Rockchip, Allwinner challenging global chipmakers

Two Chinese companies scarcely known outside their home country have amassed almost one-third of the market for tablet chips in less than a half-decade - creating headaches for top semiconductor makers led by Intel Corp.

Rockchip Electronics Co and Allwinner Technology Co increased sales from a combined 0.3 percent of the market for tablet computer processors in 2010 to more than 27 percent just three years later.

Their Asian predecessors such as Taiwan Semiconductor Manufacturing Co and Samsung Electronics, took decades to develop the expertise and scale to make an impact. These Chinese upstarts, by contrast, skyrocketed through the rankings by taking the kinds of risks nimbler companies can afford, and by relying on chip designs from United Kingdom's ARM Holdings Plc.

"Before it was like building something brick by brick, but now it is as though you can build a high-rise in 10 days," said Feng Chen, Rockchip's chief marketing officer. "There's still a lot of challenges, but we are standing on the shoulders of giants instead of climbing up from scratch."

Adding business in China is crucial for ARM. China's share of global chip consumption may hit 60 percent in coming years, yet its production is likely to reach only about 15 percent next year, according to PricewaterhouseCoopers LLP. Over 80 percent of the world's smartphones were made in China in 2013, according to SEMI.

"ARM is a springboard for a lot of Chinese firms," said Mark Li, an analyst at Sanford C Bernstein. "They can get quite good quite quickly. They can save years of investments by leveraging ARM's IP." From its base in Cambridge in the UK, ARM designs the brain of modern processors, and licenses it and the right to use the basics of its technology to the likes of Intel Corp, Qualcomm Inc and Apple Inc.

Chipmakers use those blueprints or the underpinning technology to create their own products according to their own specialties. Qualcomm uses it to produce its Snapdragon processors that power millions of smartphones globally.

It is a slow process. Chipmakers work with ARM's designs adding functionality such as memory, connectivity and graphics, then prepare a production design, send it to be manufactured, test the finished product to see if it works - then repeat the process until it is perfect. From there, they write the software that lets it interact with the rest of an electronics device.

Based in Fuzhou, Fujian province, halfway between Hong Kong and Shanghai, Rockchip started as a maker of chips used in cheap media players, Chinese equivalents to Apple's iPod. Its path up the technology ladder was much quicker than its older rivals because it threw conventional wisdom out the window.

"They have got a lot of guts," said Allen Wu, who heads ARM in China. "All through the decision process the aim is for speed. That is why you see a lot of these customers announce a new ARM product very, very early."

Instead of the standard process of design, make, test, repeat, Rockchip rapidly stitches together basic building blocks offered by ARM that have become the industry standard and leapfrog through the make and test process, while skipping a follow-up cycle.

"If the chip is not a success at first, then we need to do it again which would take another two, three months. If we get lucky, then we nailed the silicon the first time," Chen said.

This ability to move quickly is complemented by their proximity to the world's manufacturing hub for consumer communications devices around Shenzhen in southern China.

Intel was so concerned with the gains being made by the Chinese newcomers in tablets - and the lack of its own progress there - that it paid out subsidies that forced its mobile unit to report a loss of $4 billion in an effort to get into the market. The world's largest chipmaker also struck a deal with Rockchip to jointly develop chips that the Chinese company can market to its local customers.

Rockchip continues to be an ARM customer alongside its relationship with Intel, and gets processor, graphics and memory controller designs from the UK company.

Allwinner, which went from no share of the market for tablet processors in 2010 to 18 percent in 2013, goes much further than simply getting chips to customers quickly, according to Ben El Baz, a company business development manager.