The movement of illicit semiconductor chips to Russia has seen a notable decrease, according to the US Department of Commerce, driven by intensified efforts from Western nations to curb the flow of technology that could support Moscow’s military capabilities. However, China and Hong Kong continue to serve as significant transhipment hubs, enabling the ongoing, albeit reduced, supply of these critical components.
Western governments have ramped up measures to control the export of semiconductor chips and other sensitive technologies to Russia. These actions are part of broader sanctions aimed at restricting Russia’s access to advanced technology that could be used in military applications. Enhanced scrutiny and stricter enforcement of export controls have been pivotal in reducing the volume of chips reaching Russia.
According to the Semiconductor Industry Association (SIA), the volume of semiconductor chips illicitly reaching Russia has fallen by approximately 20% over the past six months. Despite the slowdown, China and Hong Kong remain key transhipment hubs for semiconductor chips destined for Russia. Playing a crucial role in the supply chain, they often serve as intermediary points where chips are re-exported to avoid detection.
China and Hong Kong are employing sophisticated methods to circumvent sanctions and export controls, including re-routing shipments, re-labelling products, using shell companies, misdeclaring goods, and complex supply chains.
Why does this matter?
Industry experts highlight that while the reduction in chip flows is a positive development, the continued role of China and Hong Kong as transhipment hubs poses ongoing challenges. The complex nature of global supply chains and the high demand for semiconductors make it challenging to eliminate illicit flows entirely.
According to sources, Nvidia is developing a version of its flagship AI chips for the Chinese market to comply with US export controls. The new chip, part of the ‘Blackwell’ series unveiled in March, is expected to be produced later this year. The ‘B200’ model in this series significantly outperforms its predecessor in tasks like chatbot responses. Nvidia is collaborating with its major Chinese distributor, Inspur, to launch this chip, tentatively named the ‘B20.’
In response to tighter US export controls introduced in 2023 to prevent advancements in Chinese supercomputing, Nvidia has created three chips specifically for China. Despite initial setbacks with the H20 chip, sales have surged, with projections of over 1 million units sold in China this year, amounting to over $12 billion. These developments highlight Nvidia’s strategic efforts to maintain its market presence amidst growing competition from Chinese firms like Huawei.
As the US continues to enforce and potentially expand semiconductor-related export restrictions, Nvidia’s actions reflect the broader impact on the global chip industry. The Biden administration’s plans to implement stricter controls on AI technology and efforts to influence policies in other major tech-producing countries underscore the ongoing geopolitical tensions in the semiconductor sector.
Taiwan Semiconductor Manufacturing Co (TSMC), the leading producer of advanced chips for AI applications, is set to report a 30% rise in second-quarter profit on Thursday, driven by soaring demand. The world’s largest contract chipmaker, which counts Apple and Nvidia among its clients, has seen its stock—and the broader Taiwan market—reach record highs. Last week, TSMC’s American Depositary Receipts surpassed a trillion-dollar market value.
For the quarter ending 30 June, TSMC is expected to announce a net profit of T$236.1 billion ($7.25 billion), a significant increase from the T$181.8 billion reported in the same period last year. The company recently reported a substantial rise in second-quarter revenue, exceeding market expectations. Analysts like Li Fang-kuo from President Capital Management Co. anticipate a strong third-quarter outlook for all of TSMC’s products.
TSMC is heavily investing in expanding its production capacity, including spending $65 billion on three new plants in Arizona. However, the majority of its manufacturing will remain in Taiwan. The company is expected to maintain its capital expenditure guidance for this year at $28 billion to $32 billion, with 70% to 80% allocated to advanced technologies. KGI Securities’ Chu Yen-min suggests TSMC raise its capital spending due to favourable market conditions, which could further boost its stock price and support the broader market.
Why does this matter?
TSMC, often called the ‘sacred mountain protecting the country’ for its crucial role in Taiwan’s economy, remains a dominant player in the semiconductor industry despite challenges from Intel and Samsung. The AI boom has significantly increased TSMC’s stock price, which has surged 75% this year, outpacing the 33% gain in the broader market.
