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Noteworthy Items

Semis and Deep Tech

“Baiwei Profits up 900%”. The headline caught our attention, and then led us down a rabbit hole of just trying to figure out what this company does. They are a memory and storage company, but from what we can tell they make modules using other people’s memory chips. So this is a company that buys a lot of memory products, probably had too much inventory and then sold it all to take advantage of memory price hikes. Enjoy the wave while you can.

Among the many things in shortage right now in the semis supply chain, PCBs tend to be far down the list in the US, but they are very important in the PRC. And so when Japanese makers of many of the inputs for PCBs hike prices by 30% it is big news. There is probably a geopolitical angle to this as the PRC and Japan governments are not on good terms at the moment. There are some noises in the PRC about boycotting Japanese goods, which is what happened when the PRC and South Korea had tension a few years back. This is a not so subtle reminder that the PRC economy has dependencies in Japan, and a wide boycott could end up hurting PRC companies a lot. The parallel with PRC/US and rare earths is obvious.

Speaking of South Korea, there are a lot of articles in PRC press this week highlighting the struggles of South Korea. This one notes how dependent the economy there is on TSMC, as well as many more noting how Korea seems to be the Asian economy most disrupted by getting cut off from Persian Gulf oil.

SMEE is the leading PRC lithography equipment maker (that we know of…). The US government put them on the entity list a few years back. SMEE then spun off a unit called AIMES which is not on the entity list. Whac-a-Mole.

Sometimes PRC tech press is the best place to learn about the basics of some technology. For instance, the semis industry watched Samsung struggle with HBM memory for years, but this is the best explanation of what exactly troubled them - power transmission across ever-rising stacks of HBM.

Advanced semiconductor packaging is emerging as a critical step in the supply chain. We found this in-depth overview of both the latest in advanced packaging technology and a look at where PRC companies are positioned. (Let us know if you want a translated copy.)

Somewhat biased take on the PRC’s optical networking industry. Important to remember that the PRC has a lot of important companies in the optical supply chain, they are not necessarily critical and do not typically have profit margins that would say they have defensible positions.

Software

The CEO of Zhipu, one of the first PRC AI LLM companies to go public, gave a long interview ahead of their IPO. We found this interview extremely grounding - there is so much heated language around the “AI Race”, and here is some professor trying to become an entrepreneur having to explain to investors and the president of his university what he does.

Automotive, Industrial and Macro-Economic

This is a big month for political economy discussions in China with a range of annual government events and the release of the latest 5 Year Plan. We have found that these reports often mark important turning points in policy and economic directions, but those changes often take months or years to become apparent. For now, expect a lot of thought pieces from various government and business circles trying to influence last-minute decisions, and a whole host of impenetrable Party documents.

This piece got a lot of notice in the West. It co-authored by a list of semiconductor industry heavy hitters. (We wonder who actually wrote the words. Kinda hoping it was AI.) The piece calls for the establishment of a “Chinese ASML”, a national standard bearer. Huawei is probably most of the way there, but that may not be fully known to the authors, and is probably not what they are hoping for. It is important to keep in mind that this is not a government decree, just a bunch of stakeholders trying to push policy in their preferred direction.

This economic history of innovation is written along the same lines as the piece above, but is probably best read for its glimpse into how the PRC tech industry views the world, which is different from how the US tech industry views the world, but still has some similarities.

The Rhodium Group explores how PRC EVs are so cheap. Their argument is that vertical integration is more important than direct government subsidies. We understand that argument, but were left asking, why were PRC companies able to vertically integrate while Western (especially US) automakers went the other direction? We think the PRC companies have a lower cost of capital for policy reasons, a form of indirect subsidy. Not sure if that would entirely close the gap, but we know it matters.

Memory Holed

Sometimes we find headlines of interesting stories only to find that the linked article is no longer available, for unspecified reasons. One caught our eye with its cover graphic of a petrochemical complex on fire, entitled “War Starts Again, and Again China Semis Get Robbed”. The censors don’t know which way the wind is blowing yet on the US bombing of Iran.

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Noteworthy Items

Semis and Deep Tech

Following TI’s actions last month, Analog Devices raised prices in the PRC. This is a bit odd, as TI has downplayed their pricing moves there, but it is a big deal in the PRC. This is giving a lot of small, domestic competitors a bit of breathing room. There are still too many of them, but they all now have a bit more margin to subsist on.

A profile of Mediatek and all the ways it is making Qualcomm “jealous”.

PRC semis companies have been very busy in the capital markets this month. There have been several high-profile IPOs and a continued tempo of M&A deals. On the flip side, there were also a large number of bankruptcies and numerous failed acquisitions. This is probably a healthy market, meaning a market operating like a market should, but it definitely feels tumultuous.

IPOs

GPU maker Moore Threads (Shanghai 688795) is probably the highest profile IPO. Moore Threads is sometimes held up as “China’s Nvidia”. That is not quite right, but does a lot to explain the scrutiny the company is under. And yes, this company’s IPO was boosted by Nvidia’s inability to sell in the PRC.

MetaX listed in Shanghai as well. This is another GPU maker. Are we detecting the trend? MetaX is now being called “China’s AMD”, as a second player to Moore Thread’s Nvidia.

Biren Technologies filed to go public in Hong Kong, and is expected to list in a few weeks. Biren had the unfortunate timing to rise to meteoric prominence as the hottest PRC GPU maker a year ago, just in time to get added to the US entity list. We think they almost closed shop, but were able to raise enough capital to sustain them into revenue.

Woan Robotics listed in Hong Kong. Woan makes a range of home automation devices including vaguely humanoid models. They claim to be the first “Robotics First” IPO.

Another ‘first’, Ci Di, also listed in Hong Kong. They claim to be the first commercial autonomous vehicle company to go public.

Nanxin Micro went public. Nanxin makes mixed signal chips, largely for power management and industrial applications. There are dozens of companies like this, we just wanted one name on this list that was not an AI/GPU player.

M&A

Leading wafer fabrication equipment (WFE) maker Naura acquired Chengdu Guotai Vacuum. Naura is a the PRC leader in etch and deposition tools, Guotai focusses on polishing. It is not clear what shape is Guotai is in. It is not public, and we could not find any clear signal about its health. So did Naura buy this as part of industry consolidation as it bulks up to take on Applied Materials? Or was it “encouraged” to save an ailing peer? Probably a little of both.

Despite deals like Naura’s above this month saw a number of M&A deals stall in the market. So many that it is possible the regulators stepped in quietly. This article walks through all the reasons deals are failing. Another article says “The Brakes are On”, implying the government is playing a role. The first article is more interesting in that the reasons it gives are a list of conflicting interests among various types of shareholders. Early investors just want an exit, more recent investors want to hold out for better valuations. In many ways it reads like the aftermath of the dot.com Bubble when venture investors took a much more menacing approach. The big difference in the PRC is the fact that State entities are involved in many of these deals, and they carry their own set of imperatives that are often non-commercial.

Finally, there have been over a dozen semiconductor bankruptcies in the past few months. Sad for those companies, but long overdue for the market, and likely a sign of things to come.

