Insight: China lures chip talent from Taiwan with fat salaries, perks

Novatek Microelectronics

04/09/2018 07:00

By Yimou Lee
    TAIPEI, Sept 4 (Reuters) - A huge pay rise, eight free trips
home a year and a heavily subsidised apartment. It was a dream
job offer that a Taiwanese engineer simply could not refuse. 
    A veteran of Taiwan's top-tier chipmakers, including United
Microelectronics Corp (UMC) 2303.TW , the engineer took up the
offer from a Chinese state-backed chipmaker last year and now
oversees a small team at a wafer foundry in eastern China. 
    The engineer joined a growing band of senior Taiwan
professionals working in China's booming and fast-developing
semiconductor industry. 
    Attracting such talent from Taiwan has become a key part of
an effort by China to put the industry into overdrive and reduce
the country's dependence on overseas firms for the prized chips
that power everything from smartphones to military satellites.
    That drive, which started in 2014, intensified this year as
U.S.-China trade tensions escalated, according to recruiters and
industry insiders, exposing what China feels is an overreliance
on foreign-made chips. 
    China imported $260 billion worth of semiconductors in 2017,
more than its imports of crude oil. Home-made chips made up less
than 20 percent of domestic demand in the same year, according
to China Semiconductor Industry Association. 
    More than 300 senior engineers from Taiwan have moved to
Chinese chipmakers so far this year, joining nearly 1,000 others
who have relocated since Beijing set up a $22 billion fund to
develop the chip industry in 2014, according to estimates from
H&L Management Consultants, a Taipei-based recruitment firm.
    The battle for skilled engineers has raised concerns in
Taiwan that the island could lose a key economic engine to its
political foe, China. Analysts say China is still years behind
Taiwan in terms of chip design and manufacturing, however, even
as it moves ahead in terms of the production of lower-end chips.
    China's semiconductor plans accelerated this year after the
United States banned sales of chips to the Chinese phone vendor
ZTE  0763.HK , senior Chinese officials familiar with the matter
told Reuters in April. 
    Tariffs imposed by Washington on $16 billion worth of
China's imports have hit Chinese semiconductors, which are now
subject to tariff rates of 25 percent. urn:newsml:reuters.com:*:nL3N1RW4GG
    That will make Chinese chips less competitive compared to
those from Taiwan and South Korea, and could disrupt China's
semiconductor ambitions. Beijing's aim is to have local chips
comprise at least 40 percent of China's semiconductor needs by
2025.
    Underscoring the talent crunch, two state-run institutions
said in August that about 400,000 professionals were working in
China's integrated circuit sector at the end of 2017, far short
of the estimated 720,000 workers needed by 2020.
    While China has also targeted engineers from South Korea and
Japan to address that shortage, it has had the most success in
Taiwan thanks to a common language and culture, recruiters say.
    Lin Yu-Hsuan, a manager at the recruitment firm H&L, said
engineers from Taiwan were lured by high pay, perks and more
senior positions at Chinese chipmakers like Semiconductor
Manufacturing International Corp (SMIC)  0981.HK  that are flush
with cash from China's multi-billion chip fund. 
    "Many of them said: 'the money I will earn in China in three
years is equivalent to what I could get in Taiwan in 10 years. I
could retire earlier'," Lin said.
    Steve Wang, the vice chairman and president of Novatek
Microelectronics  3034.TW , a Taiwanese integrated chip
designer, said a small percentage of its employees had left for
China over the past two years, and acknowledged that it would be
difficult to match offers from Chinese rivals. 
    The engineer at the wafer foundry, who declined to be named
as the details of his contract were not public, said his Chinese
employer offered him a new three-bedroom apartment with a 40
percent discount on the condition that he worked for the company
for more than five years, in addition to a 50 percent pay rise.
He declined to give the exact figure.
    "China dares to burn money, whereas Taiwan companies have
limited resources," he said.

