Spreadtrum Scores a Win

Spreadtrum looked like it was in bad shape given the competition from MTK in the domestic mobile phone gray market and its lack of headway in other markets, but perhaps things are looking up. Apparently, Samsung has agreed to use Spreadtrum baseband chips (link).

Movement to Services a Threat to China's Telecom Equipment Makers?

A growing trend in telecommunications has been the outsourcing of network operations from the telecom service providers to the telecom equipment markets (see for example this Wall Street Journal article). While Huawei has been cognizant of this trend for several years and has even published reports about it, a real question remains as to whether or not Huawei and ZTE will be able to meet the challenge of the move to services-cum-equipment model that appears to be emerging.

The DRAM Debacle Part II: Whither Taiwan Memory?

Taiwan's government has backed away from one possible blueprint for the government-sponsored memory chip firm, Taiwan Memory, announced last week to consolidate the DRAM sector into Taiwan Memory. Taiwan DRAM firms have been expressing a distinct lack of enthusiasm for the prospect of joining Taiwan Memory (link here), and Minister of Economic Affairs Chii-Ming Yiin announced on Thursday that the tentative plan now is to rent fab capacity from the separate DRAM firms for Taiwan Memory. Are the memory firms in Taiwan holding out for a better deal from the government? Probably so as these firms cannot survive the downturn on their own. What further complicates any merger are the separate deals these local firms have with larger foreign partners, principally Elpida and Micron. Last week the government suggested that Taiwan Memory would choose one or the other of these foreign firms as its technology partner so both firms have incentives to keep their current partnerships rather than losing them in consolidation.

Intel's Fab in Dalian Delayed

There have been reports (link here) that Intel's fab in Dalian will be delayed. Intel denies it of course, but Intel would be wise to deny it since any delay will anger China's government. Intel would also be wise to delay it given the harshness of the current downturn. Given these realities, chances are Intel is delaying it but won't ever publicly confirm it is doing so.

The Plot Thickens in Long-tan Science Park Case

Lee Jie-mu, the former head of Hsinchu Science Park Administration under Chen Shuibian, has admitted that the deal to buy land from the Koo family was done at the behest of President Chen. Apparently, the National Science Council's chief was kept in the dark about the deal although vice premier and head of the Council of Economic Planning and Development, Lin Hsin-yi, knew about the deal and was opposed to it (link here).

Vivek Wadhwa on the Reverse Brain Drain: The Implications for China

Vivek Wadhwa on his Business Week blog recently wrote about his research team's findings concerning the reverse brain drain of skilled immigrants from the US back home (link here). His research on this topic has focused mainly on Indian and Chinese immigrants. While I pointed out this worrying trend three years ago in an op-ed in the San Jose Mercury News (link here), the work by Wadhwa and his colleagues has gathered evidence of the growing dimensions of this reverse brain drain. Undoubtedly, losing these skilled immigrants is a loss for the United States, but the implications are not all positive for China.

What should worry China most about Wadhwa's findings is the relative youth of the returnees to China. The average of these Chinese returnees was 33. We often tend to think of technology workers as relative young and that this youth can bring a fair amount of new insight, energy and entrepreneurial enthusiasm. However, I have heard plenty of complaints from VCs, technological entrepreneurs and other industry insiders in China that many of these young returnees returned too soon without the requisite experience to be entrepreneurs or top managers in new China-based start-ups. Evidence from Wadhwa's study shows that these returnees enjoy a substantial move up in the ranks of management upon their return to China, but what is good for individual returnees may not be good for the development of China's tech sector. Ironically, these insiders generally feel China would be better off if these returnees stayed in the US to accumulate further experience before returning home. In recent years too many inexperienced returnees have taken on levels of managerial authority in China-based firms that they are ill equipped to handle.

What should also worry China are the factors that may turn the tide back in favor of emigrating to the US. It is clear that over the last several years Western VCs were becoming less and less willing to throw good money after bad in China even before the financial crisis dried up credit all around. Thus, even without the financial crisis, the VC environment was becoming much tougher. Although the survey by Wadhwa and his colleagues was done in 2008, it probably did not capture the full effects of this change in funding opportunities possibly because of some selection bias among the respondents. One could think that the financial crisis, having started in the States, would impact America more than it would China, but I firmly believe the entrepreneurial side of the tech sector in China will be hurt badly. Certainly China will probably not slip into negative growth, but with its export-oriented economy suffering from lack of demand from the rest of the world and the Chinese consumer missing in action, there were be many fewer appealing opportunities for China-based ventures. In effect, the China bubble of overeager VCs has popped just as the world has been hit by the financial crisis. It is hard to imagine the type of venture funding of years past will be readily available over the next several years. Even before the financial crisis I had heard many stories of disillusioned returnees heading back to the States after they realized the road blocks (institutional, legal and technological) that still act as barriers to sophisticated tech entrepreneurship in China. The growing crisis may just accelerate the reversal of the reverse brain drain and this "return" to emigration could last at least several years.