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20% of nation's chip firms may go under

MORE than 100 Chinese chip designers, or 20 percent of the nation's total, will go bankrupt within two years due to cutthroat competition and the economic slump, a United States-based research firm said yesterday.

Chinese 3G chip design firms, however, will have huge opportunities as the country only just issued 3G licenses in January, according to iSuppli Corp.

Struggling through the global economic crisis, China's young fabless industry - a technical term for companies that design microchips but contract out their production rather than owning its own factory - faces reduced customer need, tightened cash flow, lots of "me-too" products and price competition, according to Vincent Gu, an analyst at iSuppli.

More than 100 Chinese chip firms are forecasted to disappear within the next two years. At present, about 400 to 500 fabless firms exist in China.

There have already been casualties in the industry - the home-grown 3G chip designer Commit Inc folded last year because of a shortage of operational capital.

"The firms should change their business model from 'do more for less' to specializing in one or two areas," said Gu.

Most Chinese fabless companies do everything from market analysis, production definition, chip architecture, front-end and back-end design, to promotion, sales and customer service, which increases their overheads and slows their market-response speed.

However, chip designers for the next-generation mobile communications industry will fair much better, analysts said.

China issued 3G licenses to three carriers in January. The licenses will stimulate the economy and give a boost to all 3G firms from chip designers to equipment makers, mobile carriers and service providers, Li Yizhong, head of the Ministry of Industry and Information Technology, said recently.



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