    COUNTER-OFFER
    A senior executive at a newly-established chipmaker in
northeastern China, SiEn (QingDao) Integrated Circuits Company
Ltd, said about one-third of its recently recruited 120
engineers were from Taiwan. 
    "There is not a lack of money. What we need is talent," said
the person, who declined to be named as he was not authorised to
speak to the media. 
    He said the company, led by Richard Chang, the founder of
SMIC, China's leading chipmaker, offers new hires discounted
property and attractive subsidies for bilingual schools in the
port city of Qingdao.
    "Taiwanese engineers are most experienced and could help us
cultivate local talents," the executive said. "The movement will
continue to escalate."
    Industry watchers said Taiwan's widely respected chip design
houses and foundries have been among the hardest hit by the
outflow of engineers, and have been forced to ramp up spending
to lure workers.
    The island's leading integrated circuit designers and
chipmakers have seen a 35 percent jump in labour costs,
including salary and benefits from two years ago, compared with
a 21 percent hike in revenue, according to Reuters calculations
based on corporate filings from Taiwan's 10 largest listed
companies by market value.
    
    TRADE SECRET
    Taiwan has been watching the Chinese recruitment efforts
with growing anxiety.
    It has long barred chipmakers like Taiwan Semiconductor
Manufacturing Co Ltd  2330.TW , a key supplier to Apple Inc
 AAPL.O , from moving their most advanced technology to
manufacturing operations in China to keep it from falling into
the hands of Chinese rivals.
    Many in Taiwan are also concerned that the rapid development
of China's chip industry could lead to the sort of oversupply
and plunging prices that came with Chinese efforts to develop
other key industries like solar panels and liquid crystal
displays.
    China's integrated circuit design firms have already
surpassed their Taiwan rivals in terms of revenue, with $31
billion in 2017, compared with Taiwan's $22 billion, according
to Mark Li, an analyst at Bernstein.
    The fears are that the battle for talent will widen that gap
further.
    In a move to retain top talent, Taiwan's cabinet in July
pledged to relax tax regulations on employee stock ownership.
    "The Chinese Communist Party has been poaching our talent,"
said Chen Mei-ling, minister of Taiwan's policy-planning
National Development Council. "The government has amended
regulations to help companies keep talent."
    Ho Chan-cheng, legal affairs director at Taiwan's
Intellectual Property Office, said "inappropriate poaching"
could lead to the leaking of trade secrets and that the
government was working to protect the island's core technology -
namely the capacity to increase chip yield per wafer.
    Taiwan companies are also trying to offer their own
incentives.
    Antonio Yu, spokesman for the Taiwan-based chip design house
Phison Electronics Corp  8299.TWO , said that while the company
"does not have the capital to play such a money game," it has
tried to create a "reassuring environment" for its employees. 
    He cited long-standing cash bonuses and programs such as
free legal counselling, as well as a monthly town hall meeting
with Phison's chairman, Khein-Seng Pua. 
    "We treat our employees like family," he said.
    Despite such efforts, Taiwanese engineers are finding
incentives from China hard to resist.
    Tommy Huang, a 37-year-old Taiwanese chip engineer who in
2016 joined United Semiconductor in southern China - a joint
venture between Taiwan's UMC and Chinese state-backed partners -
said Taiwanese efforts to retain talent did not work for him. 
    "You don't have any chance if you stay in Taiwan," said
Huang, whose Chinese employer offered him an annual school
subsidy of up to 60,000 yuan ($8,689) for his five-year-old
child and a salary more than double what he earned in Taiwan.   
    "We are buying hope by coming to China."
    ($1 = 6.9052 Chinese yuan renminbi)

 (Reporting By Yimou Lee; Additional reporting by Cate Cadell in
BEIJING and Ju-min Park in SEOUL; Editing by Anne Marie Roantree
and Philip McClellan)
 ((yimou.lee@thomsonreuters.com; +886-909-894-919; Reuters
Messaging: yimou.lee.reuters.com@reuters.net / Twitter: https://twitter.com/YimouLee))