Geopolitics

“H200 sales a Victory for China”. What else can we say?

This article is framed as a discussion of changing US restrictions on PRC chip companies, but viewed at another angle it is a pretty good primer on all the loopholes.

As much as PRC semis seem to be going from strength to strength, it is important to remember many there feel much less secure in their position. This piece is titled “US Semis Are So Strong”, which could be read as “US Semis Are So Hot”. Bonus points for a map showing the dispersion of US semis companies across the country.

There are a few bills circulating through the US Congress to impose further limits on a host of PRC manufacturing sectors. We had not even heard of this one. US readers will probably (rightly) read these as political stunts by various members of Congress, but in the PRC these bills are being watched carefully and taken far more seriously than in the US.

US Auto Chip Makers have apparently not gotten the “de-coupling” memo, as several of them recently added capacity to their PRC operations.

Soybean prices have been getting uncomfortably high in China this year, leading to derivative food price inflation. Last month, the government auctioned off a large amount of soybean reserves, in part to bring prices down, but also reportedly to make room in storage facilities for large purchases from US farmers.

Software

Alibaba announced earnings last week. Not surprisingly, AI played a large part of their narrative. Ali needs to be taken seriously in AI. It’s QWEN model ranks highly on benchmarks. The company is also furiously building AI into a range of products including its AR glasses, an AI browser, and a travel agent integrated with Amap. Most relevant here, they spent almost $20 billion on data center capex during 2025.

Automotive, Industrial and Macro-Economic

Are they stealing our precious fluids? PRC companies are investing heavily in materials purification capacity. Many industries, semis not least, require super-pure inputs and only a few companies can provide those for any given commodity. This sounds a lot like PRC companies are building the next “Rare Earth” bottleneck.

This author discusses the way in which R&D should take place on the factory floor, not just in the lab. Some may say that is a fancy way of saying PRC companies have mastered the art of trial and error, but we see it as speaking to the rise in PRC manufacturing methodologies. How long until we see a spate of business books showing “The China Way”. Just like we saw with Japan in the 1980’s, China has some practices that US companies could adopt as they seek to onshore manufacturing.

“76 Manufacturing Inputs Only Produced in Japan”. It almost sounds like a TikTok listicle. Aside from getting deep into the weeds of some niche topics, we read this as a Target List for PRC companies. There are a few of these circulating right now. And so we have to look at the timing, with Japan and the PRC entering a new, tense phase.

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Noteworthy Items

Semis and Deep Tech

The PRC has a new “champion”, RF chip maker OnMicro (and here) - not to be confused with US analog chip maker On Semi. This has been a grueling sector, with a dozen companies fighting over the bottom end of the market left over by Skyworks and Qorvo. The big breakthrough prompting the recent wave of press coverage was OnMicro winning high end PAD module content with domestic handset vendors, but they are being used in export versions of the phones. So not quite booming success, but they have opened the door.

Overcapacity is a big topic in the PRC today. Wafer fabrication equipment (WFE) is also a big topic. This analyst combines them and claims the industry is seeing an overcapacity in WFE. At first blush, this seems counter-intuitive, lead times for ASML equipment is measured in years. But in the PRC there are too many trailing edge fabs and too many trailing edge WFE makers. Maybe not so surprising after all, but inadvertently a fairly strong indictment of current PRC investment policies in the sector.

Changxin Memory moved a step closer to IPO. They seem likely to go public next year, with timing lines up with expectations for the launch of their HMB product.

Interesting profile of the three leading smartphone contract makers. They have all fallen on hard times as their customer base consolidated.

Reported specs for the PRC variant of Nvidia’s Blackwell B30A. Fairly neutered, especially around memory bandwidth but still performant.

Geopolitics

We are not going in-depth on the latest developments of the trade war this issue. It is well-trodden by the US media, and frankly we are tired of the whole subject.

There was a lot of coverage of the Rare Earths ban, mostly along the lines of the PRC being strong. This piece was our favorite for its use of Mao Zedong Thought and the artwork comparing the PRC’s struggles with semis today to the Long March.

One item that got less coverage in the US was the Dutch government’s “seizure” of Nexperia, a Dutch chip company owned by a PRC company. There was a lot of unhappiness about the deal, with many articles such as this one crying foul. The PRC Semiconductor Association issued a formal statement. Overall, we rate the level of outrage here as fairly modest. No one in the PRC is happy about it, and other Dutch companies are probably going to feel some heat, but so far nothing broad based or calls to boycott all Dutch products.

A fairly positive overview of Intel and the launch of their new fab in Arizona running its 18A process. Intel has done a great job of staying out of the PRC government’s notice for the thirty or so years they have operated there. We thought that might change with the US government taking a stake in the company, but so far that does not appear to be the case. Compare this to the growing press campaign against Nvidia.

Here is a profile of TSMC’s OIP program, which makes it easier for smaller companies to become TSMC customers. We link to this because it is a rare example lately of a positive story about TSMC in the PRC press. In part, because many OIP participants are PRC companies. There is a large grey area around which PRC companies can make use of TSMC. The US government would like that number to be zero, TSMC would like it to be infinite. The US government is having a hard enough time just playing whack-a-mole with Huawei proxies. On the other hand, we suspect that this program will draw further scrutiny from the US, if the restrictions persist.

Case in point. The US government added two subsidiaries of US company, Arrow Electronics, to the entity list. We missed this in the US press two weeks ago. Not a good look for the US regulators.

Here is something we do not see much of anymore. A US VC invested in a PRC GAN chip maker. It sounds like much of the team is in the US, but these deals have their own set of challenges. Not least, how does the VC get their cash out when they exit?

Software

A survey of the PRC market for EDA tools. This segment is sending mixed signals. On the one hand, the domestic vendors are all doing strong business as the US government shuts off access to US EDA (before turning it back on). On the other hand, there are too many of these companies, in a market that trends heavily towards consolidation.

Huawei

The Huawei Atlas 300I Duo, AI accelerator. Very limited information available outside the PRC.

Automotive, Industrial and Macro-Economic

The PRC’s answer to SpaceX, Landspace, launched its first rocket.

This robot “costs less than an iPhone”. We probably need to do a report on PRC robotics companies. These are still (expensive) toys, but the companies making them are iterating incredibly rapidly.

Diversions

The PRC opened a “Trillion-yuan dam”. At RMB 1.2T (USD $170b), the Yarlung Tsangpo Grand Canyon project looks fairly impressive. Especially given that it was built in the last county in the entire country to get paved roads.

Did anyone know that National Sanitation Workers’ Day passed on October 26? Talk to the street sweepers, they know everything.

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We examine the surprisingly muted press coverage of the trade war in the PRC. We also look at the many signs of life re-emerging into the semis complex as M&A activity picks up in foundry, more bankruptcies, and GPU companies raising money in the public markets.

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Noteworthy Items

Semis and Deep Tech

Bytedance’s CEO said the company has enough Nvidia H20s. This is great messaging, it lands well with a number of different audiences. Primarily it signals the government that it is being ‘patriotic’ and looking to source domestic GPUs. It also signals to its own investors that it is not getting hurt by US chip restrictions and remains competitive. Of course, we do not think many people believe they will actually stop using Nvidia.

