New York Times: Asian Venture Capitals getting Bolder in Silicon Valley

7 January 2010

January 6, 2010
Asian Computer Makers Move Into Riskier Ventures
By ASHLEE VANCE

SUNNYVALE, Calif. — For years, the process remained relatively static: PC makers like Hewlett-Packard and Apple, with well-staffed research labs and design departments, would dream up their next product and then hire a Chinese or Taiwanese fabricator to manufacture the largest number of units at the lowest possible cost.

But lately, this traditional division of labor has been upended. Many of those Asian companies have moved well beyond manufacturing to seize greater control over the look and feel of tomorrow’s personal computers, smartphones and even Web sites.

The investment arms of large Taiwanese and Chinese manufacturers have created an investment network in Silicon Valley operating under the radar that pumps money into a variety of chip, software and services companies to gain the latest technology. As a result, some Asian manufacturers have proved more willing than entrenched Silicon Valley venture capitalists to back some risky endeavors.

“In the past, the manufacturers would sneak around and get inside information on technology by investing in these companies,” said K. Bobby Chao, the managing partner at DFJ DragonFund China, a business that invests in technology companies in China and the United States. “Now, they’re more involved, more visible and charging after more complex maneuvers.”

As manufacturing of electronics in the United States began moving offshore decades ago, some feared the American economy would suffer. But the American companies, as well as economists and policy makers, said that as long as the high-value jobs like research and design remained in the United States, there was little danger.

Asian investments in Silicon Valley present some risks for America’s top technology companies, which could lose their connection to top innovations.

Asian manufacturers like Foxconn or Quanta, as a result, could wrestle away the edge in research and design.

“The manufacturers have gotten more competitive as it relates to innovation, and in some instances they’re already competing directly with their customers,” said Patrick Moorhead, a vice president at Advance Micro Devices, a major PC chip maker.

The investments by Asian companies have already started to pay off. At the Consumer Electronics Show this week in Las Vegas, people will see laptops that end sluggish start times and instead boot up instantly and TVs that do not require remotes because they can see the gestures of viewers. These features are a result of strategic investments in technology by Asian manufacturers. One Asian manufacturer turned investor is Quanta, based in Taiwan, which has long been one of the largest manufacturers of laptops and personal computers for major brands like H.P., Acer and Dell.

To keep those customers coming back, it needs unique product designs and technologies that give it an edge over competitors. Last October, Quanta invested $10 million into Tilera, a chip start-up based in San Jose, Calif., in the heart of Silicon Valley, that has designed a radical computer processor. Tilera is gambling that it can take business from the major chip makers like Intel and A.M.D.

Quanta also joined a group investing $16 million in Canesta, another chip maker based in Silicon Valley. When combined with a digital camera, Canesta’s products let computers, televisions and other devices view objects in three dimensions. That means that a person could move photos or documents around a PC’s desktop or change TV channels simply by waving a hand.

Elton Yang, a vice president at Quanta, said there was a high likelihood that the technology could make its way into laptops in 2010. Eventually all makers of personal computers will have a chance to buy Canesta’s technology, but Quanta’s investment gives it a temporary design lead.

“The PC companies are looking for a new future, and we want to attract them to our machines,” Mr. Yang said. Over the last 10 years, Canesta has made its pitch to more than 100 venture capitalists in Silicon Valley — only to be rejected time and again. James Spare, the chief executive of Canesta, praised the willingness of companies like Quanta to back risky start-ups needing many years to turn ideas into products.

“It’s no secret that these companies make most of the devices we use in our daily lives,” Mr. Spare said. “And they’re only becoming more and more influential when it comes to innovation and guiding technology choices.”

Foxconn, one of the largest electronics makers, has found technology investments, too. It has backed Innovation Works, an investment and incubation company started last year by the former president of Google’s Chinese operations, Kai-fu Lee.

With $115 million at its disposal, Innovation Works, based in Beijing, has pledged to “build dream teams to collect, analyze, prioritize and execute on the most promising ideas” in the Internet and mobile computing markets.

Ambitious Taiwanese manufacturers are now talking to influential component makers like Intel and A.M.D. to help shape what tomorrow’s chips and hard drives will do.

“They do have a much bigger voice in what companies are doing on the chip level than before,” said Mr. Moorhead. “We are interfacing more with them than we ever have.”

Some former manufacturers have already made the transition and are gaining global brand recognition. Acer and Asustek are Taiwan’s most prominent computer brands, but both companies were contract fabricators for major American companies. Some of their executives steeped in this manufacturing tradition now run the investment arms of the companies.

For example, the Silicon Valley start-up DeviceVM has developed software that lets computers boot up in about five seconds, rather than the minutes many computers can take to start. Both Asustek and Acer, through its investment arm called iD Innovation, have put money into DeviceVM, and the company’s software now appears on computers from a variety of makers including the world’s largest PC company, H.P.

The Asian companies often back projects that Silicon Valley’s financial heavyweights pass on because pay offs are too low and take too long. The Asian companies are “thinking that they didn’t get their fair share of the technology pie in the past,” Mr. Chao said. “Now they have money and will take the risks needed to build up new levels of expertise.”

For entrepreneurs in Silicon Valley, the money flowing from Taiwan and China represents a blessing.

“It’s great,” said Mr. Spare of Canesta, “to have another pool of money to go after.”

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