SoftBank Group, the Japanese multinational investment holding company, has acquired Graphcore, a British AI chipmaker, in a strategic business move that ends speculation about Graphcore’s future amid financial struggles. Once positioned as a competitor to Nvidia, Graphcore has faced challenges securing sufficient investment despite its technology potential.
Graphcore, valued at $2.77 billion in 2020, had been grappling with financial viability, including layoffs and operational closures. CEO Nigel Toon acknowledged the company’s difficulties but expressed optimism about the deal with SoftBank, highlighting the substantial resources it brings.
Toon emphasised the significant investment from SoftBank, noting its transformative impact on Graphcore’s global competitiveness. However, he pointed out structural barriers in the UK tech industry, such as limited domestic investment from pension funds, hindering growth opportunities.
Regarding potential collaboration with SoftBank-owned Arm Holdings, a leading chip designer, Toon indicated Graphcore’s intention to leverage synergies within SoftBank’s portfolio, although specifics were not disclosed.
The Biden administration announced a plan to allocate up to $1.6 billion to advance technology for packaging computer chips, a crucial step to maintain the US edge over China in fields like AI. The funding, authorised under the 2022 CHIPS Act, aims to innovate faster data transfer methods between chips and manage their heat generation. Laurie Locascio, an under-secretary in the Commerce Department, announced the initiative at an industry conference, signalling companies to apply for grants up to $150 million each.
The CHIPS Act, which received bipartisan support, allocates $52 billion to bolster domestic chip production, mainly focusing on factories that transform silicon wafers into chips. The US currently contributes about 10% to this industry, with much of the activity outsourced to Asia. Packaging, an essential process that attaches finished chips to substrates, is primarily done in Taiwan, Malaysia, South Korea, the Philippines, Vietnam, and China. The US handles only about 3% of advanced chip packaging.
Why does it matter?
Federal funding will target the next stages of chip production, ensuring chips made in the US can be sent to somewhere other than Asia for packaging to reduce dependence on foreign companies. The shift aligns with the industry’s push for perfecting computing performance by combining multiple chips. Companies like Nvidia and Intel are already making strides in this area, with federal support helping to keep US firms at the forefront of technology. The new grants are part of a $3 billion initiative under the National Advanced Packaging Manufacturing Program, aiming to foster innovation and self-sufficiency in the semiconductor sector.
At the recent World Artificial Intelligence Conference in Shanghai, Chinese GPU developers seized the opportunity to showcase their products in Nvidia’s absence. Prominent companies such as Iluvatar Corex, Moore Threads, Enflame Technology, Sophgo, and Huawei’s Ascend were at the forefront, highlighting their advancements despite significant challenges in manufacturing and software ecosystems.
Enflame Technology emphasised the shift from foreign-dominated computing clusters to a mix of Chinese and foreign GPUs. The company, along with AI solutions firm Infinigence, is promoting compute resources that utilise a variety of chips from both Nvidia and Chinese manufacturers. However, US export restrictions have prevented Nvidia from selling its most advanced chips in China, and several Chinese firms, including Huawei, are struggling with manufacturing hurdles due to being blacklisted by the US.
Huawei’s booth was a major attraction, showcasing its Ascend 910B chips, which train numerous large language models in China. Meanwhile, Enflame presented its Cloudblazer T20 and T21 AI-training chips, benefiting from not being on the US trade blacklist, which allows it access to global foundries like TSMC.
Despite these efforts, Chinese GPUs still need to catch up with their global counterparts regarding performance. Nvidia remains a dominant player, with tailored chips for the Chinese market continuing to be popular. Nvidia is expected to deliver over 1 million H20 GPUs in China this year, generating $12 billion in sales. However, experts highlight that China’s in-house technology still needs to meet its substantial domestic AI demand.
Elon Musk’s AI startup xAI and Oracle have ended discussions on a potential $10 billion server deal. The talks aimed to expand an existing agreement where xAI rents Nvidia AI chips from Oracle. Musk stated that xAI would build a system independently using Nvidia’s H100 graphics processing units for quicker completion.
A source revealed that the specific capacity discussed had been allocated to another customer. Despite this, Oracle continues to engage with xAI regarding its infrastructure needs. Issues such as Musk’s ambitious timeline for building a supercomputer and concerns about power supply at the preferred location contributed to the breakdown of talks.
xAI still contracts with Oracle to train AI models in Oracle’s Gen2 Cloud.