Leading foundries in China, notably SMIC and Huahong, both beefed up their capabilities via M&A last month, adding some niche adjacencies. In part, this is straightforward commercial strategy. It is also a function of geopolitics as PRC foundries seek to boost volumes as part of a path towards becoming more competitive with TSMC.

VCSEL has been a hot topic in certain niche corners of the semiconductor industry lately. Huawei and Xiaomi just jointly invested in a PRC VCSEL company. Huawei is trying to almost-single-handedly create an entire semiconductor supply chain in the PRC. Xiaomi’s interest is a bit more curious.

Another bankruptcy in the semis complex. This one is an older company based in Shanghai, and by older we mean about ten years old. It got pushed out of business, in part, by a wave of newer competitors likely backed by government entities. Industrial policy has a lot of unintended consequences, and as much as the rest of the world is starting to complain about overcapacity in the PRC, domestic companies there have been struggling with that for a while already.

AI chipmaker Cambricon is conducting a secondary offering to raise $700 million. They plan to use these funds to fund R&D. Cambricon is considered one of the PRC’s most competitive AI accelerators, and a key beneficiary of the ban on Nvidia sales there. On a related note, Shanghai Haitian, another emerging GPU maker filed to go public in Hong Kong.

A little bit of propaganda, this analyst compiled comments by foreign executives saying “Foreigners say US restrictions cannot stop China semis”.

Here is a profile of a Belarussian laser company, that apparently had the most advanced lasers in the Soviet Union. This reads as a straightforward corporate history, but the timing is interesting. Notice the mention of EUV light sources.

Bytedance (owner of TikTok) is reportedly designing its own phone. Their goal for this is the same goal every major Internet company over the past 18 years has had - freeing itself from the tyranny of massive distribution, a working operating system and a complete software ecosystem that Apple and Google provide. Since its 2025, this one will also have AI and somehow help the company navigate geopolitics.

Software

In recent months in the US, several high profile start-ups entered into M&A arrangements which left their employees’ options essentially worthless. There is a lot of concern in Silicon Valley that some basic social contract is getting erased. The Valley has long fed start-ups with low-salaried employees on the premise that they work long hours for low pay in exchange for a lottery tick of options which will someday (maybe) be worth a lot. There are similar concerns now in the PRC where that social contract has never gotten quite as entrenched. A few recent examples “Paupers worth hundreds of millions”, “My Angel Investors Quit”, “Should New Employees Sell their Options Grants”,

Automotive, Industrial and Macro-Economic

Nokia is seeing automaker Geely. From Nokia’s point of view, the goal here is to build up its IP revenue stream. The company sees this as a major growth driver somewhat offsetting the decline of their networking business. This article is interesting though because it frames the lawsuit from a PRC perspective as an anti-competitive move by a European company to head off the advances of PRC EVs in Europe. Both could be true.

A reminder that Electric Vehicle (EVs) makers in the PRC are engaged in some fairly brutal competition. In 2023, leading high-end EV maker Nio proposed an alliance with other EV makers to standardize battery and charging designs. The alliance attracted some of the leading car makers, but two years later, only auto maker BYD has really adopted any of the standard. Nio itself does not appear to offer any fully compliant models. Standards are hard.

Geopolitics

“The Chips Act Ended in Bankruptcy”. A view from the PRC on the US government taking a 10% stake in Intel. Surprisingly we did not find much commentary on this, aside from some basic news reports. This piece takes the position that Intel is headed for bankruptcy, but goes further to say the US’s long-held positions on the rule of law and market led economics is also bankrupt.

Memory Holed

In this section we list posts with intriguing titles that have been removed from the Internet.

“Changxin Memory Surges Ahead with Domestic EDA Tools”. Some of the most interesting news stories get removed. It is always unclear why this happens, but we have noticed a trend this year where any story that mentions specific uses of domestic substitution in the semis supply chain gets removed. Our guess is that there is some fear of any company getting so well-known it ends up on the US entity list.

Diversions

For some reason, the algorithms have been sending us a lot of stories lately containing memoirs of successful entrepreneurs reminiscing about their path to success. This is a good example, a profile of one founder who spent time at Kingsoft and Tencent among others.

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As the PRC government seeks to redirect its semiconductor industry towards a narrower set of policy objectives, it risks sowing the seeds of its failure.

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Noteworthy Items

Semis and Deep Tech

RAND published an important analysis of the PRC’s AI policies. While this does not answer the big question they pose - “Will it work?” - we think this piece is very helpful in pulling together the many disparate policy threads at play today.

“Nvidia’s Compliance Ballet” - balancing PRC demand against US restrictions. Most interesting for its outline of domestic AI competition.

Narrative violation: From the headlines, it is easy to assume that the PRC government is throwing money at AI companies. In reality, many GPU companies are struggling to raise capital. There is a conflict between high level policy goals and on-the-ground implementation.

On a related note, lots of mixed signals from the industry right now in regards to capacity, funding and consolidation. Last month we wrote that it looked like conditions were improving on this front, and that is still true, but it is not a smooth process. The press is filled with stories about restructurings gone awry, where one party backs out or another where the buyer itself went bankrupt.

An overview of the PRC Silicon Carbide (SiC) market, shows just how big it has gotten, with over 100 companies already. As one manager jokes “Every county in the Yangtze Delta” has an SiC plant. Needs to be read in light of Wolfspeed’s bankruptcy.

Financial round-up of a few chip companies. Rockchip is apparently doing well on the back of edge AI, but the real story is the claim that Changxin will start shipping HBM in the middle of next year. We all suspected it was coming, but this is the first time we have seen a date attached to it.

North Micro caught our eye because it is undergoing a somewhat dodgy sounding restructuring, but it turns out it is much more interesting for another reason. North claims to have a working FBAR filter. We have watched the PRC for years for a company with this capability, a few have made the claim, but this one just signed some form of patent agreement with Broadcom, which gives some credence to North’s claims. North is affiliated with Phytium, the CPU maker, and CEC, the sprawling state-owned electronics company, and so of course they are on the US government’s Entity List.

Software

TSMC announced its “EDA Alliance” - the EDA providers with the closest links to TSMC, essentially making them gateways to the foundry, a critical competitive barrier. PRC-based Primarius joined the list for the first time, but its peer Empyrean fell off. Our periodic reminder that EDA is seen by US regulators as a chokepoint in accessing leading edge fabs, but TSMC still gets a vote in the matter.

There is a growing number of robotics companies in the PRC. Just this week, a former Huawei employee launched a new company - AgiBot - which has its own vision/action model. And you can now buy a Unitree robot on Alibaba. But unfortunately, Xiaomi will not be selling its robot any time soon. We plan to do a lot of work on robots this year.

Automotive, Industrial and Macro-Economic

Secretary General Xi Jinping visited a 100-year old pipe factory. These kinds of story are staples of official newspapers in all Communist countries, but we thought this one was worth pointing out. These visits are meant as policy signals, and the message here seems to be - factories need to automate and get more high-tech and efficient. This speaks to the government’s goal of continuing to modernize the economy, but is this really what the PRC’s manufacturing sector needs right now?

