R&D success for returning Hong Konger’s IC design house

Following the development and sale of several successful businesses in Silicon Valley, Chuck Cheng set up AppoTech in Hong Kong’s Science Park (HKSP) in Sha Tin.

AppoTech is an integrated circuit (IC) design house that capitalises on its proximity to its major customers – consumer electronics firms in the Pearl River Delta (PRD). Since establishing some two years ago, the company now has 11 designers in Hong Kong, 50 applied engineers and sales and marketing people in the PRD and three in Silicon Valley.

With plans to at least double business in 2006, Mr Cheng hopes to show industry peers back in Silicon Valley how Hong Kong is an ideal base to run such a profitable company.

InvestHK spoke with Mr Cheng to learn more about his return to Hong Kong and his plans in the future.

Why Hong Kong?

“I am from Hong Kong so when I was approached by InvestHK’s San Francisco team in 2002 about setting up a business in Hong Kong, it struck a chord. After a lot of field study and discussions with my family, I decided to return. I made my return during SARS in 2003. This seemed a good time to do something to help the Hong Kong economy. Moreover, as a businessman, my ultimate goal is to make money. During SARS, there were many opportunities for those with a bullish outlook.

Hong Kong is an ideal place for R&D for two main reasons.

There is an enforced legal system that affords protection to intellectual property (IP). It is crucial in our business that, after investment in R&D, the resulting asset can be protected. In my mind, Hong Kong is the only place in China with the appropriate IP protection. The IC potential of the Mainland is about US$50 billion, so it is a very attractive market. Hong Kong is ideal because it is effectively part of that market, plus it affords IP protection.

Secondly, Hong Kong’s stock market is sound. There is great transparency and international accounting practices and the market is vast. Just now, there is strong demand for another IC design house to list, so it is helpful and encouraging for AppoTech to be sought after in this way.”
Priorities and challenges

“Our priority is to tap into the huge demand for ICs in the Mainland. In this market, unlike the US, we have a number of applied engineers who help AppoTech go that extra mile to meet our customers’ needs. For example, we will provide customers with ‘reference designs’ to show how our products can be used, and to prove that they work. The company can then build on these ideas for its own purposes. Such comprehensive support is not typical in the industry. We also have a team of sales and marketing people who help sell to the manufacturers in the PRD.

We are targeting the Mainland. However, in our two years of operation, we already have clients throughout Asia, including Taiwan, Japan, Korea, Malaysia and Indonesia.

Our challenges centre around people. In Hong Kong, technical degrees in fields such as IC are not as popular as business degrees, so we are trying to increase the numbers qualifying and remaining in this area. With the help of the Government and the media, we want to showcase
the huge potential of the discipline. Programmes like the new R&D Centre initiative are sure to give the industry more profile and critical mass.

We are already working with The Chinese University of Hong Kong and Hong Kong University of Science and Technology on joint projects, including analogue design. Working in such a cluster manner helps all parties learn and thereby stay competitive.

A challenge for me is to master the different means of rewarding people. Silicon Valley employees were happy to accept stock options. This meant they benefited from their own hard work. In Hong Kong, although a fresh graduate is cheaper, employees in general prefer cash. This means we need to incentivise work in other ways. It also creates a cash flow issue for me.”

Meeting expectations?

“Being based at HKSP has worked out really well for us. The management have been very co-operative and provided us with a lot of support. We have enjoyed many of the shared facilities available for tenants, such as help in buying computers, use of campus equipment, sales and marketing support and training. We also negotiated very attractive rental terms which help our cash flow. The Government has also helped our finances by providing an interest-free loan. This loan has funded the development of our first chip in Hong Kong and so has been critical to our success. The chip won the company second place in a competition in China. We were the only company from Hong Kong to receive an award in the ‘Incubating Innovative Products IC Design Competition’ co-organised by the Ministry of Science and Technology. The Hong Kong Government is extremely selective in awarding grants, so this was an unexpected boost.
Although I knew Hong Kong’s intellectual property regime to be robust, it is impressive in practice. Hong Kong business people are very professional. Altogether, it is a very pleasant and comfortable place to live and operate.”

How did InvestHK help?

“InvestHK was instrumental in bringing AppoTech to the city. It was their initial approach that really got me thinking.

Once we made our decision to come over, InvestHK introduced us to the HKSP, assisted with school places for my children and provided contacts for funding and more. Without their input, AppoTech would have been much less successful, especially in such a short period of time.”

Top tips

“Be extremely careful doing business in the Mainland – their modus operandi is not always as you would expect.

Also on the Mainland, be very careful when negotiating prices. And clearly agree payment terms.

Keep innovating to stay competitive. Unique and leading products help customer relations. If clients have no alternative, then you are in a stronger negotiation position.”

www.appotech.com

Stop press – Congratulations

InvestHK would like to congratulate Mr Cheng for winning the Young Industrialist Award of Hong Kong 2005. Given by the Federation of Hong Kong Industries annually, this award honours outstanding industrialists for their achievements and commitment to the manufacturing industry, and to encourage them to further contribute their expertise to the territory’s economic development.