China’s domestic AI chipmakers are rapidly closing the gap on international leaders, according to Xu Bing, co-founder of SenseTime Group Inc. Despite the significant lag in computational power compared to the US, China possesses the talent and data necessary to advance in the AI field, Xu stated during an interview at the UBS Asian Investment Conference in Hong Kong. SenseTime, a leading AI company in China, faces challenges due to US sanctions that restrict access to advanced AI technology, such as Nvidia’s accelerators.
The US trade controls have spurred the development of domestic alternatives from companies like Huawei Technologies and Shanghai Biren Technology, both also affected by US restrictions. Xu emphasised that although Asia faces a considerable shortfall in computational resources, the region is abundant in talent and data. He noted that China’s AI chip industry is catching up quickly, with SenseTime collaborating with local semiconductor firms to enhance their computing capabilities.
While the exact gap between Chinese and US AI technology is uncertain, estimated between one to three years, Xu is optimistic that this disadvantage in computing power will be temporary. He believes that, over time, the disparity in computing resources will diminish, viewing computing power as a commodity China will eventually acquire in sufficient quantity. Notable Chinese companies making strides in AI chips include Moore Threads Intelligent Beijing Co., Huawei, and other key players like Baidu Inc. and Naura Technology Group Ltd, which have received government attention and support.
South Korea’s finance minister, Choi Sang-mok, announced plans to introduce detailed tax incentives to increase the value of listed companies as part of ongoing corporate reforms. These measures, which are part of the ‘Value-up Programme’, will be refined after gathering feedback from market participants in June and July. The government aims to balance fairness and effectiveness in the proposed tax benefits, initially introduced in February, which were seen as insufficient by the market.
In addition to these corporate reforms, Choi emphasised continued government support for the vital semiconductor industry in South Korea. Next month, detailed measures will be released to bolster the industry’s global competitiveness, building on a recently announced support policy package.
Choi also addressed broader economic issues, highlighting support for a three-way free trade agreement (FTA) with Japan and China following a trilateral summit where leaders expressed their commitment to accelerating negotiations. On the domestic front, he projected consumer inflation to stabilise in the mid-to-lower 2% range in the latter half of the year. He anticipated higher tax revenue in 2024 despite currently weaker-than-expected corporate tax income.
China has established its third state-backed investment fund to bolster the semiconductor industry, with a registered capital of 344 billion yuan ($47.5 billion). The initiative underscores President Xi Jinping’s push for self-sufficiency in semiconductors. The matter has become more urgent following US export controls aimed at limiting China’s access to advanced chip technology due to security concerns. The new fund, the largest yet from the China Integrated Circuit Industry Investment Fund, was officially set up on 24 May and registered under Beijing’s market regulation authorities.
The fund’s major stakeholders include China’s finance ministry, which holds a 17% stake, and China Development Bank Capital, with a 10.5% stake. Seventeen other investors, including five major Chinese banks, also contribute to the fund, each adding around 6% to the total capital. The substantial investment has already sparked a positive response in the market, with the CES CN Semiconductor Index rising by over 3%, marking its largest one-day gain in over a month.
Why does it matter?
The Big Fund, as it is known, has been pivotal in supporting leading chip manufacturers in China, such as Semiconductor Manufacturing International Corporation and Hua Hong Semiconductor, as well as emerging players, such as Yangtze Memory Technologies. The third phase will emphasise investments in chip manufacturing equipment, a strategic move to enhance China’s production capabilities. The ongoing effort highlights China’s determined bid to overcome technological barriers and secure its position in the global semiconductor landscape.
Elon Musk has revealed that his AI startup, xAI, plans to construct a supercomputer to enhance its AI chatbot Grok, aiming to launch it by fall 2025. According to the report, Musk suggested that xAI might collaborate with Oracle to develop this vast computational resource. When complete, the supercomputer would utilise Nvidia’s flagship H100 GPUs and be four times larger than the biggest GPU clusters currently available.
The Grok 2 model already required about 20,000 Nvidia H100 GPUs for training, and Musk anticipates that future models, like Grok 3, will need around 100,000 of these chips. Nvidia’s H100 GPUs are in high demand due to their dominance in the AI data centre chip market, making them challenging to procure.