EV maker Nio is looking for an IPO of its internal chip design business. All the leading auto makers in China are pushing ahead on their own chips. What is interesting here is the question as to why list it? That says as much about the evolving power dynamic in the industry.

We have lost count of how much trailing edge capacity is coming onstream in the PRC, but it is a big number. This is rippling across the supply chain there as incumbent foundries with 6” and 8” plants are getting driven out by newer 12” lines.

The PRC’s stock markets have lowered requirements to let unprofitable companies list. And of course, the majority of the companies in that category are semiconductor companies. This is highly reminiscent of the late 1990’s push by many stock markets around the world which made similar moves to tap into that Bubble.

Geopolitics

ASML reported disappointing earnings last week. This commentator blames the US government. That’s not entirely accurate, but interesting read to see how PRC press frames US sanctions and those who comply with them.

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Below we look at the emerging conflict between State Policy and Commercial Reality in the industry. As much as China’s tech and manufacturing industry seem to be unstoppable, we think there are many ways in which the whole complex is vulnerable, if not actually sowing the seeds of its own failure.

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Something has shifted in the PRC semis industry. We have been talking about the need for industry consolidation here for as long as we have been publishing this note. In the past few months something has shifted - both commercially and politically - and now we are seeing a rush of M&A, restructurings and IPOs in the space.

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Noteworthy Items

Semis and Deep Tech

The Big IC Fund is a focus of the PRC semis industry. Not only for the headlines of what it is investing in, but the second order implication of what those investment decisions say about the central government’s policy intent. A recent case, the Fund sold down much of its stake in Tongfu Microelectronics, a leading OSAT (assembly and test) company. Tongfu is public and doing fairly well. So did the Fund divest because that is what a commercial venture fund would do? Or are they sending some other signal? Or both? Less ambiguous, the fund is also pushing hard into wafer fabrication equipment.

Xiaomi has its own cellular modem, which is not great news for Qualcomm. Also relevant, they plan to invest $7 billion designing their own chips in the next few years. Our guess is that this goes to to automotive as much as cellular. Here is further background about the formation of Xiaomi’s chip team. The main thing to note is that according to this article, none of the core members of the team have ever worked at a US chip company. Instead, much of the team came from Zeku - BBK’s chip design team which was disbanded last year (and then partially reconstituted). If true, that is a fairly significant development.

A history of the EDA industry with a focus on how the PRC EDA industry developed in the shadow of the global majors. The author claims “EDA is the largest sector of the United States integrated circuit industry advantage, but also the weakest link in the domestic production chain.”

A comparison of SMIC and Huahong - the PRC’s two largest foundries. SMIC focuses on leading edge and digital logic, Huahong’s emphasis is on analog and trailing edge. Interesting investment question - which company will do better? Not clear in a world beset by geopolitical complexities.

An overview of Nvidia’s upcoming B40 system, the PRC variant of Blackwell. Note the use of the word “Castrated” in the title.

TP Link is disbanding its internal chip team. We linked to a story over a year ago about home networking maker TP Link’s moves to build their own Wi-Fi chip. They hired this team from a group of laid off Qualcomm engineers, which Qualcomm had in turn gained when they acquired Atheros back in 2008. Not clear why TP Link took this step, they face growing scrutiny from the US government, so maybe they thought they would lose access to foundries. Or they just found the effort was too hard when they could buy the chips directly from Qualcomm.

Last year Maxscend, a maker of RF components which has deliberately gone for a low-margin strategy, announced a strategy to do more of its own manufacturing. That did not go well. The company may be spiraling, but the management team seems to have sold their entire stake in the company. Not a great look.

Huawei

An overview of the supply chain for Huawei’s server supply chain. Huawei directly owns or is an investor in much of this. Just thought this might be interesting to someone.

Last month, Huawei raised RMB 13 billion in short term (9 month) notes. The yield on these was 1.59% which is pretty low for a company under sanction in much of the world. This appears to be fairly straightforward commercial paper, possibly even just working capital funding. And that is the point, Huawei is able to operate largely as any ‘normal’ company is.

China AI leader DeepSeek is now running workloads on Huawei’s Ascend-based cloud. Apparently the big appeal was the Ascend Cloud’s CloudMatrix 384 Super Node, 384 GPUs with shared memory, ahead of Nvidia’s 72 node systems. Maybe. Of course, there is politics at play here as well.

Software

Alibaba is teaming up with SAP to deploy enterprise cloud. Our periodic reminder that Ali Yun needs to be included in the global list of top public cloud service providers.

Automotive, Industrial and Macro-Economic

The FT profiles the growing struggles of PRC EV makers. A key discovery these reporters made is the way in which EV makers used working capital instead of straight debt. They basically forced their suppliers to lend them inventory. The central government appears intent on ending this practice. Unclear if this will lead to these companies raising more traditional bank loans, or if they will be able to secure sufficient financing at all.

Changfei Advanced Semi opened a Silicon Carbide (SiC) plant last month. This article draws the obvious connection with US-based Wolfspeed which went bankrupt last month. Changfei’s new plant has a capacity of 360,000 wafers per month, double what Wolfspeed had planned.

The advance of PRC industrial semis continues. A pair of stories looking at two companies. Nanochip Micro is pushing into advanced automotive SERDES, not glamorous but fairly technically challenging. And then a look at companies bringing AI logic to microcontrollers (MCUs). This is a good overview of the US/EU companies, but has a couple PRC names as well.

Someone let their Nio EV drive them 250 km fully autonomous with no human interrupt, “all the way into the parking space”. This may not be real, but we are probably not that far from this being a reality.

Deleted Headlines

The PRC media landscape is ever-changing. Sometimes things get posted and then deleted. This week we came across three articles with very tantalizing headlines. The posts got deleted ‘by the author’ but we include the links here.

“US Export Controls are naive. Restricting exports of Nvidia chips will fail”.

“The Embarrassment of ASML”

“Huwaei to ramp 3nm production next year” (no link remaining)

Given the ongoing trade negotiations with the US, we can see how these would be sensitive topics. Worth noting that those stories got blocked this week, implying the PRC does not want to fan the flames of conflict right now. Sometimes the focus of the censors ends up being more telling than what gets censored.

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For paid users, we look at the realization of a trend we have been waiting on for years. A flurry of deals across China semis, in what we believe is just the beginning of a significant consolidation across the industry.

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Over the past few years, China’s semis industry operated under a constant state of anxiety over geo-politics. The latest round of US tariffs seem to have flipped that narrative on its head. We found a high degree of confidence now reflecting both relief that the long-awaited threat has finally arrived, but also a sense that the US misplayed its hand. The situation is obviously very much in flux, a lot could change, but so far the US policy seems to be having the opposite effect of what the government intended.

