief, in April 1999 Advantest consolidated its global sales force, both foreign and domestic, and began directing its international subsidiaries to develop localized support and R&D In addition, Advantest instituted global accounting several years ago. The company has also outlined a five-year goal: to offer the same product price and the same level of customer support anywhere in the world.

But theories face challenges when put into practice. One of the biggest challenges Japanese companies must overcome while doing business with American and other foreign customers is a nationalistic bias — its own as well as that of foreign corporations.

Chipmakers, regardless of which side of the Pacific they are on, often prefer a local tool supplier, their logic being that a local supplier can offer better customer support. Also, Japanese executives point out that foreign customers tend to question if a domestic supplier might give preference to a domestic customer over a foreign one. At one time, this was probably the case no matter on what side of the Pacific a company did business.

So, just as American companies have often had to establish Japanese subsidiaries in order to break into Japanese markets, Japanese companies have had to do the same in order to penetrate American and other foreign markets. It has become a matter of providing a competitive level of service as well as overcoming bias. “An important point is not just selling hardware and software, but we have to support it,” Maruyama said. “The important point is to support the customer. That has to be localized.”

The largest Japanese tool supplier, Tokyo Electron Ltd. (TEL), is even taking its operations one step further. The company is locating certain manufacturing operations in the United States. Tetsuro Higashi, TEL’s chief executive officer and president, noted that the nature of the relationship between chipmaker and tool supplier is very close. In order to penetrate the market in the country that spawned the semiconductor industry, “we need a very deep root in the United States,” he said. “But it takes time.”

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.

Crossing the Cultural Divide, Part 1

Editor’s Note: this is the first part of a two-part series. Here is the second part of Cross the Cultural Divide.

For Japan, Penetrating U.S. and Global Markets Means Making Changes

TOKYO — The struggle for domestic corporations in any country to become global means more than just selling tools or other products outside their national borders. Often it means a clash of cultures that forces a company to rethink the way it does business, adopting different, if not outright foreign, means of getting things done in order to compete internationally.

Alas, Electronic News (the print edition): we hardly knew ye!Nowhere is this more evident than in the globalization of Japanese semiconductor equipment companies. Just as American companies have eyed Japanese markets, Japanese companies seek to become competitive forces on the other side of the Pacific. As a result these companies have had to overcome the cultural and political obstacles that separate the United States and Japan.

“As a matter of fact, the conflicts in Japanese business culture in the United States started years ago,” observed Tetsuro Higashi, chief executive officer and president of Tokyo Electron Ltd. (TEL), the largest semiconductor tool maker in Japan and the second largest in the world. Those conflicts extend back 150 to 160 years ago, Higashi suggested. “Since then we have been struggling.”

But those struggles have paved the way for change on both sides of the Pacific. For many Japanese companies, competing in America and around the globe has meant changing the decision-making process.

Higashi observed what many others have also pointed out: that leadership and decision-making within American companies tends to follow a top-down model, whereas Japanese companies tend to be much more consensus based; the organization as a whole plays a much more central role than the chief executive officer.

“In Japan it takes a long time to make one decision,” Higashi said. “But once it is decided the action is very quick.” This lengthy time preceding action can frustrate U.S. companies and executives, he added.

 Technicians assemble memory testers at one of Advantest's production facilities outside of Tokyo.
Technicians assemble memory testers at one of Advantest's production facilities outside of Tokyo.

It can even frustrate Japanese executives at times, once they have become used to American decision-making methods, said Toshio Maruyama, executive managing director and senior vice president of Advantest Corp.’s Automated Test Equipment Sales division. Maruyama spent 10 years helping Advantest establish a presence in the United States before returning to work in Japan.

“I agree with the American style,” Maruyama said, adding that the Japanese style of decision making, with its potentially long and numerous meetings, can affect productivity.

Of course, in the volatile world of semiconductors, time is often a critical factor. This is why TEL has taken a cue from its U.S. brethren and reorganized its corporate structure. Three years ago, it split its executive functions from its board of directors; in Japan typically the board also handles what in the United States would be considered executive duties and powers. Now TEL’s board oversees the fundamental policies and long-term goals, while its executives set corporate strategy to achieve the company’s goals and handle day-to-day operations, Higashi explained.

TEL may have an historical edge over other Japanese companies when it comes to understanding American business practices. TEL was founded in 1963 as an electronics import/export company and had considerable dealings with U.S. suppliers and customers from the beginning.

“Compared to other Japanese companies, our understanding of the American way is much deeper, I think,” Higashi said.

Indeed, TEL has been a leader among Japanese in adopting the American custom of the stock option. “We are the first company in Japan to offer stock options through the entire (corporate) group,” not just the parent company, Higashi explained.

Of course, it only recently became legal for Japanese companies to offer stock options in this manner, but then it is a foreign concept after all. As Advantest’s Maruyama explained, until recently employee turnover in Japan was virtually nonexistent. The Japanese, both employer and employee, saw employment with a company as a lifetime commitment, which has made it difficult for Japanese companies establishing U.S. subsidiaries to adjust to American practices of merit and performance bonuses and stock options in order to attract qualified candidates.

“It’s a very tough job,” Maruyama admitted, “this is one bottleneck we are having.”

But that bottleneck may soon be opened. “We are getting better though,” he added, noting that this phenomenon was one of the reasons behind Advantest’s announcement last fall that its U.S. subsidiary, Advantest America, would be publicly traded on the New York Stock Exchange.

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.