Sigma's headquarters weren't located in the popular Stanford University area but in Milpitas, on the other side of the Bay, bordering northern San Jose—essentially Silicon Valley's outskirts. The company's geographic location seemed to hint at its awkward position in the semiconductor industry.
Founded in 1988, Sigma Designs identified itself as a semiconductor company—more accurately, a semiconductor design firm. As a startup, it lacked the independent production capabilities for new chips and had to rely on its early investor, Texas Instruments, for product manufacturing.
In its early years, Sigma focused on image decoding chips, releasing its first video decoder chip in 1991. However, despite the innovative technology, Sigma struggled to find a clear application for its products. Over the years, they attempted to apply their chips to TVs, game consoles, and printers, all without success.
Even the introduction of VCD by Wan Yan two years ago didn't give Sigma much hope. With VCD shipments in China barely reaching 20,000 units over the past year, it was clear to the management in Silicon Valley that VCD couldn't compete with the looming shadow of DVD.
Sigma's IPO last year was essentially a last-ditch effort. Sequoia Capital and other investors were eager to cash in on the wave of the tech boom. If not for the prospect of making an exit, several major shareholders wouldn't have quietly sold over 10% of their shares in the past year, nor would they have continued selling during the recent stock surge, allowing Chen Qing's team to snap up 21% of the company in a short period.
From Sigma's board and management perspective, once the funds raised from the IPO ran out, if they still hadn't found a clear direction, the company had no future.
In Silicon Valley, such failures were common and not surprising.
Everything changed when a certain woman from the East made her move.
The mere mention of the Westeros system's backing was enough for Sequoia Capital and the other major shareholders to agree to cooperate. Chen Qing's plan to develop the VCD industry in China and her threat to collaborate with other companies if rebuffed sealed the deal.
Despite the promising growth in China's VCD market, the looming dominance of DVD kept investors cautious. No one could guarantee that VCD wouldn't be quickly wiped out once companies like Sony launched their DVD players.
Moreover, Sequoia Capital and Texas Instruments had their own reasons for agreeing.
Sequoia Capital, as a venture capital firm, wasn't averse to holding stock long-term, but according to the rules of venture capital, the priority was to cash out at the right time to deliver returns to investors and fund the next round of businesses. This is why Sequoia had been an early investor in companies like Apple and Oracle but wasn't counted among their major shareholders later on.
Venture capital firms like Sequoia needed to manage risk carefully. While they had hit major wins with companies like Apple, many more investments ended in failure. Sequoia's success lay in exiting before those failures became apparent.
This approach might have cost them the chance at a thousandfold return in some cases, but it had also prevented total losses in many more.
As for Texas Instruments, boosted by the mobile communication industry's rapid growth, its revenue had exceeded $13 billion in the last fiscal year, with a market cap of over $20 billion. For a company of that size, Sigma—a company with just $20 million in revenue—was hardly a priority.
Chen Qing's team also leveraged Westeros' connections to lobby Texas Instruments, with just a phone call. Texas Instruments, after all, was the main supplier of baseband chips for Nokia phones. With Nokia having become the world's largest mobile phone manufacturer, this customer was extremely important to Texas Instruments.
In the end, the deal was struck.
By selling half of their remaining 33% stake, Sequoia Capital fully recovered their initial investment in Sigma and made a significant profit. They also retained enough shares to benefit from future gains should Chen Qing's plan succeed.
Texas Instruments, while cashing out, also made its own demands.
All of Sigma's future chip orders had to be exclusively manufactured by Texas Instruments' semiconductor factories.
Since Taiwan Semiconductor Manufacturing Company (TSMC) pioneered the foundry model, many older semiconductor companies recognized the business opportunity and began developing their own foundry services. As the market for contract manufacturing expanded rapidly, it became a priority for companies like Texas Instruments.
For now, Sigma's orders were negligible to Texas Instruments.
However, if Chen Qing's plan succeeded, Sigma's chip orders alone would become a substantial source of revenue.
With both major shareholders on board and Chen Qing's team already holding 21%, the remaining shareholders and management had no choice but to acquiesce.
Once Simon approved the final plan, at 9 a.m., Chen Qing's team officially signed the stock transfer agreements with the shareholder representatives at Sigma's Milpitas headquarters. Along with the stock transfer came new leadership appointments.
Chen Qing wisely chose not to take direct control of the company, appointing Emmanuel Brandt, a recently recruited team member, to replace Don Valentine as Sigma's chairman. Bill O'Meara, the current CEO, was retained to manage day-to-day operations.
With the contracts signed, the parties held a small press conference at Sigma's modest two-story office building, and the news was promptly posted on the Eaglet portal.
Sigma's recent stock surge had already drawn some attention.
With the news out, the market quickly responded, and another "Westeros concept stock" was born.
The financial markets often operate with a degree of irrationality.
Despite the press release containing few details about Sigma's future plans, mostly hyping the "Westeros concept," investors still rushed in. By the previous Friday's close, Sigma's market cap had already surpassed $200 million, with a price-to-earnings (P/E) ratio approaching a bubble-like 80 times earnings. Yet, many investors couldn't resist and began buying.
It was Monday, April 24.
The press release hit the Eaglet portal at around 10 a.m. Pacific time, which was 1 p.m. on the East Coast, leaving three hours until the market closed.
