Investigators raided the office and home of former MediaTek Inc (聯發科) human resource executive Lin Pi-yu (林碧玉) on Oct. 24 after the nation’s biggest handset chip designer filed a complaint with police that Lin had poached a dozen of its engineers for Chinese rival Spreadtrum Communications Inc (展訊).
This is not the first time that MediaTek has faced the risk of a talent drain, or theft of company secrets.
In September last year, MediaTek accused former employee Yuan Di-wen (袁帝文) of stealing corporate secrets and illegally leaking the important information after Yuan left for Spreadtrum. Yuan had been assistant to chairman Tsai Ming-kai (蔡明介) and was deeply involved in formulating MediaTek’s business strategies.
However, escalating competition in Chinese handset chip market is nibbling at MediaTek’s profitability.
Deutsche Bank analyst Jessica Chang (張幸宜) was the first among analysts from foreign brokerages to turn bearish by downgrading the company’s stock to “Hold” from “Buy” in September on concerns that intensifying price competition from Qualcomm Inc and Spreadtrum would erode its margins. Chang has retained that rating since then.
MediaTek is not the only local chip company that has become a target of Chinese rivals seeking talent as VIA Technologies Inc (威盛) and Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) have also filed lawsuits against former employees alleging theft of corporate secrets or intellectual property rights.
However, MediaTek’s situation epitomizes the threat the nation’s NT$2 trillion (US$65.6 billion) chip industry is facing from Chinese competitors.
The problem could worsen after Beijing announced in July that it planned to earmark initial funds of 120 billion yuan (US$19.6 billion) to turn China’s semiconductor industry into a global heavyweight by 2030.
“To rapidly climb the technology ladder, China has to take a shortcut by poaching talent from outside. Chinese firms are generous in offering significant pay raises and job promotions to entice new talent,” said Chiueh Tzi-dar (闕志達), director of National Taiwan University’s Graduate Institute of Electronics Engineering.
“As Taiwan’s electronics industry faces a growing shortage of skilled engineers amid long-term labor wage stagnation, talent loss [to China] will make the situation even worse and Taiwan could end up losing competitiveness,” Chiueh said.
Chiueh’s concerns were reflected in the annual IMD World Competitiveness Yearbook. The report, released in May, showed Taiwan’s ranking drop by two notches this year to No. 13 among 60 nations or areas surveyed in the report. Business efficiency slid seven spots, dragging down competitiveness, the report showed.
The labor market suffered the severest regression among the four sub-factors of the business efficiency, indicating that the nation is reeling from growing difficulties in talent pool expansion, especially skilled workers.
China used a similar strategy to foster its LCD panel industry. By recruiting experienced workers and even high-ranking executives from Taiwanese companies, China has built its own LCD panel supply chain and reduced its reliance on Taiwanese manufacturers.
Innolux Corp (群創光電) remains the top TV panel supplier to Chinese TV brands, but AU Optronics Corp (友達光電) lost its second spot and was replaced by Shenzhen-based China Star Optoelectronics Technology (華星光電).
To help retain talent and recruit new employees, the government responded to appeals from local companies and approved a revision to tax rules to allow employees to pay income tax on their annual bonuses, in form of stocks, or options, up to five years after receiving them. Bonus totals are capped at NT$5 million.
Electronics companies, IC chip designers in particular, used to give stocks as annual bonuses, which were not taxable and were not booked as corporate spending, to retain employees, before the tax rule on employee bonuses took effect in 2008.
Loss of personnel to rivals might not exert an immediate impact, according to MediaTek spokesman David Ku (顧大為), who said that Lin’s alleged poaching of employees would not have any significant impact on the company’s operation.
As the Chinese government is heavily subsiding its chip designers, rather than foundry companies, Chang expects it would “take them 20 years, or even 30 years” for Chinese rivals to catch up with TSMC’s technologies.
However, local research house Industrial Technology Research Institute (工研院) predicted that Chinese chip designers would catch up and even surpass local companies within two or three years, in terms of global market share.
Taiwan’s chip designers have a 20 percent market share, while Chinese peers have between 10 percent to 15 percent.
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