More tech firms innovate in Silicon Valley but sell overseas

San Jose Mercury News (MCT) - Telegent Systems, housed in a bland building packed with cubicles, looks like any other Silicon Valley startup.

But its marketing pitch is made in many languages, none of which is English. Telegent, which produces a mobile-phone chip that enables devices to pick up analog TV broadcasts, is one of a growing number of valley companies innovating for the rest of the world. It sells products in Asia, the Middle East and Latin America, though not in the United States.

It's a kind of technological jujitsu.

"We leverage the brainpower in the valley," said Weijie Yun, co-founder and chief executive of 4-year-old Telegent, which has 80 engineers in Sunnyvale, Calif. "This has allowed us to do something unique."

Most valley companies still view the United States, the world's largest tech market, as the center of their business plans. Nonetheless, startups creating technology primarily marketed in other countries are "increasing pretty rapidly," said William Miller, a professor at Stanford University's Graduate School of Business.

No official numbers are available on how many of these under-the-radar companies have sprung up in Silicon Valley, but industry insiders such as Jin Yi, former marketing director of networking group Hua Yuan Science and Technology Association, or HYSTA, estimate there are two dozen or so.

It's a different twist to globalization. Rather than merely seeking out low-cost talent abroad, these companies hire brilliant minds in the valley to create products that, at least initially, are designed for other cultures.

"At one time, they were just producer markets," Stanford's Miller said. "Now they have become consumer markets. That's a dramatic change."

UTStarcom, an Alameda, Calif., company that specializes in Internet protocol and communications technology, is so enamored of overseas markets that last year it ditched its division that made handsets for the U.S. market, selling it for about $240 million to an entity controlled by AIG Vantage Capital. But UTStarcom continues to make and sell cell phones in China. Now, at least 75 percent of its $1 billion in annual revenue comes from outside the United States.

"These markets have typically been ignored," said Craig Samuel, UTStarcom's chief technology officer. "Silicon Valley has a unique ability and innovations that appeal to the rest of the world. The big brands are addressing these markets. But are they taking full advantage of them? Probably not."

"Especially in these down economic times, every company should be thinking: 'Do I have my balance right?' " he said. "Instead of spending so much money on marketing in some of these depressed markets, some of that should be diverted to parts of the world that are not as negatively impacted."

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But understanding how technology can be deployed in other cultures is not easy.

"The biggest problem is the mind-set of companies. A lot of Americans don't think in terms of emerging markets," said David Callisch, vice president of marketing at Sunnyvale-based Ruckus Wireless, a next-generation wireless technology company. Until recently, about 80 percent of its sales were outside the United States.

In some cases, companies that innovate for Asian markets have founders from that part of the world, which enables them to see opportunities that others don't. Cofounders of Fremont, Calif.'s Legend Silicon, for example, are from China and created their company to develop high-definition TV chips for their homeland.

"The talent and experience is here," said co-founder Lin Yang, who is Legend Silicon's chief technology officer. But the company's market is thousands of miles across the Pacific. Legend Silicon makes HDTV chips based on China's technical standards for home and car TVs, as well as for Hewlett-Packard laptops made for Chinese consumers. The company plans to roll out HDTV semiconductors for mobile phones in a year or two.

"We think China is a big opportunity," Yang said. "The Chinese TV market is now 400 million TVs, and the replacement rate is 10 percent each year. That kind of market justifies our investment."

Ruckus Wireless found that overseas markets, unencumbered with legacy cable technology, have been faster to embrace wireless networks and IPTV, or Internet Protocol TV. Some countries have a much higher broadband penetration rate than the United States does, which creates more opportunity for its IPTV and Wi-Fi products.

"There's much more of a product fit in Asia," said Ruckus Chief Executive Selina Lo.

Nonetheless, innovating strictly for foreign markets is risky, something many venture capitalists are leery of, said Vish Mishra, president of The Indus Entrepreneurs and venture director at Clearstone Venture Partners.

"For many entrepreneurs sitting here in the valley, trying to know about an overseas market and customers without deep knowledge is going to be fatal. They have to know how to navigate through the land mines there," he said. "In many Asian countries, the way the business is done is based upon relationships and who you know, and less on what you have and what you know."

Telegent Systems, which began shipping its power-sipping chips in April 2007, has so far supplied more than 20 million mobile phones worldwide _ including 5 million in China _ with its technology. CEO Yun claimed that while other companies battle over digital standards, his company is the first to provide the technological backbone for mobile analog TV, which snatches free programming off the airwaves. He first looked to Asia because that region is the world's trendsetter when it comes to cell phones.

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"We have a wealth of experience in the valley," Yun said. "Obviously, the costs are much higher here. So we had to do something that was different, something that no one else has done. The product has been on the market for two years now, and we still don't have a competitor."

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© 2009, San Jose Mercury News (San Jose, Calif.).