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Noteworthy Items

Tariffs and Semis

There is obviously a lot being written in China about the US tariffs. We found this piece offered the most sober, cold-eyed look at situation. It reads like a pre-battle assessment. It does not stint on criticism of the state of the PRC’s semis industry, including a sharp criticism of online conspiracy theorists in China, but it also a exudes a steely confidence. “We have seen this game already”. It then makes a comparison to the US and the USSR in the Cold War, but in this analogy the US is the decaying, sclerotic empire. The key takeaway holds that the PRC needs to stop paying attention to the US and build its semis industry. Bonus points for a good look at the PRC’s progress in EUV lithography systems (progress, but still a ways to go).

This article caught our eye for its taunting tone. China imports more semis than anyone and the US just made them cheaper.

Another commentator noted that the US tariffs are going to hurt Japanese and especially South Korean semis companies. The unspoken context is those companies are wounded at just the moment that PRC chip companies are starting to come for them.

A Taiwanese academic proposes a Solomon-esque solution for TSMC. Spin-off R&D into a standalone entity and then break up TSMC into three companies running fabs in Taiwan, the US and the PRC. Of course, this appeared in a PRC publication, and carries the explicit condition that the government there would be allowed to take a direct hand in managing the PRC branch. Also note the repeated threat that TSMC is going to be investigated for monopoly practices. Are PRC regulators going to go down that path?

The PRC’s counter-tariffs look to be really bad news for TI and Intel. Noteworthy in that both of those companies have fabs in China and have stayed out of trouble with the government for decades, no easy feat. The fact that these two are getting examined is even worse news for companies like Qualcomm which have had a highly contentious relationship with the government.

This author points out that wafer fabrication equipment (WFE) just got more expensive for the US. File under unintended consequence.

Semis and Deep Tech

Malaysia recently published a plan to move up the value chain in semis. Curious timing.

SiTime is starting to get a lot of interest for its MEMS timers in smartphones and the data center. There are many PRC MEMS companies, but Mandu looks to be pushing its way into the lead.

More signs that PRC semis are headed towards consolidation. This author says that over the next three years three sectors will see a flurry of M&A deals - chip design, wafer manufacture and test and packaging.

We cannot tell is this author intended to be humorous, but it is the funniest thing we have seen this month. Writing what is essentially a primer on how to seek out loopholes and evade tariffs.

Software

Professor Jeff Ding, a leading US expert on AI governance and China’s AI models, on Kaiser Kuo’s Sinica podcast.

A look at China’s unused data centers from the MIT Technology review, highlights a common feature of the PRC’s development model. Overbuilding capacity in a high priority area to encourage Darwinian competition. The situation with data centers is not quite as bad as it was with housing (remember all those “ghost cities”), but it does a highlight what remains a flaw in the model. Or is it?

Automotive, Industrial and Macro-Economics

While the US is slashing research budgets and curbing new energy usage, the PRC just announced 101 low carbon demonstration projects. These are government sponsored pilot programs to encourage specific areas of research, a bridge between theory and commercialization. They are ambitious projects, from groups which have a pretty good track record. Once they reach this level of support, these things typically become widely adopted. Good news for Climate Change.

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Is China’s semi industry turning a corner? The Deepseek launch has given a big boost of confidence to many in the PRC’s tech sector. At the same time, the harsh realities of too many competitors chasing the same segments remains. A few leaders may pull ahead, but for many companies Spring has not yet arrived.

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Noteworthy Items

Semis and Deep Tech

Battery and auto maker BYD announced that it has produced its first solid state battery. Solid state batteries are a long-sought after advance in battery technologies that promise 600+ mile EV range. It sounds like this is still far from commercialization, but BYD is good at that part of the process. Battery giant CATL also seems to be fairly far along with its solid state project as well.

One overlooked impact of Deepseek’s launch last month was the shot in the arm it gave to China’s tech industry. There is a sense of newfound confidence and even optimism after years of bad news. A second derivative impact of that has been a surge of interest in AI. This apparently extends beyond hyperscalers to broader enterprises, who are now apparently lining up to buy H20 systems from Nvidia (or some intermediary). Notable because our sense is that AI adoption among US enterprises remains a bit more tentative, and still largely bound to the hyperscalers. Maybe we should not read too much into this, but it is notable.

A Malaysian company is buying Silterra, a foundry that produces a range of chips and MEMS in its 8-inch foundry from the Malaysian government. Silterra was once Malaysia’s flagship property for moving up the stack from back-end packaging to higher-value foundries. The acquiring company Dagang NeXchnage received funding from a well-known Beijing-based investment group. We do not think we are going out on a limb to guess that the buyer has close ties to the PRC.

China Semis conditions are getting worse! GPU maker Muxi just laid off 200 people. China semis are seeing the dawn of a new Spring! DeepSeek has renewed hopes among China semis companies. Both of these can be true. A periodic reminder that China is a big place and things can be complicated there. Also, more much-needed M&A, this time in the MCU space. We also found this piece about Arm-based CPU designers in China. It is difficult to parse, and just confusing when translated, but basically argues that many of these companies are suffering from a glut of competition, US restrictions and ambivalence of corporate Arm about the space.

Samsung licensed NAND patents from YMTC. Maybe this is just one of those cost-of-doing-business-in-China events, but it raises a lot of questions about Samsung’s capabilities.

A comparison of US/EU and PRC microcontroller results. The Western companies were much more cautious and downbeat, while the China companies looked pretty good. The difference is China EVs, which seem to be holding up the entire global analog chip industry.

A review of results from China’s three largest foundries - SMIC, Hua Hong and Jing He. A good summary of their relative positions - SMIC at the “leading edge”, Hua Hong in specialty process, and Jing He display panels. All three are doing well.

Huawei

A fairly vitriolic overview of Huawei’s venture arm Hubble. Huawei has some fairly broad ambitions, which seem to include all of technology. We think the key thing to watch here is all the work they are doing across the semiconductor wafer fabrication equipment (WFE) space, from designing their own EUV light source to all sorts of advanced materials work. We think that everyone needs to start thinking of Huawei as a lot more than just a networking company, it is the spearhead of China’s deep tech industry.

Lots of Huawei automotive news lately. They signed a deal with Auto OEM Xpeng. The two companies have worked together for a long time, and our sense is that the latest deal extends into autonomous, or at least ADAS, software design. Also, pictures of a new GAC car, built with Huawei software have emerged as the car readies for its official launch.

Software

There has been a lot of news in the US lately about the massive capex budgets that the hyperscalers are deploying this year. The PRC has its own hyperscalers, and they are spending a lot as well, but they really do not want to talk about just how much they are spending. Bytedance wants everyone to know they are NOT spending $12 billion this year. Maybe it’s $11 billion or maybe it’s $24 billion, but its definitely not $12 billion.

Not wanting to be left out of the party, Alibaba says it will spend $50+ billion on AI capex this year. This keeps them in contention among the US hyperscalers who are all spending even more.

AI Company Deemos raised “tens of millions of dollars” in its Series A financing. Deemos apparently reached $1 million in ARR 45 days after launch with its Hyper 3D image generation service, running on its Rodin model. The pace of AI activity in China is just as frenetic as it is in the US, probably more so. Deepseek’s foundational model has grabbed all the headlines, but we think it is equally important to see what applications and use cases PRC companies are building with AI. There is a high likelihood that some of the biggest consumer AI applications will come out of China.