In those three hours, Sigma's stock, which had been trading relatively calmly, suddenly surged. By the 4 p.m. close, Sigma's share price had skyrocketed 43%, pushing the market cap from $206 million at the open to $293 million by the close.
In just three hours, Sigma shareholders had seen their stocks appreciate by $97 million.
Neither Sigma's original shareholders nor its management could say a word in response to the market's madness.
Excluding the $20 million loan they had secured through their Westeros connections from Citibank, Chen Qing's team had invested a total of $94 million, acquiring 53% of Sigma. By the end of Monday's trading, their holdings were worth $156 million on paper.
After three weeks of work, the paper profit stood at $62 million.
It's easy to see why the financial industry has become a pillar of the U.S. economy and why so many global elites flock to Wall Street.
After completing the handover, Chen Qing didn't linger in the glow of success.
She knew that this was only the beginning.
Once the other shareholder representatives left, Chen Qing immediately gathered Sigma's management for a full-day meeting. Meanwhile, other team members not involved in the meeting began a detailed review of the company's financial records, technical documents, and employee files. That same morning, a pre-prepared job listing for various technical positions was posted on Eaglet's 58list platform.
The plan had been finalized long ago.
Sigma would immediately halt all non-core businesses. After fulfilling existing orders, no contracts would be renewed. While intensifying the development of video decoder chips for VCD, Sigma would also begin working on a full VCD technology solution—essentially an upgraded version of what Wan Yan had previously developed, building on their established technology.
The key reason Chen Qing's team insisted on acquiring Sigma, rather than working with other manufacturers to develop a new VCD chip at a lower cost, was simple: time.
If Wan Yan's product was VCD 1.0, Chen Qing's team planned to spend a year developing a new VCD 2.0 standard based on VCD 1.0 technology.
This was a plan Simon had devised based on his memory of Super VCD.
VCD discs were already capped in terms of capacity, meaning they could never surpass DVD.
However, the VCD player itself still had plenty of room for improvement over Wan Yan's first-generation product.
By leveraging the year before China's VCD market exploded, Sigma would use its head start in technology and patents to leave potential competitors far behind. Even tech giants like Sony and Philips, with their deep technological foundations, would fall behind and find it difficult to catch up.
With a one-generation product gap, catching up in the short term would be impossible.
As for the long-term?
VCD's golden era would last only about five years.
Simon would be more than happy to see companies like Sony pour time and resources into chasing what would ultimately be a dead-end race.
In summary, Sigma would spend the next year transforming itself from a semiconductor design firm into a comprehensive technology supplier, offering VCD core components and complete solutions to downstream manufacturers, holding a monopoly in terms of technology and cost advantages.
By then, Chinese VCD companies would only need to purchase Sigma's full suite of core components and solutions to assemble products for the market.
For Sigma, as long as they controlled pricing and didn't squeeze downstream manufacturers too much, allowing competitors to enter, the Chinese VCD market would largely belong to Sigma.
This was a completely different game from the intense competition in the DVD field.
Due to the massive success of the VHS market, electronics companies worldwide recognized the vast potential of DVD and had invested heavily in its
development. With so many companies involved, the resulting technological standards were a mess, and patents were scattered among different players. No single company held all the technological rights, and none were willing to compromise. If it weren't for these disputes, a mature DVD player could have hit the market by 1995. As it stood, it would take another three to five years before the technology was ready for mass production.
In contrast, VCD was like open-source Linux compared to the closed-source Windows that was DVD.
Because Wan Yan failed to secure comprehensive VCD patents, the current VCD technology was like a free, open-source program that many manufacturers could develop cheaply. Although it wasn't as advanced as DVD, the patent restrictions were minimal, allowing companies to develop and market VCD products at low cost.
Open-source, however, didn't mean you couldn't dominate the market.
Just like Google's Android system, which was built on open-source Linux, yet was still controlled by Google. Competitors could only use it with Google's permission. Moreover, as Android matured, it became increasingly difficult for other companies to develop similar products, as the technological gap widened and Android saturated the market.
That's precisely what Simon intended for Sigma.
To Simon, it was similar to the 2G and 3G standards in mobile communication.
As digital communication became widespread, major global telecom companies fought fiercely for 2G patents. Meanwhile, Qualcomm had quietly erected an insurmountable technological wall for 3G.
Qualcomm's 3G technology wasn't impossible to bypass.
However, when the time came to upgrade, companies would be forced to adopt Qualcomm's technology simply to save costs and time.
This gave rise to the "Qualcomm tax."
If a company tried to circumvent Qualcomm and develop its own standard, even if they succeeded, by the time they could bring it to market, companies already benefiting from 3G would be moving on to 4G. The result? The outlier would be left behind.
Qualcomm had established its toll booth on the road to the future, charging anyone who passed through. Sigma, on the other hand, was quietly staking a claim in a field others had overlooked. By the time competitors turned back, they'd find that Sigma had already secured the richest part of the mine, leaving them with only scraps.
Qualcomm would license its 3G standard and collect its tax, all while selling chips.
Sigma would license its VCD solution to manufacturers, collecting what could be called the "Sigma tax."
And they would sell core components.
Different methods, same outcome.
In the business world, the core strategies were often limited. Even when innovation appeared, the principles remained the same. Understanding these rules, executing them diligently, and perhaps with a bit of luck, could make someone a successful entrepreneur.
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