The recent surge of Taiwanese chip giant TSMC into the ranks of the world’s most valuable companies underscores the significant impact of the generative AI revolution on Wall Street. TSMC briefly surpassed the $1 trillion market capitalisation mark, surpassing Tesla to become the seventh most valuable tech giant. The milestone occurred on a day when Alphabet, Apple, and Meta all reached record highs.
Microsoft and Apple dominate the top echelon of the world’s most valuable companies, followed closely by AI chip designer Nvidia. These companies boast global stock market valuations exceeding $3 trillion. Alphabet and Amazon, both exceeding $2 trillion, also feature prominently in the ranking, while Saudi oil giant Aramco, Meta, TSMC, and Tesla complete the top ten.
The semiconductor industry, now the leading sector in the S&P 500, is experiencing unprecedented growth due to the rising demand for chips driven by generative AI. That boom attracts significant investment and government subsidies, such as the Biden administration’s multi-billion-dollar support for US chip factories. Worldwide semiconductor sales are projected to reach a record $611.2 billion in 2024, with further growth expected in subsequent years.
Nvidia, a key player in AI chip design, has seen its market capitalisation increase eightfold since the launch of ChatGPT in November 2022. Nvidia’s GPUs are essential for building generative AI, propelling the company to briefly become the world’s most valuable publicly traded company. Analysts at Wedbush Securities highlight Nvidia’s GPU chips as the new “gold or oil” of the tech sector, with Nvidia, Apple, and Microsoft racing toward a $4 trillion market valuation. TSMC, which manufactures the bulk of Nvidia’s products, is poised to benefit significantly from this booming demand.
Resonac Holdings Corp., a prominent Japanese chip material maker, announced plans to establish a US-JOINT consortium alongside nine other Japanese and US firms. The initiative, headquartered in Silicon Valley, aims to advance semiconductor technologies crucial for generative AI and autonomous driving applications. The consortium will focus primarily on developing cutting-edge semiconductor packaging technologies, traditionally centred in Asia.
According to Resonac, the move to Silicon Valley will facilitate closer collaboration with major semiconductor device manufacturers, enhancing technology development and addressing technical challenges not fully covered by existing US consortiums. The facility is slated to be fully operational by next year, emphasising the consortium’s commitment to accelerating innovation in semiconductor packaging.
Among the consortium’s members are six Japanese companies, including Towa Corp. and Tokyo Ohka Kogyo Co., along with four US firms, such as Azimuth Industrial Co. and KLA Corp.
Why does this matter?
The establishment of US-JOINT reflects a broader trend in the semiconductor industry, where competition to develop state-of-the-art chips intensifies amid the rapid expansion of generative AI and data centres. The consortium’s formation underscores international efforts to foster technological advancements for future digital innovations.
At the recent World AI Conference in Shanghai, China’s leading AI company, SenseTime, unveiled its latest model, SenseNova 5.5, which can identify objects, provide feedback on drawings, and summarise text. Comparable to OpenAI’s GPT-4, SenseNova 5.5 aims to attract users with 50 million free tokens and free migration support from OpenAI services. The launch of SenseNova 5.5 comes at a crucial time, as OpenAI will block Chinese users from accessing its tools starting 9 July, intensifying the rivalry between US and Chinese AI firms.
OpenAI’s decision to block Chinese users has sparked concern in China’s AI community, raising questions about equitable access to AI technologies. However, it has also created an opportunity for Chinese companies like SenseTime, Baidu, Zhipu AI, and Tencent Cloud to attract new users with free tokens and migration services, accelerating the development of Chinese AI companies that are already engaged in fierce competition.
Why does this matter?
The US-China tech rivalry has led to US restrictions on exporting advanced semiconductors to China, impacting the AI industry’s growth. While Chinese companies are quickly advancing, the US sanctions are causing shortages in computing capacity, as seen with Kuaishou’s AI model restrictions. Despite these challenges, Chinese commentators view OpenAI’s departure as a chance for China to achieve greater technological self-reliance and independence.
