Playing the China card

Chip makers hope open source taps a vast potential market

Bill Roberts, illustration by Daniel Guidera -- Electronic Business, 1/1/2005

China wants options in the computing platforms it chooses for its government offices, universities, businesses and just plain folks. It doesn't want to get squeezed in the kind of vise grip Microsoft and Intel have on the West, especially the United States.

"The Chinese government doesn't want to get locked into a Microsoft or Windows monopoly and wants to be involved with something it has some control over," says Bob O'Donnell, an analyst at International Data Corp.

As a result, the Chinese government is sponsoring several initiatives based on open source technologies, including the Linux operating system and chip architectures with at least some technical details available in the public domain. China's government has been a strong advocate of open source platforms for years and has adopted Linux as a standard, although the OS's penetration of China is still relatively small. The Chinese seek low-cost computing options for a billion-plus people and hope open source is the way to get there.

Some Western semiconductor companies understand this and are banking their China strategies on open source initiatives. Two recent examples are PMC-Sierra, which announced a partnership with Tsinghua University in Beijing to develop thin-client network terminals based on open source, and STMicroelectronics, which announced a partnership with China's Ministry of Science and Technology to develop Linux-based microprocessors for computing devices ranging from handhelds to supercomputers. PMC-Sierra expects to see products later in 2005, whereas STMicroelectronics is creating an entirely new chip architecture scheduled to take at least five years.

Is this willingness to join open source initiatives the price of entry to the Chinese market? "It is not likely that this is the only way to garner support from the Chinese government or Chinese industry, but it is one very strong tool for growing in the Chinese market," says Martin Gilliland, an analyst at Gartner Dataquest. "That being said, these programs need to help the Chinese people help themselves. If all they do is create a program that offers open standards but still sends the profits out of China, then they are unlikely to get the same level of support."

Matthew Hatch, director of advanced computing for the advanced systems technology group at STMicroelectronics—the division in partnership with the Chinese ministry—agrees. "The Chinese say that this is not an initiative to preclude others but to have strategic independence of choice. Anyone who is using Linux is trying to do that," he says. "If you drive around Beijing, you see signs of Sun, Microsoft, IBM." (IBM recently announced that it would license its Power microprocessor architecture to Chinese companies. The company's strategy is designed to drive more sales of its middleware in China, IBM said.)

To make these partnerships work, Western chip companies must demonstrate their value inside and outside China, Hatch argues. He says the STMicroelectronics project will use China as a starting point; he expects that the Chinese OEMs that eventually get involved will want to broaden beyond the domestic market, especially to India and perhaps Africa and South America. "This is not just an initiative to enter the Chinese market. It is an open source initiative for the global market, with China as the start."

Hatch says China's desire for open platforms offers a huge opportunity to semiconductor companies, because the fact that these platforms will be open means that any designer can get in on the action. Besides the Chinese ministry, STMicroelectronics' partners include the French Atomic Energy Commission and systems manufacturer Groupe Bull. In time, Hatch says, the company expects other firms, especially Chinese chip makers and OEMs, to join.

According to Gartner Dataquest, STMicroelectronics is the second-largest supplier of semiconductors to the Chinese market. The company operates chip assembly and test plants and employs more than 2,500 people in China. It has several R&D and product development alliances with Chinese universities, research institutes and manufacturers.

PMC-Sierra also is working with Chinese universities. A senior PMC-Sierra engineer, who is Chinese, has been working directly with researchers at Tsinghua University, one of China's premier technical schools, and teaching there, according to Doug Brownridge, vice president of corporate marketing. The Linux-based thin client project was a natural outgrowth of a combined development project between the university, PMC-Sierra, MIPS Technologies and ATI Technologies, he adds. Without its engineer in place at the university, PMC-Sierra likely would not have made this partnership.

The partners had already developed a thin-client board aimed at use in classrooms and Internet cafes, as well as for smart terminals, point-of-sale terminals, video kiosks, security cameras and robotics. Brownridge says he cannot name OEM customers yet, but he expects some product announcements in the first quarter of 2005. According to IDC's O'Donnell, the sky's the limit for thin clients in China, which have scant penetration so far.

PMC-Sierra certainly hopes so. Aaron Gilroy, manager of business development for network computing for the company, points out that many Chinese companies have already licensed the MIPS architecture, because they want to avoid Microsoft and Intel. "The Chinese are very suspicious of Wintel," he says.

As appealing as going open might be as an entrée to the market, Brownridge says, Western chip companies must be willing to do more than just play the open card. They must work with universities and government researchers to help the latter develop their own domestic technologies.

Byron Wu, an iSuppli analyst based in China, agrees. As important as the open strategy might be, he says, companies must be willing to offer expertise transfer to Chinese universities and companies. "The Chinese are still waiting for greater design capability in China," he says. "Western partners must be willing to teach local talent the latest technology."

From the Western chip companies' perspective, the other reason these partnerships are crucial is the human networking they can accomplish, Wu adds. Much Chinese business depends on whom you know. By working directly with Chinese entities—government departments, universities and domestic companies—the Western chip companies are building the kind of relationships that will be important for future projects and business, he points out. "If you have these high-level relationships with the right people, you will have good competitive status in China."