BYD has moved its public cloud repository from AWS and GCP to Ali. Significant for two reasons. The first is the geopolitical angle - a major company moving to a domestic supplier. The second is what it says about Ali. The company has been in the penalty box for a few years, and BYD would not have made this move without some tacit official blessing. It also serves as an important validation of Ali’s public cloud capabilities.

Automotive, Industrial and Macro-Economics

The CEO of CATL introduced a new acronym. Electric Vehicles (EV), he said, are transitioning into Electric Intelligent Vehicles (EIV). Normally, we do not put much stock in such pronouncements, but we think there may be something more substantive going on here. At the very least, we need to start thinking about the functionality of cars in terms beyond mere transportation. Of course, this all boils down to software, but CATL probably sees every China auto OEM’s roadmap and sees something important happening. And extra credit, CATL is also now building robots too.

We mentioned Xpeng’s “Aircraft Carrier” car last month, with pictures from CES. It turns out the car is set to go into production later this year.

We also bookmarked a dozen stories about PRC Auto OEMs’ overseas expansion plans, but it got to the point where there were too many to list. Put simply, China’s EV makers continue to expand massively around the world.

Diversions

Sometimes we read PRC policy documents, for fun. Here is a good interpretation of the latest government leading document setting out formal agricultural policy. For those whose idea of fun does not include such documents, we still suggest that it is worth a read. Much is made of the PRC’s seemingly “highly streamlined policy making process”, to the point that we know many compare it favorably to whatever is happening in DC right now. Dig a little deeper and it should be abundantly clear that high level pronouncements from Beijing are not the same as efficient policy on the ground, or in this case, in the ground.

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In which we recount our visits with a few hundred China electronics vendors at CES . PRC companies have literally every possible manufactured gadget on display. Immense capabilities - not just in building but also branding. But there are so, so many of them - in every category.

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Semis and Deep Tech

The FT wrote a scary piece about the dark side of the PRC venture ecosystem, where VCs are chasing CEOs of failed venture-backed companies to pay back their principal. This is a fairly new phenomenon, and demonstrates that something has gone very wrong in China’s once-vaunted venture model. Not good for entrepreneurship, but very good for the US venture ecosystem (if they can get visas for some promising Chinese entrepreneurs).

Sino-European cooperation in semis. At one point, we imagine someone thought this sounded like a clever policy. Now it reads like a guidebook for self-sabotage.

Large, but struggling shoe maker Aokang, is acquiring a Lianhe Storage, a company that makes storage systems and memory chips. It is increasingly clear that the PRC government is encouraging companies to consolidate in the hope that this gets the semis industry to a sustainable level of competition. This deal is a case study in the unintended consequences of state-directed industrial policy. We suspect that there is a local government somewhere pushing this deal where the political logic makes more sense than the commercial logic.

The government seems to be circulating a warning that semis companies have two years to get their finances in order. After that the funding valve gets shut off. It is hard to tell how true this is, but our guess is that the timeline is less than two years.

On that note, we thought a quote from this story lays out the future for the PRC’s semis complex. To be clear, this is not official policy, just one analyst’s interpretation of common sense.

The chip industry also follows the law of the jungle, survival of the fittest and the strong of the weak. Before, many investors thought that the chip industry was divided into cakes. The bigger the cake, the more shares. The domestic chip industry is a typical law of the jungle. The eldest son eats meat, the second son drinks soup, and the third son starves to death. No matter how big the market is, each track segment is basically allocated market share on a 7:2:1 basis.

An important, but hard to translate story about Bytedance’s AI semis ambitions. Bytedance has been in the news in China a lot lately. Rivals claimed they somehow jumped the queue and got a larger than expected allocation of chips from Nvidia. At the same time, PRC analysts reacted fairly strongly to reports that Broadcom sees a major revenue opportunity in supporting Bytedance’s AI ASIC designs. Bytedance is on track to spend RMB 160 billion on AI capex this year. This author pushes back on Broadcom’s number by noting that Bytedance is sourcing some of its chip via ZTE, but also that 60% of its compute is actually offshore.

China semis distributors had a really good year, if they can collect their payables. This is a fantastic story, China’s semis distributors seem to lead a fabulous life at the cutting edge of 21st century capitalism. But the fact that it is suddenly getting much harder to collect debts from their customers is making everyone a little nervous.

We saw several dozen stories about growing M&A and IPOs in PRC semis. This one, in particular, caught our eye. It repeatedly mentions the growing number of “cross-border” deals. In this context, cross-border refers to cross provincial borders. The fact that companies are buying companies from different provinces is telling about the true dynamic behind many of these companies.

Changxin Memory

The most important semiconductor news right now is the come-from-behind success of Changxin Memory (CXMT). CXMT makes DRAM and now claims they have reached commercial yields for the latest version of DRAM (DDR5). The South Korean press claims this is not true, that CXMT’s yields are closer to 20% than 80%, but we think CXMT is actually hitting the mark. The assumption is that CXMT will swamp the market and wreck pricing, which they can do because they essentially have no cost of capital. CXMT is probably nowhere close on HBM, on which the memory triopoly is pinning all its hopes, but the memory complex is on the precipice.

Another take on CXMT:

CXMT's monthly DRAM capacity has expanded from 40,000 in 2020 to 160,000 wafers. The Chinese company is currently the world's fourth-largest DRAM manufacturer. Its monthly capacity is expected to increase to 200,000 by the end of this year and a further 300,000 by the end of 2025.

This author lays out CXMT’s ambitions - a focus on supplying domestic phone makers.

The background of the rapid growth of Changxin storage is the strategy of smart phone companies to use domestic parts. Smartphone makers such as Xiaomi and Transsion last year began installing LPDDR5, the 12Gb (gigabit) low-power mobile DRAM stored by Changxin.

Spoiler alert - YMTC is doing the same thing in the NAND market.

Software

The big news in China last month was the launch of Deepseek’s large language model (LLM). Less well known is that one of the lead developers on that team recently joined Xiaomi to help build that company’s LLMs. They seem to be focused on smartphone use cases, for now, but Xiaomi also sells some very nice cars and has an eye on autonomy.

Automotive, Industrial and Macro-Economic

At a macro-level, China’s electric vehicle (EV) industry appears unstoppable. So it is important to remember at the micro-level, the PRC has 70+ EV companies and they will not all succeed. Case in point, autonomy pioneer Biadu and leading auto OEM Geely had a joint venture to develop software-defined autos. That venture has now largely collapsed. The causes of its downfall are familiar - joint ventures are unwieldy and full of conflicted interests, designing cars is hard and the market is currently in a cyclical point of saturation. That being said, the fact that these two high-profile companies failed is a sobering reality.

Interesting ranking of the brand health of EVs for sale in China. Tesla is still high (#4), and is the only foreign company in the top 20.

The PRC press loves Elon Musk. And at this moment when they perceive him as having big political sway, they want to make sure he knows that.

