Finding the Wii Little Niche That Fits
Behind the runaway success of Nintendo’s Wii stands a mid-sized Taiwanese IC design house. How did PixArt manage to become the sole supplier of sensor chips to the Japanese gaming giant?
Finding the Wii Little Niche That FitsBy Victoria Sun
From CommonWealth Magazine (vol. 383 )
With just 144 employees, PixArt Imaging Inc., located on Innovation Rd. I in the Hsinchu Science Park , is a rather small company for an industry powerhouse.
Likewise, PixArt president Sen H. Huang does not quite fit the typical business executive mold. Sporting a crew cut, with a PHS handset dangling from his neck, Huang does not come across as the chief of a company that has posted record share prices both on Taiwan ’s over-the-counter market and, later, on the main board of the Taiwan Stock Exchange.
Huang’s incoming calls are not filtered by a secretary ?V he answers every call in person. At 7: 30 in the morning, Huang answers reporters’ e-mails. At 2: 30 in the afternoon, he eats lunch while talking on the phone. His desk is packed with stacks of documents, but one corner is reserved for a green Tatung rice cooker.
Huang currently doubles as PixArt’s chairman and president. With just one vice chairman and one director, the company is a very lean and flat organization. Yet PixArt is the sole supplier of sensor ICs for Nintendo’s Wii game console.
It is the innovative user interface that sets Wii apart from conventional game consoles and has made it an instant hit with gaming enthusiasts young and old alike. PixArt’s image and motion sensor technology is the key for Wii’s unique gaming features.
With revenues of NT$3.99 billion in 2006 and projected growth of 50 percent for 2007, PixArt does not yet make it into the league of Taiwan ’s top 15 IC design houses. Furthermore, in the image sensor sector, PixArt competes with multibillion-dollar businesses such as U.S. vendors Micron Technology Inc. and OmniVision Technologies Inc. However, PixArt had the wisdom to ’use old technology to explore new applications and new markets,’ Huang explains. Because it found a new proprietary application for already mature 3D sensor ICs, PixArt became the exclusive supplier for Wii.
Huang and his team have been continuously racking their brains for a way for PixArt, as an industry dwarf, to break into the mainstream of IC design and find new niches. Wii represents the company’s most successful niche in terms of sensor IC applications.
Finding the Perfect Niche
PixArt’s sensor chip sits right behind the semi-translucent black sensor at the front of the Wii remote control, giving it the ability to sense motion. Shaped like a traditional handheld remote control and attached to the wrist with a strap, the Wii remote allows the user to interact with and manipulate items on screen via up-down or left-right waving movements and pointing.
Before collaborating with Nintendo, Huang had never even used a game console. Now, the company has converted a second-floor conference room into a recreation room with a Wii console, but as Huang hopes to demonstrate his new gaming skills with a tennis game, he still keeps missing the oncoming ball.
Huang reveals that the innovative idea of combining motion tracking with game consoles was the brainchild of a junior PixArt employee, who loves to play electronic games with guns and other pointing devices, leading to a novel application and new niche market for the company’s motion sensor chip.
In 2003 PixArt began to develop a 3D image sensor IC. When the product was released in 2004, they approached Nintendo.
Following simple logic, Huang decided right at the beginning to go for the Japanese market. He felt PixArt stood little chance of getting its foot into the door of the American market, given that American IC design companies account for 73 percent of global sales. South Korea , for its part, is strong in software for online games, but does not have a game hardware industry. Japan , however, produces game consoles, but its IC design accounts for just two percent of global sales. So Huang calculated that the odds of landing orders were best in Japan .
Introduced by a third party who is very familiar with Nintendo, Huang contacted the gaming company’s hardware department, informing them that PixArt’s sensors could give Wii a novel user interface.
At the time Nintendo was hoping to change the mode of interaction between the user and the screen, but as a software company, Nintendo had only limited capability in hardware development. The sensor IC that Nintendo developed in-house was able to yield just 30 to 60 coordinate points per second, which made its motion tracking inaccurate. PixArt’s motion-sensing technology, however, was fast enough ?V 200 to 300 points per second ?V to satisfy gaming requirements.
"After seeing our product, Nintendo hammered out the entire interactive structure," Huang recalls proudly.
But using sensor ICs in game consoles is still only a niche approach. So far PixArt has not been able to enter the mainstream market. Against this backdrop the company will be forced to continue to look for its next niche. The mainstream market for sensor ICs lies in computers and handsets, with an annual output of hundreds of millions. In contrast, Wii game consoles sell on the order of tens of millions.
"The Wii success is just one point, while computers, handsets and cameras will be another side of the story," says Joey Cheng, an analyst with Goldman, Sachs & Co.
PixArt, which has twice been Taiwan ’s highest priced stock, has always been able to find market niches. Four years ago it got into optical mice, and it now accounts for a 25-percent share of the global market. Its current niche is Wii. As powerful, large companies dominate the mainstream market, Huang can only find niches by exploring new applications for conventional products.
Despite close ties with its investor United Microelectronics Corporation (UMC), PixArt has had a bumpy ride in the nine years since its founding. During the first five years the company had yet to find any niche products that allowed it to compete with large manufacturers, and experienced a string of painful lessons: it posted losses, suffered disinvestments and had to postpone its planned IPO.
Huang even recalls being scolded on the phone by a stockholder who blamed him for pouring down the drain the money that was meant to finance his son’s studies overseas. ’The only thing I can do is to work diligently ?V I sleep just five hours a day,’ says Huang, recollecting his plight during PixArt’s lackluster period.
But over the next four years PixArt twice became the highest-priced stock in Taiwan . ’These nine years were very, very hard, but we always did our job with the same attitude,’ Huang recalls.
"We will not stay out of the mainstream products that we should make, but we still need to find new niches," says Huang, busily looking for the chance to create another miracle.
Translated from the Chinese by Susanne Ganz
Chinese Version: 小鬥士找對利基