Not A Household Name—Yet

By Alma Wang
Spring and summer are typically the bustling seasons for China’s semiconductor industry. Each day, invitations arrive for members of the media to attend events, contests, and road shows.

This year is different, though. It has been eerily quiet. And perhaps even stranger, a local IC design company that rarely makes media appearances announced a top-prize application design competition to be based on its two 8-bit MCUs.

The entry eligibility – aside from the Beijing-based MXTronics’ own employees and staff – is open to the public. The subject areas are “open to all topics.” And the total prize money is a hefty 240,000 yuan, which translates into more than $35,000.

Besides Freescale’s offer of a BMW two years ago, such an enormous award is rare in China. But the announcement did create something of a stir for a different reason: Who is MXTronics? What is the point of this unusual approach? What else might the company be brewing for the future? With the analytics of an engineer, and shrewd manner of a state-owned enterprise helmsman, MXTronics’ general manager, Zhao Yuanfu firmly and steadily addressed some questions.

Autonomous Innovation: Easier Said Than Done
During the press conference, the media kit that MXTronics passed out bore the glaring logo of China Aerospace Science and Technology Corp. The company unabashedly showed off its “royal blood” origin – the result of restructuring the aerospace microelectronics resources of China Aerospace Time Electronic Company and Long March Launch Vehicle Technology Co. Ltd.

Having explained its roots, MXTronics pointed out the vision of the 2005 restructuring: In addition to military and defense applications, the company recognized the need to become the IC industry’s leader in the consumer electronics space. According to Zhao, MXTronics has more than 500 employees. Its 2008 revenue was $365 million and its target for 2009 is $482 million. The scale presented by Zhao is unheard of for any normal domestic IC enterprise. However, given the no-so-ordinary background of MXTronics, there were few questions from the audience about the company’s profit margin and the state of its corporate health.

Nevertheless, autonomous innovation continues to be a challenge for MXTronics. “Coming up with new ideas is not so bad; but how do you turn a great idea into great products?” Zhao asked.

The reality is that domestic (China) IC companies focusing on the high-end are basically burning cash, regardless of how the media has hyped the market and the industry; and those that are in the low-end are at best breaking even with little outlook for product upgrades in the future. Even for MXTronics, with its annual government grant of $8.8 million for R&D research, is stalled by the challenge of finding breakthroughs.

“Even when products are manufactured, we lack the mature system environment and a sound industry ecosystem,” Zhao said. “An enterprise by itself is still considerably weak; how do we explore more creative application frontiers? How do we make system vendors understand and accept our products quickly?”

It’s these questions that prompted Zhao to deploy the hefty reward system to attract mature programs in various trades and to discover outstanding engineering talents.

“Using MXTronics’ two products in this design competition as examples, our MXT805 chip was originally developed for a certain medical use, although it’s a very general-purpose 8-bit MCU that can be used inside a variety of home appliances and instruments. The other product, MXT5611, with its high-precision clock control functionality, is actually highly applicable in the field of industrial control although it has only been used in defense products in the past. As such, we are hoping to leverage the power of the masses and let the public participate in helping us define the next sweet spot, the next killer application,” he said.

According to Zhao, MXTronics will proactively support those teams that already exhibit a clear program and design applications; it will also support specialized system design firms, helping them to turn programs with embedded MXT chips into ready to sell products.

Complicated status
No one doubts MXTronics’ ability to meet the challenge. According to Abraham Maslow’s hierarchy of needs theory, the highest demand placed on an enterprise like MXTronics is to become the biggest and the strongest in the shortest possible time. In Zhao’s mind, to become the biggest, transition from military to consumer space is inevitable.

The Space Department, for example, is trying o engage and participate in the economic development movement. Rough estimates suggest the so-called space economy is potentially a $146 billion market, of which 80% will come from a variety of consumer applications. Zhao believes that MXTronics’ biggest challenge lies in its ability to apply its innate strengths to find innovation and breakthroughs in the consumer space. In this regard, although Zhao claims to have the plans in place, but he must first figure out how to make MXTronics emerge from being an unknown entity.

“MXTronic’s biggest challenge is to quickly expand its common platform. We will have to come face to face with competition from well-known foreign semiconductor companies, which have across-the-board advantages over us in brand recognition, maturity of industry ecosystem, and level of user acceptance. However, we have competitive advantages too. First, even though our gross margin is not high, our cost is very low. This allows us to take over those deals that the foreign competitors can’t afford to take on. Second, in China we have the ability to recruit local technical support quickly and this allows us to address even the smallest customers.”

Zhao said the company’s investment in the ongoing contest will build MXTronics’ name recognition and product awareness among potential customers. “In the past, we diligently knocked on the doors of our customers; now, we are hoping that customers will seek us out.”

To this end, MXTronics also is rolling out university programs. Zhao frankly admits that MXTronics will not go after the top-tier universities right off the bat because the initial cost and expectation threshold would be too high, and because students of these campuses would have a high standard for their starting ground. Instead, MXTronics will focus on the second- and even third-tier colleges – those schools that are frequently overlooked by manufacturers. Zhao expects to gradually build brand awareness among these future electronics professionals by collaborating with their schools using economically enticing programs.

It is worth noting that MXTronics provides first-class training to its own recruits. “Every year we recruit 60-plus graduates,” Zhao said. “All of these graduates are enrolled in Tsinghua University’s Master program for a one year training. We expect these students to publish in international academic journals, and subsidize their trips to attend trade conferences abroad. It’s only after the recruits have passed the extensive training do they begin their work at the office.”

Conclusion
Can MXTronics’ hefty reward hatch a pot of golden eggs? This issue no longer seems to be a concern. Since the announcement of MXTronics’ competition, more than 100 have signed up. At the very least, the widespread effect of a marketing program such as MXTronics’ competion already has garnered the attention of engineers and media alike. To other IC manufacturers, MXTronics’ approach may not be a relevant case study, but even if MXTronics is able to breakthrough successfully because of some unusual conditions, it will still breed long-term benefits to China’s IC industry.

Translation by Jane Lin-Li/Extension Media China Editor
EEFocus, based in China, is Low-Power Des