Musk established xAI last year to compete with AI powerhouses such as Microsoft-backed OpenAI and Google’s Alphabet. His ambitious plan to build the supercomputer marks his commitment to advancing AI technology and maintaining a competitive edge in the rapidly evolving industry.
Nvidia’s latest AI chip, the H20, tailored for the Chinese market, is struggling with weak demand, leading to prices dropping below that of rival Huawei’s Ascend 910B chip. Despite being Nvidia’s most advanced product available in China, the H20’s abundant supply suggests it needs to gain more traction. This comes as Nvidia faces stiff competition and US sanctions that have significantly impacted its business in China, a market that previously contributed 17% to its fiscal 2024 revenue.
The competitive pressure and sanctions create uncertainty for Nvidia’s prospects in China. Senior executives acknowledged a substantial drop in their data centre revenue from China since new export control restrictions were implemented. Market analyst Hebe Chen noted that Nvidia is trying to balance maintaining its presence in China while navigating US tensions and preparing for potentially worse outcomes in the long term.
Huawei’s aggressive expansion and increased shipments of its Ascend 910B chip, which reportedly outperforms the H20 in some metrics, further challenge Nvidia. While Nvidia’s H20 has seen some orders from major Chinese tech firms like Alibaba, its success is constrained by Beijing’s preference for domestically produced chips. With a significant price discrepancy between Nvidia’s H20 and Huawei’s 910B, Nvidia’s margin squeeze is apparent as it competes in a market increasingly dominated by local players.
South Korea has unveiled a substantial 26 trillion won ($19 billion) support package for its semiconductor industry to stay competitive in the fiercely contested global market. Announced by President Yoon Suk Yeol, the package includes a 17 trillion won financial support program from the state-run Korea Development Bank to boost investments by semiconductor companies. Yoon emphasised the urgency of advancing in chip design and contract manufacturing, highlighting the ongoing ‘all-out warfare’ in the global semiconductor sector.
Despite being home to leading memory chip makers like Samsung Electronics and SK Hynix, South Korea lags in chip design and contract manufacturing. The nation holds only about 1% of the global fabless market, dominated by companies such as Nvidia, and faces a significant gap with top contract chip manufacturers like Taiwan’s TSMC. To address this issue, the government plans to establish a 1 trillion won fund to support equipment makers and fabless companies and aims to increase its share in non-memory chips from 2% to 10%.
Finance Minister Choi Sang-mok stated that the chip support package positions South Korea competitively on the global stage, comparable to substantial investments made by countries like the US and China. The government also plans to cut red tape to expedite the construction of a mega chip cluster in Yongin, which is projected to be the world’s largest high-tech chipmaking complex. Additionally, President Yoon has pledged to extend tax credits for investments in the semiconductor sector to boost employment and attract talent.
Leading European research labs will receive €2.5 billion under the European Chips Act to establish a pilot line for developing and testing future generations of advanced computer chips, according to Belgium’s IMEC. The initiative is part of the EU’s €43 billion Chips Act, launched in 2023 to bolster domestic chipmaking in response to global shortages during the COVID-19 pandemic.
The pilot line, hosted by Leuven-based research hub IMEC, will focus on sub-2 nanometre chips. This facility aims to provide European industry, academia, and start-ups access to cutting-edge chip manufacturing technology, which would otherwise be prohibitively expensive. Top chipmakers like TSMC, Intel, and Samsung are already advancing 2-nanometre chips in commercial plants, costing up to €20 billion.
The European R&D line will be equipped with technology from European and global firms and is designed to support the development of even more advanced chips in the future. IMEC CEO Luc Van den Hove stated that this investment will double volumes and learning speed, enhancing the European chip ecosystem and driving economic growth across various industries, including automotive, telecommunications, and health.
Funding for this project includes €1.4 billion from several EU programs and the Flanders government, with an additional €1.1 billion from industry players, including equipment maker ASML. Other participating research labs include CEA-Leti from France, Fraunhofer from Germany, VTT from Finland, CSSNT from Romania, and the Tyndall Institute from Ireland. While aid under the EU plan has been slower than other regions, with only STMicroelectronics approved for €2.9 billion in aid from France, Intel and TSMC still await approval for substantial funding to build plants in Germany.
