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DECEMBER 24, 2002 ONLINE ASIA By Bruce Einhorn China Tops Asia's Year in Tech Of the top eight events in 2002, most had something to do with this country's emergence as a tech powerhouse
China's chip business gets going Still in its infancy, the Chinese semiconductor industry has already started to attract big-name global partners -- and create deflationary pressure for rivals in Asia's traditional chipmaking powers, Japan, Korea, Singapore, and Taiwan. The most high-profile Chinese chipmaker is Shanghai-based foundry Semiconductor Manufacturing International Co., a producer of made-to-order chips, which this year revved up production at its first facility and opened a second. SMIC recently formed a partnership with Germany's Infineon (IFX ) to produce memory chips. A lot of skeptics have doubts about SMIC and others like it, charging that there's no way these companies will be able to make money. But that's not stopping the upstarts from grabbing attention and shaking up the global semiconductor industry. India's telephone business wakes up After years of bureaucratic bungling, the nation's telecom regulators could claim credit in 2002 for finally doing some things right. They opened the fixed-line market to increased competition. They privatized the state-owned international carrier, Videsh Sanchar Nigam Ltd. And they made it easier for consumers by allowing more mobile-phone operators. Two of India's most powerful conglomerates, the Reliance and Tata groups, launched operators using CDMA technology, the standard developed by Qualcomm (QCOM ). Increasing at an annual rate of 80%, India -- which already has 10 million mobile-phone subscribers -- is now the world's fastest-growing major market. But the country's cellular operators -- led by local favorite Bharti Tele-Ventures, which went public at the start of the year -- are griping that the newcomers enjoy unfair advantages, and the Indian Supreme Court recently ordered the regulator to have another look at the country's telecom policy. Korea's chip star shines brighter While makers of memory chips in the rest of the world struggled to contain their losses, Korean giant Samsung Electronics (SSNLF ) was riding high in 2002 -- enjoying sales of $7.1 billion and estimated profits of $2 billion -- thanks to a focus on higher-margin specialty chips for products like the Microsoft (MSFT ) Xbox video-game console. Samsung's success is in stark contrast to Korea's other memory power, Hynix (HXSCF ). U.S.-based Micron (MU ) almost bought the troubled Korean chipmaker in 2002, but the deal fell through, leaving Hynix struggling to stay afloat. The industry is facing more consolidation pressure as Taiwanese and Chinese push to gain market share, and that could make life even tougher for Hynix. Even though Samsung won't be immune either, that's not stopping it from investing $2 billion in a new fab. Taiwan's computer makers branch out Taiwanese PC manufacturers like Quanta Computer and Compal Electronics (CMPSF ) are kings of outsourcing, producing machines for just about every major brand-name player in the world. But with margins shrinking and stock prices falling, Taiwan's PC heavyweights had to look for new businesses. In 2002, they started moving aggressively into everything from servers and storage devices to new tablet PCs and liquid-crystal displays (used in flat-panel PC monitors, cell-phone screens, and thin-screen TVs). Why should those of us not obsessed with the ins and outs of Taiwanese techdom care? In 2002, Dell Computer (DELL ) entered the handheld PC business, selling the inexpensive Axim X5-made by Wistron, a subsidiary of Acer Group, which is looking to diversify. Singapore struggles to stay in the game What if a chipmaker had a party and nobody came? Chartered Semiconductor (CHRT ) and Merrill Lynch (MER ) found out this year after the Singapore-based chipmaker tried to raise money through a rights offering. The foundry has always been a distant third to industry leaders Taiwan Semiconductor Manufacturing Co. (TSM) and United Microelectronics Corp. (UMC ). Even in the best of times Chartered has never been a profits machine -- and these are certainly not the best of times. Not surprisingly, the rights offering flopped. It was so bad that underwriter Merrill, picking up the unsold shares, suddenly found itself as one of the chipmaker's major shareholders. By yearend though, the picture was starting to look a bit brighter for Chartered as it inked a partnership deal with IBM (IBM ). Meanwhile, Merrill sold out at a profit, taking advantage of the favorable publicity surrounding the IBM partnership to sell most of its stake, relieved that it avoided huge losses. Chinase Internet portals come back to life How good of a year was it for Netease.com (NTES ), the Beijing-based Internet portal that almost was delisted from Nasdaq in 2001? Look at the stock price: Netease started 2002 trading at 95 cents. Today, the price is just shy of $10. China's two other big portals, Sina.com (SINA ) and Sohu.com (SOHU ), had impressive gains, too. They've benefited from an increase in ads -- especially around the time of the World Cup soccer finals, which saw China compete for the first time. More important, both companies have enjoyed a surge in revenues as China's cell-phone operators have turned to the portals to provide content that the telecoms can send to subscribers. Netease and Sohu share a big chunk of the revenue with the operators. Netease executives are hopeful that profits at long last are in sight. But that's not a sure thing, especially if the Chinese cellular operators decide they want to renegotiate these deals. China's telecom manufacturers come on strong For Chinese companies that make mobile phones, 2002 was the breakthrough year. Just a few years ago, the market for cellular handsets belonged to the global giants -- Motorola (MOT ), Nokia (NOK ), Ericsson (ECNSF ), and other foreign manufacturers. Local players were nowhere. Now, Chinese companies have 30% of the market and are throwing a scare into the foreigners. Local players are still unknown outside the country, but companies like TCL, Eastcom, and Bird are finding that they're able to compete by selling phones that not only are inexpensive but also meet the increasingly sophisticated demands of users in the world's biggest cellular market. China's drive to become a high-tech power spooks rivals It seemed that hardly a week went by in 2002 without another multinational announcing that it was setting up a big research and development operation in China. From General Electric (GE ) to Philips (FHLKFM ) to Matsushita (MC ), the biggest names in American, European, and Asian industry were increasing their commitment to China. For Beijing's leaders, this investment is a key part of its strategy to move beyond labor-intensive manufacturing. For proud Chinese, it's part of a drive to help their country regain its status as a world technology leader. For Americans in Silicon Valley, Indians in Bangalore, and Taiwanese in Hsinchu, it's another indication that China is well on its way to becoming a far more powerful competitor. That's it, the Asian Eight for 2002. Some readers might complain that it's far too Sino-centric. But during a dismal year, China was the one standout, so it's natural that it should dominate the list. And other readers might gripe that it's only a top eight and not the typical top ten. Well, here in Hong Kong, eight is an auspicious number. Goodness knows, after a year like 2002, everyone could use some better luck.  Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online Edited by Beth Belton Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. 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