How Leo Li led Spreadtrum's turnaround

Junko Yoshida

SHANGHAI, China – It’s taken a new CEO, Chinese government support and plenty of good fortune for Spreadtrum Communications to recover from its near-death experience after going public five years ago.

Spreadtrum, the fabless company established here in 2001, focuses on baseband chips for mobile handsets. It went public in 2007 after being touted as the top Chinese IC company. Things did not go as planned. Spreadtrum’s Nasdaq stock price tanked worse than Facebook’s, plunging to 73 cents a share by the end of 2008. The decline of publicly-traded Spreadtrum and other Chinese fabless companies that also had problems hitting quarterly financial targets, convinced skeptics that China's seemingly infinite potential was just so many fireworks.

By the first quarter of 2009, Spreadtrum was left with virtually “no customers,” and had only enough cash to “last only for the next two quarters,” explained Leo Li, who took the helm at Spreadtrum in its darkest days in February 2009.

Under Li, Spreadtrum is on the verge of a miraculous comeback.

Revenue in 2011 totaled $670 million, and the company expects revenues to grow to more than $700 million this year. Spreadtrum’s stock price as of Thursday morning (June 7) was $19.50. Spreadtrum has grabbed five design wins among six TD-SCDMA smartphone models selected by China Mobile last month. A “MediaTek chip got designed into only one model,” noted Li, referring to its Taiwan chip rival.

Spreadtrum’s turnaround illustrates the vulnerability of China’s young fabless IC companies and how a few contracts from state-owned enterprises can quickly reverse their fortunes. Spreadtrum’s apparent recovery also shows the speed and energy of the Chinese market as reflected in the steady return of Chinese engineers and management executives trained in the United States.

Cinderella story

Just as Spreadtrum rose from the ashes, so has CEO Li.

Li came to the U.S. in 1986 to study at the University of Maryland on a full scholarship after graduating from a Beijing university. He arrived with $100 in his pocket. Speaking little English then, Li remembered that on the day he arrived in Maryland he tried to buy a subway ticket at a store that said “Subway.” After a heated discussion with a clerk, Li discovered that the shop sold only submarine sandwiches.

Fast forward to this week: Li showed up for lunch with EE Times looking fresh as a daisy despite having just landed in Shanghai that morning after a long flight from Paris where he was hobnobbing with France Telecom’s executives at the French Open. Spreadtrum is now as important a guest for France Telecom as big name mobile handset makers.

A “turnaround is much more difficult than starting up a company,” Li said. Spreadtrum’s early decline in 2008 resulted from the global financial crisis, relentless competition in the mobile handset market and slow market acceptance of handsets based on China’s home-grown TD-SCDMA standard.

Li brooked no excuses from Spreadtrum employees. “We failed because of us,” he acknowledged. “We have only ourselves to blame.”

In hindsight, Li realized Spreadtrum started believing all the publicity generated by its IPO and stopped visiting its customers and expanding its business. Making matters worse, no one was overseeing the company’s fundamental business operations like quality control and customer support.

Li didn’t exactly parachute into Spreadtrum in 2009. Instead, he was handpicked by VCs to turn the company around and reluctantly agreed to return to China. He’d spent the previous two decades in the United States working for GE Mobile, Ericsson, Rockwell, Mobilink Telecom and Broadcom (Mobilink was acquired by Broadcom in 2002).

Li finally agreed on the third request to become Spreadtrum’s CEO after holding down several other posts in his first nine months there. That career path turned out to be a blessing in disguise because the experience made him a true company insider who was able to quickly take charge with a minimum of housecleaning (a couple of vice presidents were fired). Today, Li likes to say, “In three to five years, the world-class semiconductor companies will emerge in China.” Hopefully, he adds, Spreadtrum will be one of them.

World class aspirations

What makes a chip company “world class?”

First, Li said, revenue needs to be $1 billion or more, adding that Spreadtrum will get there by the end of its next fiscal year. “Once you reach the $1 billion goal, you are in the club.”

Also required is a portfolio as "complete" as a competitor like Qaulcomm. Spreadtrum is currently working to develop every conceivable type of baseband IP by the end of this year.

Third, a team is needed that is capable of “integrating the U.S. technologies better,” Li said. Spreadtrum’s mission is to offer “U.S. technologies with [a] China attitude.”

Finally, world class companies must demonstrate the ability to grow organically, particularly since the total available market for mobile handsets is constantly expanding.

Li also complained that critics, mostly U.S. industry observers, have pegged Spreadtrum as only player in the Chinese market. He countered that China Mobile has 660 million subscribers. “That’s bigger than the U.S. and European markets combined.”