Semiconductor experts say China's chip industry bubble is a good thing

Recently, the world's largest semiconductor industry intellectual property provider ARM (LSE: ARM, NASDAQ: ARMHY) announced the 2006 second quarter unaudited earnings report shows that the global digital products have occupied the main chip market share of 75% of the British electronics company is still strong growth in the first half operating income at 130 million pounds, an increase of 16%.

Among them, the mobile phone chip occupies an important share, ARM is no doubt that the mobile phone chip boss - GSM mobile phone has more than 85% of the mobile phone chip is based on ARM, and the CDMA market is as high as 99%. HUAWEI, ZTE, Datang, SMIC and other Chinese chip manufacturers are using ARM intellectual property licensing. This is almost the envy of the number of Intel.

However, this is only a small piece of the global chip industry chain. With the rapid development of global consumer electronic products, consumer electronic products essential chips will usher in greater development space, according to ARM China President Tan Jun estimated that the chip industry chain (intellectual property - chip design and manufacturing system -- taking in every aspect of the market size): This is the intellectual property of this chip the current global market size of about $1 billion 500 million; chip design OEM is 25000 plus million US dollars; the end product market is $250000. It can be said that this is the world's largest industrial chain."

In this industry chain, ARM played a share of the upper reaches of the market (chip intellectual property) profits, it currently occupies 28% of the market share of $420 million.

ARM was founded in 1990, age than China's HUAWEI, Lenovo is also small, it is how to create this miracle in more than a decade?

Yesterday, the newspaper interviewed the company's president, Dr. Tan Jun. He explained the unique business model of ARM, as well as the Chinese chip industry, and other electronic products, such as multi-functional mobile phones, car navigation and other electronic products.

Reporter: ARM currently occupy the world's digital cameras, MP3, Bluetooth, games, printers and other product chips about 75% of the market, but the ARM was founded only in the past 16 years, why is there such a phenomenal growth?

Tan Jun: first of all, in recent years, the development of the world's personal consumer electronics are inseparable. Almost every consumer electronics products need chips to achieve functions, such as MP3, mobile phones, TV remote control, etc.. Consumer electronics and high demand, fast updates, competition is fierce, so the market is also growing.

ARM does not produce chips, but the development of intellectual property rights, and then authorize the intellectual property rights to the chip designer. This pattern is very different from Intel, X86 personal computer chips from Intel, from the development of intellectual property to design and manufacture are doing their own, Intel chip intellectual property is their monopoly. The ARM will be licensed to many of the world's leading semiconductor technology, software and OEM manufacturers, each vendor is ARM related technologies and services. At present, almost all of the major semiconductor companies have signed a licensing agreement with ARM hardware technology, including Intel, IBM, LG semiconductor, NEC, SONY and PHILPS and other large companies.

These companies produce chips to downstream manufacturers to end product sales, we only charge royalties.

Reporter: currently based on ARM intellectual property products have reached 5 billion, the average number of copyright fees?

Tan Jun: not high, the average copyright fee of about 8-9 cents. We expect that in 2006 this year, the use of ARM intellectual property products will reach 2 billion, while X86 is less than 200 million. This is equivalent to the ticking of a second, there are 70 ARM in the production and sales of related products.

Reporter: there may be second ARM in the future?

Tan Jun: since the establishment of ARM, there are hundreds of Companies in the replication of our model, but 95% died. There are 5% I think it is difficult to keep up with us, because we went up the scale, cash flow is abundant, and ARM in the beginning of the transformation of the 4 years ago, is no longer closed to do intellectual property providers.

Reporter: why transformation, how to transition?

Tan Jun: ARM is in the top of the chip industry chain, it is far from the other end of the final consumer, this is the biggest weakness of the company's intellectual property rights, it is not clear to the consumer's needs and preferences, to oneself. So, in order to develop products closer to consumer demand, we started from 4 years ago with telecom operators and content providers to understand the needs of ordinary consumers from their preferences.

Reporter: in the chip industry chain, ARM share only the upper part of the intellectual property rights of this part of the profits, why not penetrate the middle and lower reaches?

Tan Jun: in fact, we have tried, want to learn Intel, and do intellectual property products, but in the end it is not competitive. Do OEM (such as SMIC) requires a lot of investment, and we do not have so much investment. More back-end system assembly companies (such as NOKIA) need a good brand, which is not ARM director.

Reporter: ARM business development model in China is like? Is there any difference with the overseas model?

Tan Jun: we are entering China 5 years ago, at that time in a Meng, found no China chip industry chain, such as SMIC, grace, OEM manufacturers are still "piling", and chip design company big few. Later, we chose to work together with these enterprises