A profile on auto OEM Zeekr and the consolidation of its multi-brand strategy.

The PRC defense complex is getting more serious about cracking down on corruption. Two prominent universities in Sichuan were recently blocked from bidding on military contracts for several years. Critically, this also includes several of their affiliated companies (a whole other story is how universities have affiliated companies). These are pretty serious levels of punishment.

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In this issue, we dig deep into the rapidly growing number of PRC semiconductor fabs. They may not use the most advanced technology, but they make up for that in volume. We also look at the growing number of semis M&A transactions, a list of Huawei’s top foreign and domestic suppliers, and more.

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Noteworthy Items

Semis and Deep Tech

In the wake of the US election we saw a round of Semis Trade War-related posts. Our take is that it was fairly subdued, which we suspect is a sign the PRC government is playing wait-and-see for what the new administration brings. That still left room for several posts along the lines of “where things stand now”, laying out the ‘front lines’ of the fight. This post in particular caught our eye. It is very broad touching on the entire supply chain, and fairly sober in its analysis. It essentially lays down a gauntlet - these are the PRC’s strengths, this is where the industry is headed, what is the US going to do about it? In particular, it has a pretty upbeat (for PRC, scary for the US) review of China’s trailing edge capacity.

A month ago, this analyst proposed that the way forward for China’s semis industry is to have the large, well-capitalized public semis companies acquire the struggling, under-capitalized private companies whose death throes threaten everyone’s profitability. Then, two weeks later, we saw that play out when Jingfeng Mingyuan acquired Yichong Technology, consolidating the LED market a bit. This is the model the PRC has used in many other industries, notably banking, to force consolidation in troubled but critical sectors. We think the scale of the problem is too wide in semis, but maybe it will work.

Whatever the model, China’s semis industry still badly needs a large dose of consolidation. There are more signs that this is picking up. Huahai Chengke recently acquired Warwick Electronics (which goes by the Chinese name Huawei, but not that other Huawei) in what was a fairly competitive process for the target. Probably a good time to be an M&A Semis banker in China. On the other hand, the fact that two companies were fighting over Warwick may also indicate that there is a small pool of good targets.

Several relevant PRC government agencies have created what could best be described as a joint export control agency. We imagine the behind-the-scenes politics on this were the main driver, but also seems likely to signal that the PRC will be giving a lot more scrutiny to export controls.

China Resources is a massive state-owned enterprise (SOE) with operations in dozens of industries. It has operated and invested in semis for several decades, largely at the commodity end of the technical spectrum. They recently consolidated one of their larger entities to gain full control over it. We know they have big ambitions in semis (and massive capex underway), and this seems to be a meaningful step to get themselves more fit for larger competition.

By now, everyone is familiar with the strategic bottleneck of EUV technology, produced only by ASML and severely limited by US sanctions. PRC companies are searching for ways around this chokepoint. For example, last year, Huawei announced it had developed its own EUV light source. We are also hearing a lot about Nano Imprint technology, as an entire alternative lithography system. From what we can tell, it is also years away from commercial viability, and no one is even sure it will definitely work.

State-backed CPU maker Hexin is reportedly running out of money, and struggling to pay its employees. Three years ago, dozens of CPU and GPU start-ups popped up in the PRC. Many of them looked promising, at least on paper. As much as US sanctions made life difficult for these companies, a bigger problem is that there are several dozen of them in a world which already has too many CPU companies.

A good overview of the sensor market. Read this in part for the analysis of the complexities of the Internet of Things sensor arrays - more sensor fusion, ambient power harvesting, etc.; but it concludes with what are essentially a request for government policies to encourage or standardize terms for vertical solutions.

Huawei

Huawei released a list of its top 500 suppliers. There are a few ways to read this. The most obvious is the company is signaling to the government how much of their supply chain is domestic, waving the flag and encouraging others to follow suit. Another is to the US, to show how resilient they can be even under the US sanctions. But there is one other way to read the list. Since it still sources a large number of parts from US vendors, Huawei is laying down an implicit threat.

Nissan is the first foreign automaker to buy Huawei’s digital cockpit ADAS system.

Software

If you can’t beat them join them. Amazon launched a store on JD.com, one of China’s largest Amazon competitors.

A number of AI-related companies have gotten the go-ahead to IPO including autonomous driving software company CiDi (Hong Kong), GPU maker Moore Threads (Shanghai), and autonomy company Pony.AI (NASDAQ).

Automotive, Industrial and Macro-Economic

Battery maker SVOLT canceled its plans for building a battery factory in Germany. There is too much capacity in the PRC battery complex, just as there is in semis, squeezing everyone’s profitability and access to capital. The big difference is that in batteries, there is a clear champion in the form of CATL. On that note, here are some excerpts from a talk given by a CATL executive. Nothing too exciting in his comments, but we all need to start paying more attention to CATL. Most intriguing were his forecasts around the range of low end (sub USD $15,000) cars getting to 200 km. If you need to go further, buy two and park one half way.

Xiaomi launched the world’s fastest EV. And it totally does not in any way, shape or form, completely resemble a Porsche.

A good piece on what went wrong for VW in China, and increasingly everywhere else too.

Diversions

PRC IP and telecoms company Datang is suing PRC semis flagship Unisoc.

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In this issue we take a deeper look at Huawei’s public financial data. We also examine the state of China’s semis market, beset with overcapacity, but potentially some signs of consolidation on the horizon. We also dig a bit deeper into the man facets of the PRC automotive semis market in all its splendor.

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Semis and Deep Tech

With the advent of US sanctions, China’s leading foundry SMIC, has become the center of everyone’s attention. This profile comes from a former SMIC employee and has a distinctly positive view of the company. Most interesting to us was the changing view of the Central Government towards SMIC. The company seemed largely ignored by Beijing until just the past few years. This is a lesson in not assuming that the PRC’s strategy towards semis is 100% omniscient, and also a lesson for policy makers elsewhere that everyone has blind spots.

We have written a lot about tough conditions in China’s semis market - with too many companies chasing small markets. We have argued a wave of consolidation is overdue. This may finally be starting, with a number of M&A deals announced in recent weeks. We are also seeing some companies starting to raise prices, like Rockchip which is attempting to pass on its own rising costs to customers. Or Cambricon, which has come back from the brink of bankruptcy since Chat-GPT re-energized interest in AI.

That being said, conditions are still very hard for most companies. China had 3,451 design companies in 2023, with 1,233 founded since 2020. According to the China Semiconductor Association. There are 300 chip design companies in the rest of the world. We can quibble with their methodology for counting, but that is roughly the right scale. This article focuses on the market for microcontrollers (MCUs). The PRC has “several hundred MCU companies”, and prices for low-end 8-bit parts are now below $0.10. If consolidation is coming, the sooner the better. One observer predicts that “within five years more than 90% of the PRC’s 3,000 design companies will disappear”.

Wuxi in eastern China has developed into a hub for semiconductor packaging. At 7.5 million, Wuxi’s population is only medium-sized for PRC cities, but it seems to be punching above its weight in terms of attracting higher value-add industries. It has long been a hub for biotech and pharma production, but now seems to be emerging as a semis packaging cluster too.

