By Li Panpan
The US semiconductor companies such as Lam Research, Marvel, and Micron laid off staff or canceled their R&D teams in China in 2022. While these moves are directly related to the US Biden administration’s policy to decouple with China, there are other factors to blame, such as inflated industry bubble and salary level, a recent JW Insights report looks into the phenomenon.
In the case of Marvell’s layoff, a person in the industry chain said it’s the same as Micron’s previous layoff of the Shanghai team to reduce R&D resources in China under the intense pressure of the US government. On the other hand, Marvell previously acquired optical chip manufacturer Inphi with a total price of about $10 billion. A side effect of the deal is overlapping R&D teams that need to be canceled, said industry sources. Others pointed to the downturn in the chip industry since the beginning of 2022 as a major factor.
"The most solid fortresses are often disintegrated from within," Zhang Liang (pseudonym), chairman of a cutting-edge Chinese company, to Marvell China’s pressure in increasing salary and staff turnover as the real reason for the company's layoffs.
During the past five years, the rapid inflow of capital in China's chip industry has prompted a rapid rise in the number of start-ups. Their "financing first and then recruiting" approach not only results in a rise in the salary level of the entire industry but also crumbles the R&D departments of some international IC companies in China.
Many R&D engineers in companies like NXP, Micron, and Qualcomm’s China department are poached with high salaries yearly or left to establish their start-ups. Even though Marvell follows the trend of keeping people with salary increases annually, it still faces severe loss of staff in its Chinese team, Zhang said.
The layoff move by overseas companies indicates that geopolitical changes pushed overseas companies to review their R&D layout in China. It also shows that the cost advantage in the country is disappearing as well, with the industry's salary surge in the capital bubble, according to Zhang.
Zhang returned to China from overseas in 2005 and witnessed how the higher salaries in India pushed the R&D centers of European and American companies in India to relocate them to the Chinese mainland step by step.
Mike, a former Qualcomm R&D director, said, "As far as we know, the labor cost of the chip design in China is about three times that of India and 1.5 times that of Ireland," Mike said, “it is a natural business choice for international companies to withdraw their R&D centers from China.
The founders of several local design companies told JW Insights that the salary jump of the IC design industry in the Chinese mainland, especially Shanghai and other first-tier cities, has been off from the regular track. One domestic memory design company CEO said, "Currently, the average salary of chip R&D engineers in Shanghai is already the highest in the world, their ability and output, however, cannot match their high income. So we are negotiating with a Japanese R&D team and planning to put part of the R&D in Japan in the future.”
The co-founder of an analog IC design company said, "Fortunately, we do not have an R&D department in Shanghai, and the salary level of analog IC talents in Shanghai is nearly double that of European countries.”
The abnormal salary level of China's chip design industry also leads to chaotic employment. In 2021, the salary level of China's chip design industry was almost crazy. Fresh graduates asked for a lot of money. Start-ups with multiple financing rounds spent much cash to grab talents. The turnover rate of top companies that used to have stable staff all year round has also been rising yearly and remained high.
However, from 2021 to 2022, the chip industry quickly switched from the peak of lack of production capacity to a downturn cutting orders, creating a huge industry gap suffocating thousands of local chip design startups.
In the second half of 2022, a start-up company called Nurlink Technology was closed. It completed in August 2020 its Series B financing of RMB200 million ($29.65 million). The high cost of R&D is the main reason for crushing the company.
Fortunately, the autumn recruitment of the semiconductor industry in 2022 has shown an inflection point in the industry's salary level.
Despite the high salary cost, there is still a huge demand for talents, said Wang Jing, a semiconductor company HR manager. JW Insights data also estimates that around 2023, the demand for talent in China's semiconductor industry will reach 780,000, of which the need for design personnel will be around 320,000.
The JW Insights report noted that snatching talents with high salaries will not solve the talent gap but add to operating costs. The overall experience and quality of Chinese R&D engineers still have a gap with overseas companies.
Language barriers are the most significant gap between Chinese and international engineers, according to ex-Qualcomm’s Mike. China’s industry should think about how to improve the English level of engineers in local companies.
What’s more, it is necessary to burst the capital bubble and let the industry return to its original nature, he added.
