The geographic proximity advantage has proved the most powerful weapon for China IC design houses to develop the vast domestic market, as they can respond to local customers' needs for changing designs or increasing new functions much faster than foreign competitors including Taiwanese counterparts.

The advantage has enabled China's IC design companies to "intercept" orders meant for their Taiwanese counterparts, which have long enjoyed a robust niche market of chip designs for cosumer electronics and IT products in China, the sources said.

This is despite the fact that China IC design houses still lag behind their Taiwanese counterparts in IC designing capabilities, whether in designing touch-control ICs, LED driver ICs, or the latest fingerprint recognition chips and OLED driver ICs.

Over the past few years, China's IC design industry has grown rapidly thanks to strong policy support from the government, stable research assistance from academic units and continuous injection of funds from local capital markets.

As a result, many large-sized local IC design houses have sprung up in China, including Silan, RDA Microelectronics, and Spreadtrum Communications seen in early years, followed by Rockchip Electronics and Allwinner Technology, as well as the latest Sinowealth Electronic and Huiding Technology.

These major China IC design houses have managed to outperform Taiwanese counterparts in vying orders from domestic clients in China due largely to the geographic advantage, causing the revenues, gross profit rates and net earnings of Taiwanese IC designers to fall year on year.

This can be evidenced by the fact that Spreadtrum Communications has tapped into the market for 2G/2.5G chips that was dominated by Taiwan's MediaTek, and also penetrated the market for 3G chips and entry-level 4G chips which MediaTek was supposed to be able to dominate.

In addition, Silergy has quickly developed into a major player in LED driver designs due to strong domestic market demand in China; Sinowealth Electronic has won a significant share of the China market for LCD driver IC designs; and Huiding Technology has also successfully grasped over 50% of China's design market for touch-control ICs and fingerprint recognition chips. All these indicate the geographic advantage has worked well in helping China IC designs duplicate the Taiwan IC designers' dominant role in Taiwan's PC supply chains in the past.

In contrast, after enjoying a brilliant past in the mature market for chip designs for consumer electronics and IT products, Taiwan IC designers face many huge challenges, including technology upgrade, business transformation and how they can increase added-value of their products.

By: DocMemory
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