Microsoft is gearing up to unveil a range of hardware and software updates for consumer devices at an event on Monday, taking place at its Redmond, Washington campus. Among the anticipated reveals are new iterations of its Surface Pro tablet and Surface Laptop, powered by Qualcomm chips built on Arm Holdings’ architecture. This move signifies a big shift from Intel’s longstanding dominance in the personal computer market.
The Qualcomm Snapdragon X Elite chips, expected to feature prominently in Microsoft’s new devices, boast a neural processing unit designed to enhance AI-focused applications like Microsoft’s Copilot software. The emphasis on AI acceleration underscores Microsoft’s commitment to staying at the forefront of technological innovation in consumer electronics.
While Microsoft’s product event is not slated for live streaming, it serves as a prelude to its annual developer conference, offering insights to attending journalists and industry analysts. Microsoft’s strategic partnership with OpenAI has positioned it ahead of competitors like Alphabet’s Google in the race to develop consumer-centric AI tools, setting the stage for further advancements in the field.
Why does it matter?
The tech landscape is rapidly evolving, with Apple’s introduction of custom Arm-based chips for Mac computers intensifying pressure on the PC industry. The collaboration of Microsoft with Qualcomm to migrate Windows to Arm’s chip designs reflects a concerted effort to adapt to these changes. With the impending expiration of Qualcomm’s exclusivity on Microsoft Windows devices, competition among chip designers, including Nvidia, is poised to escalate in the pursuit of next-generation PC performance.
As per a report by the Semiconductor Industry Association (SIA) and Boston Consulting Group (BCG), US is expected to account for 28% of sub-10-nanometer chip production, while China will potentially lay claim to just 2% of the production of advanced chip by 2032. The US restrictions on semiconductor exports to China alongside the CHIPS Act are the major currents contributing to this disparity.
Presently, neither the U.S nor China can produce sub-10-nanometer chips. Nonetheless, with US federal support, Taiwan Semiconductor Manufacturing Co., Samsung, and Intel plan to enhance their US investments, enabling the production of the world’s leading chips within US territory.
In 2022, US held a mere 10% of global chip manufacturing capacity with remaining production based out of Asia. With CHIPS Act in effect, US is expected to triple its semiconductor manufacturing capacity thereby controlling nearly 30% of sophisticated chip manufacturing by 2032. Without the CHIPS Act, this share would have dwindled to 8%.
Meanwhile, while China is trying to amp up its chipmaking capabilities, with its significant $142 billion investment in its domestic semiconductor industry, John Neuffer, president and CEO of SIA stated that China lags behind also because of its lower starting point, especially with regards to design and research & development, where US has historically also maintained its lead.
King Yuan Electronics Co. (KYEC), a leading Taiwanese firm specialising in semiconductor testing and packaging, has decided to divest its entire stake in its subsidiary located in Suzhou, China. This strategic exit from mainland China’s semiconductor market is reportedly driven by the escalating geopolitical tensions and tightening U.S. technology restrictions that have impacted the industry.
King Yuan Electronics Co., Ltd. (KYEC) has disposed of its 92.1619% stake in King Long Technology (Suzhou) Ltd. (KLT) to a consortium of investors, including King Legacy Investments Limited and several others for a total sale price of approximately NT$21.715 billion according to an announcement they made in their official website.
The sale is set to substantially impact KYEC’s financial position. The estimated gain from the disposal after long-term investment costs and related taxes and other effects is approximately NT$3.827 billion, raising the earnings per share to approximately NT$3.13, with significant implications for earnings and book value per share. The proceeds will enable substantial dividends for shareholders and reinvestment in advanced semiconductor testing technology in Taiwan.The proceeds from this sale will be directed towards enhancing KYEC’s capabilities in advanced semiconductor testing technology, with KYEC’s focus on enhancing its competitive stance in high-end product testing for sectors like AI and HPC, emphasising efficiency and innovation.
The decision underscores a broader trend among Taiwanese semiconductor firms, which are increasingly reconsidering their investments and operations in China due to the complex interplay of business risks and geopolitical factors.
This development is a clear indicator of the ongoing realignment within the semiconductor industry, as companies navigate through the complexities of international politics and market forces. It also highlights the strategic shifts companies are making to ensure resilience and sustainability in a sector critical to the global technology ecosystem.
