Cell phone chip house pledges to elevate country's design expertise

By Mike Clendenin

EBN
November 17, 2003 (3:00 p.m. EST)

A small Shanghai-based start-up working on RF chips hopes to capture 50% of China's fast-growing PHS cellular handset market, which today stands at roughly 23 million users and is growing by about 2 million users a month.

Led by a core group of overseas Chinese, Comlent Technology Inc. is looking to displace Japan to become the top supplier to China's home-grown handset makers, such as market leader UT Starcom. Comlent joins a small but growing number of Asia-Pacific start-ups that are tackling complex RF design.

Comlent is a tangible result of the Chinese government's policy to lure Chinese expatriates home by offering them corporate and personal incentives. The aim is to build a base of experts who can train local engineers and help seed the country's nascent IC design industry.

China already claims to have about 400 IC design houses, but most industry insiders say the number of serious players is well below 100. Only a handful have annual revenue of more than $10 million, and most are doing low-end, copycat designs for white-box goods and are not adept at identifying new market opportunities.

Kai Chen, Comlent's chief executive, said his company is trying to differentiate itself by bringing technology innovation to the table and mixing it with China's lower cost structure. "We're not just using Chinese labor to make the chip 10% cheaper; we're revolutionizing the whole architecture," he said.

Comlent wants to seize on an often heard complaint among PHS users in China: dropped calls. Current RF chips used in PHS cell phones communicate with just one cell site at a time, Chen said. Comlent's chip, which will use direct-conversion (zero-IF) technology, will simultaneously talk with four cell sites.

The single-chip, direct-conversion implementation, which puts the onus on the radio to bring the zero-IF, intelligence-only signal to the baseband, should deliver a cost advantage over superheterodyne, two-chip methods. With that, Chen estimates he can reduce the handset bill of materials by 10% to 20%.

First customer

A major, unnamed PHS handset maker in China has already paid Comlent's nonrecurring engineering costs and accepted engineering samples, according to Comlent. The chip will be made on Jazz Semiconductor's 0.35-micron BiCMOS process and is scheduled to ship in volume next summer. Comlent also has a 2.4GHz cordless-phone transceiver being made on a 0.18-micron RF CMOS process at Taiwan Semiconductor Manufacturing Co.

Comlent said it has no plans to expand into more mainstream communications chips, where it could run into stiff competition from established foreign companies, said Chen, a former IBM Microelectronics engineer. Instead, the company will stick with niche markets. It is just starting to do R&D on 3G and is considering a dual-band GPRS/TD-SCDMA transceiver. Most of the early work will be carried out by a team of senior engineers in Southern California who have come to Comlent from Broadcom, Conexant, IBM, National Semiconductor, and Texas Instruments.

Shanghai will remain the company's base for IC layout, system integration, and fab process engineers, who are easier to find here, Chen said. Experienced RF designers are typically harder to find, so Chen has hired a handful of inexperienced RF designers who are being apprenticed to a few senior designers.

Though it already has a major customer in hand, Comlent still faces uncertainty. The PHS market is arguably illegal in China because the Ministry for Information Industry (MII), China's IT regulator, has not officially sanctioned the use of spectrum for PHS service.

So far, so good

So far, the situation remains vague. The explosive growth of PHS this year (one telco provider went from 9.7 million lines in 2002 to 17 million by August 2003) is due to big pushes by China's biggest fixed-line providers: China Telecom and China Netcom. Neither has a license for wireless networks, so they loosely describe PHS as a fixed-line, limited wireless solution.

"MII has turned a blind eye," said Ken Grant, an analyst at Beijing-based telecom consultancy MFC Insight. The question is how much longer it will continue to do so.

The government may not have long to make its move. If the PHS network gets "too big," said Grant, "there would be a problem unwinding it all."

Comlent's Chen is among those betting the market grows so fast that the government will see the logic of keeping PHS in place.

Other chipmakers are also eyeing the PHS market. With advances in chip design increasing quality of service for end users, specifically when it comes to fewer dropped calls, the market could become even more attractive.

Chen is counting on that. Comlent estimates that it will take in about $5 million next year, pushing the company into the top 10 of China's fabless IC design houses. "By 2006, we can do $60 million," he said