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Cablegate: Semiconductor Firm in Sw China Sees Rising Competition For

VZCZCXRO5047
PP RUEHGH RUEHVC
DE RUEHCN #0319/01 3581024
ZNR UUUUU ZZH
P 241024Z DEC 09
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC PRIORITY 3657
INFO RUCPDOC/USDOC WASHDC PRIORITY 0046
RUEHOO/CHINA POSTS COLLECTIVE
RUEHCN/AMCONSUL CHENGDU 4376

UNCLAS SECTION 01 OF 02 CHENGDU 000319

SENSITIVE
SIPDIS

DEPT FOR EAP/CM

E.O. 12958: N/A
TAGS: ECON ELAB EINV EIND ETRD PGOV CH
SUBJECT: SEMICONDUCTOR FIRM IN SW CHINA SEES RISING COMPETITION FOR
SKILLED LABOR

CHENGDU 00000319 001.2 OF 002


1. (U) This cable contains sensitive but unclassified
information - not for distribution on the Internet.

2. (SBU) Summary: Leshan-Phoenix Semiconductor (LPS), a joint
venture between U.S. ON Semiconductor (ONS) and Leshan Radio
Company, says that attracting and retaining the engineers needed
to work at its Leshan facility may become more challenging as
other high technology firms move into the provincial capital,
Chengdu. LPS, the second largest foreign-invested firm in
Sichuan, produces a broad range of products including broadband
and advanced logic chips, integrated circuits, and amplifiers,
which are exported around the world. Company officials say that
an entry-level engineer could expect a 50 percent higher salary
working for a foreign-invested firm in Chengdu rather than
Leshan, but attribute this to Chengdu's higher cost of living.
Multinational companies now moving to Chengdu often receive
preferential subsidies from the city government that help lower
overall operating costs, but Leshan-Phoenix, founded over a
decade ago, does not receive any subsidies. End Summary.

Joint Venture Still Second Largest in Chengdu

---------------------------------------------

3. (SBU) ON Semiconductor established its joint venture with
Leshan Radio Company in 1995. LPS Director of Operations DN
Leong said that it was difficult for ONS in the mid-90s to find
a suitable partner, and the location in China was a secondary
consideration. From modest beginnings, LPS has grown and today
employs 2,200 worker who to produce a wide range of products
sold to companies including Dell, Motorola, Nokia, and IBM.
Sales from LPS account for 20 percent of ONS's global sales.
About 60 percent of the products produced at the Leshan facility
are shipped to customers in Asia, with China and Korea being the
first and second largest destinations respectively. The US
receives 30 percent of the products, while Japan receives only
3-5 percent. Leong said that LPS would ship 26.4 billion units
this year, down from 26.6 billion units last year. LPS is
currently shipping about 720 million product parts per week.

Competition for Engineers Intense, Salary a Driving Factor

--------------------------------------------- -------------

4. (SBU) Leong told Consul General on December 8 that his
company found it increasingly difficult to attract and retain
engineers. He attributed the difficulty to the company's
location and starting salary. Leong said that LPS recruited
primarily from universities in Chengdu, particularly the
University of Electronic Science and Technology of China
(UESTC), which is the top electrical engineering school in
Sichuan. Graduates often preferred to stay in Chengdu rather
than move to Leshan, located about 75 miles to the south,
according to Leong. LPS offers engineers graduating with a
bachelor's degree a starting salary of 2,500 RMB (about 366 USD)
per month; graduates with a master's degree could earn 4,000 RMB
(about 586 USD) per month. Leong claimed that these salaries
were two-thirds of what the graduate might expect to earn in
Chengdu if employed at a multinational technology firm, but
defended the salary saying that Leshan's cost of living was
lower than Chengdu's.

5. (SBU) Leong said demand for qualified employees would likely
become even stronger as more companies move to Chengdu. He said
his company is trying to recruit the same type of entry-level
engineers who would be qualified to work at Intel's Chengdu
facility. The Taiwan electronics manufacturer Foxconn also
plans to open a manufacturing facility in Chengdu, according to
Leong, which will bring many new skilled jobs -- and new
competition for engineers. (Note: Foxconn signed a deal on 16
October to invest 1 billion USD in the construction and
development of the Foxconn Chengdu Industrial Base, which will
produce LED televisions, LCD modules, software, and other
products, according to a Chengdu government website. End Note.)

CHENGDU 00000319 002.2 OF 002

Scholarships to Attract Recent Graduates,

But Retention and Wages Pose Challenge

-----------------------------------------

6. (SBU) Leshan-Phoenix has established a scholarship fund for
students at UESTC as a way to aid the company's recruiting
efforts. Leong noted that the company offered 100 scholarships
annually to students in the amount of 1,000 RMB (146 USD) each.
Scholarships are not tied to any requirement to work for
Leshan-Phoenix, and Leong did not indicate how many of the
students who received scholarship went on to work for the
company. (Note: Annual tuition for most majors at UESTC is
5,000 RMB (732 USD) and 10,000 RMB (1,465 USD) for students at
the software college. End Note.) Beyond the challenge of
recruiting engineering students, Leong mentioned that the
company has trouble retaining mid-level engineers. He said that
once engineers had about three years of work experience, they
became recruiting targets for other companies.

7. (SBU) Labor costs account for about 10 percent of the
Leshan-Phoenix's total operating costs, but would increase to 16
percent of total costs if the company raised wages to compete
with those in Chengdu. This would make labor costs
comparatively more expensive than ONS operations in Malaysia,
but still less expensive than those in the Philippines. Leong
said that labor costs in Malaysia accounted for 15 percent of
total operating costs, while the figure was 18 percent for the
factory in the Philippines.

Government Incentives Going to Newly-Arrived Companies

--------------------------------------------- ---------

8. (SBU) Leong told CG that other firms seeking to hire
engineers might have lower, non-labor operating costs because of
government subsidies. He singled out Intel Corporation as one
example, which he said received preferential electricity rates.
(During a separate conversation in Chengdu, Intel officials told
us they also received large tax rebates from the Chengdu
government. These rebates, as currently structured, are based
on the value of the products exported, but will be phased out in
coming years.) Leong noted that Leshan-Phoenix received only
expedited customs clearance for it products, even though he
claimed his company is the second largest foreign-invested firm
in Sichuan after Intel.
BROWN

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