Crazy Consumer Electronics World: Interview: How China is orchestrating a semiconductor revolution

If you aren't familiar with any China-based semiconductor companies, the chances are you will be soon.

According to British chip designer ARM, the region is innovating at a faster pace than ever before to meet the needs of its 1.3 billion-strong consumer base, and the West is beginning to sit up and take notice.

IC Insight's McClean report, which ranks the top 50 global semiconductor suppliers by sales, saw Taiwan-based MediaTek jump from 22nd to 16th in 2013 after almost doubling sales.

The company has a busy schedule: it may be supplying low-cost processors for Amazon's Kindle Fire HD X 2, Google's next Nexus phone and a slew of incoming mid-range Android devices from Lenovo.

TechRadar Pro spoke to Noel Hurley, Deputy General Manager of ARM's CPU Group, to find out more about the Greater China region's fast-evolving semiconductor revolution.

TechRadar Pro: MediaTek, UMC and other China-based semiconductor companies seem to gaining traction these days. What is the region doing differently?

Noel Hurley: We jokingly talk about "China Time", meaning there's a demand for responsiveness across Asia where people are looking not only to innovate, but innovate quickly.

They have to spin [out] chips quickly to be able to respond super fast to changes in trends within the marketplace. Where maybe a Western customer would expect an answer in a day or two, an Asian person would expect it in an hour or two.

You have to be very responsive to the region's companies, which expect - both externally and internally - very fast turnaround times and innovation.

TRP: Is that because the region's consumers are demanding faster innovation and new devices more than those in the West?

NH: The classic impression of China copying the West is rapidly changing. That whole region that includes China, Taiwan, Korea and other countries are innovating for a local market, rather than trying to copy Western products.

Maybe five or seven years ago you would see copies of Western products, whereas now we're seeing their own innovation more suited to the culture in the East.

TRP: We're starting to see innovation from China-based smartphone manufacturers - like the swiveling "selfie" camera on the Oppo N1…

NH: Exactly. We're also starting to see triple-SIM smartphones in Asia, which is where you have a middle-class, regularly-traveling section of the population on different call plans depending on where they are.

Instead of taking the back off a phone to exchange the SIM, people want three SIM slots down the side of it so they can insert their Hong Kong, mainland China or Taiwan cards in. That local economy setup presents opportunities, and we're starting to see move innovations around them.

Oppo N1

TRP: Is the multi-SIM thing something that's done to support to 'bring your own device' (BYOD) trends or is it more for general consumers?

NH: Well, business people are consumers too. And a phone is also a status product - people want to buy good-looking phones that also fit their pockets.

The Asian consumer is more cost conscious - if you go to Chinese websites that advertise Chinese handsets you'd see that many of them are offered at a much-reduced price, but still offer a good smartphone experience for cost-conscious people.

Again, many of the local suppliers are adapting their products to suit that market. And the local markets are huge - they're among the fastest growing markets in the world and many Western companies are looking to try get into them as the growth projections there are better than many in the West.

TRP: Has ARM's IP licensing business paved the way for a number of low cost SoC vendors in China to enjoy substantial marketshare?

NH: It's not that ARM's allowing that to happen - we are as responsive to market change as anyone. When we set up the company in 1990, the ethos was always that it was going to be a global company from day one.

Certainly Asia, starting in the 90s with Japan, was a key region for us anyway. That's grown with Taiwan and companies like MediaTek and RealTek - we've had long relationships with them right from the very earliest stages that have built up over time.

We've got multiple sales and development offices in the greater China region and we continue to invest there. You can't have a global standing without having a very strong presence in that market and without forming very big relationships with the big key companies in that space.

We recognise that many of these companies are doing very innovative things, starting with the TV space. Many Chinese players are seeing tablet opportunities too - I'm thinking of Allwinner and Rockchip in particular - so for us that presents an opportunity.

We're able to license those guys processor designs, and increasingly processors plus graphics processors and the components that go around them.

China is absolutely a key region, and in some ways yes - our business model has enabled those companies to effectively get hold of processor technology.

ARM's business model is about democratising processor technology pretty much in the same way that US or European companies have been able to license their own products.

We don't necessarily differentiate as to which region they come from or what product they have. It's done by customer need, not any particular manipulation from our side.

TRP: Some Android handsets are being manufactured for under $100 in China and sold for not much more. Could those low prices impact what devices are sold for in the West?

NH: Yes, I think they will, and product prices will fall. But I think that in the end it's about how much profit you make off each particular product.

We'll see low cost devices but we also know that consumers can almost counter that - prices will go down but they will still purchase products on more than just technical specifications.

They make value decisions based on the aesthetics of devices, while others are based on less tangible things like brand and desire. Consumers might pay a bit more for a particular industrial design or brand or product.

Others are blind to any of those types of things and will go for the cheapest or whatever does the job. There is a full spectrum of consumers that you could find anywhere in the world.

In the West, we'll see low-cost products coming into the marketplace - we've seen supermarkets like Tesco sell the Hudl and expect such trends to continue - meaning we'll have a good variety of different types of products.

TRP: Where do you see ARM's relationship with China-based semiconductor companies going in the next few years?

NH: We will continue to invest in the region and develop our relationships with vendors there, which we believe are good today.

We're making sure that we're close to where the customers are and that we understand their needs and look to supply what they're after.

Another comment I'd make about China and the Greater china region is that many of the companies there value a relationship, and they value strong relationships culturally.

TRP: Is that not so much the case in other parts of the world?

NH: It's not a case of the West versus the East. Many companies value a long-term relationship and they make decisions about who they'll partner with.

Our partnership model works very well in the China region as it does in Europe and the US.