China’s Big IC Fund reduces its stakes in three companies, chaos ensues.

Another profile of Northern Huachang highlights the progress the wafer fabrication equipment (WFE) maker’s technical progress, but also focuses on the extent to which that is not well appreciated by the stock market. WFE is a tough category for investors everywhere.

Most people in the PRC assume that no matter who wins the US election, more sanctions are coming. So Huawei and Baidu are reportedly stockpiling Samsung HBM.

Intel was accused of installing NSA backdoors into its chips for China. More than any US chip company, Intel has navigated (i.e. avoided) PRC politics and this kind of backlash for decades. Amidst the company’s other problems, it is worth keeping an eye on these stories. If they gain more prominence in PRC press, it likely signals bigger regulatory problems for the company soon.

Electronics distributor Avnet has started to increase its offerings of PRC chips. The first sign of that looming wave of cheap chips coming to the rest of the world.

Huawei

German mobile operator Deutsche Telekom had a plan to convert its entire network to OpenRAN, but has delayed those plans, in part because the German government gave them some wiggle room on ripping Huawei out of their network. As much as governments are pushing to remove Huawei from mobile networks, operators still have a lot of interest in using their gear.

Huawei has inked a deal to provide self-driving systems to EV leader BYD. We are curious why BYD is not doing it themselves, and suspect they were ‘persuaded’ to work with Huawei.

Huawei’s Automotive unit was valued at $16 billion.

Software

The market for domestic EDA software design tools has been one of the biggest beneficiaries of US sanctions. But even this sector is struggling with overcapacity, with 86 PRC EDA companies in the market now. None of these has a complete set of tools, just a series of point solutions. In the US, all those point solutions got consolidated down to three companies years ago. So even though the entire sector has seen a lot of growth in China since 2022, individual companies are still struggling.

More layoffs at AI company Sensetime. Hard to tell if this is a company making a rational strategic shift to focus on fewer product lines - especially large language models, and how much is just a company hitting hard times.

Automotive, Industrial and Macro-Economic

In Automotive semis “China cannot be ignored”. We probably need to do a broader profile on China’s rapidly emerging auto semis. This article focuses on ADAS processors (for infotainment and driving assist), where a handful of PRC companies are slowly emerging as domestic competitors for Qualcomm and Mobileye, but there is also the wild world of MCUs and the very complex market for autonomous vehicle chips. The title says it all.

On the subject of autonomous vehicle processors. A fierce rivalry is emerging between Black Sesame and Horizon Robotics, two merchant providers duking it out in one corner. At the same time, car makers Xpeng and Nio, are designing their own chips. It looks like whoever launched the most recent chip has the best chip on the market. There is a lot of friction in this, but it seems to be a deliberate facet of China’s development policies. Eventually, one or two of these companies will emerge on top and go on to compete with global players.

And just to double down on MCUs, PRC companies are starting to roll out microcontrollers with built-in tensor cores for processing small AI models. This had looked to be a bright spot for Western MCU makers, but China is not going to make it easy.

Baidu’s autonomous robo-taxi service has 500 cars on the road in Wuhan. The unit aims to reach profitability next year. This profile has a lot more information in it, but the headline stats speak for themselves.

Diversions

Like media outlets everywhere, China’s tech press writes for its audiences (within the confines of the censors). In the US, the tech press writes a lot about software and Internet companies. In China, there is an equal focus on semiconductors and electronics. One benefit of that is there are a lot of ‘explainer’ pieces written for general audiences about many deep tech topics. For instance, this one on copper interconnects, is written at a Techcrunch level - nuanced and well-reported, but not overly technical. Pick any topic, and we can probably find a helpful explainer in Chinese.

A 5,000 year old royal tomb was uncovered in central China. A pretty incredible find.

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In this issue we look at the state of semiconductor start-ups and the sharp decline in venture investing. We also look at the continued advances in internal semis, especially among EV makers, Huawei’s financials and more.

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Semis and Deep Tech

This is a handy list of China’s “Top 10” AI semis companies. Some of these names are new to us, some have been around for a while. Try as we can, it is just as hard to find a big enough market for these PRC companies, as it is to find it for the dozens of their US peers. Some of these companies seem to have genuinely differentiated technology (or at least approaches), but who will the customers be?

EV maker XPeng has unveiled it internal processor. No word on the foundry, (but likely TSMC). This looks like a fairly capable SoC - complete with two neural cores, a 40 core CPU, image processing and a heavily AI oriented architecture.

Once high-flying GPU designer Xiangdixian, appears to be bankrupt. The company was once celebrated as “China’s Nvidia”, and burned through a lot of cash in the process. It failed to close a funding round last year at a $2 billion valuation, and has been shedding staff ever since. The company issued conflicting claims as to its current status, but things do not look good.

Remember Xenon? When the war in Ukraine started, there was a moment of panic when the semiconductor industry realized it was dependent on industrial gasses sourced from Ukraine and Russia. We found alternatives, but the risks remain. China’s semis industry is still thinking about that dependency, and looking to remove it, and possibly find another point of leverage over the global industry.

Huawei

Huawei invests 25% of revenue into R&D. It does receive a lot of government support, but would still be profitable without those. At least according to Huawei’s latest financial statements.

Huawei has been conducting a marketing push for financial services customers. They claim to supply 70 of the 100 largest banks in the world. Aside from the obvious geo-political questions many of you are asking, this is important for other reasons. Huawei is probably the world’s larges systems integrator, an often overlooked side of their business.

Software

Amidst all the anti-trust scrutiny around Apple’s App Store and revenue share in the US and Europe, in China they are facing pressure from a different source on the same subject. Platform powerhouse Tencent, which owns the omnipresent WeChat, is negotiating with Apple over app store commissions.

Automotive, Industrial and Macro-Economic

An interesting thread digesting the latest industry data on China’s EV sector. Out of over 70 car makers, about seven companies account for 80% of sales, not surprisingly profits accrue similarly, but a large portion of those profits come from government subsidies of one sort of another.

State-owned auto-maker Changan has opened a sales office in Munich, Germany - not coincidentally BMW’s headquarters. Europe seems unable to stop what is about to happen to its auto industry.

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In which we explore the importance or regional variations in China’s semis industry. More on the growing over-capacity of everything in China, two steps forward two steps back in China’s auto industry’s attempts to supply semis domestically, and much more.

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Semis and Deep Tech

Why is leading liquor brand Kweichow Moutai investing in Semis? Just go read this, and also subscribe to Jordan’s newsletter.

Last year, 90% of global venture funding for semiconductors came from China. Intuitively, we knew this was the case, but to see the data laid out this way is still a gut punch.

“Domestic Chips are Difficult, Difficult, Difficult.” The title pretty much sums it up. Financing is still very tight in China semis and as much as China’s export engine is helping, conditions on the ground are still challenged by too many competitors.

That being said, regulators appear to be cracking open the IPO window with autonomous vehicle software maker Pony.Ai planning to list in New York, and autonomous vehicle chip maker Black Sesame planning a Hong Kong listing. Two years ago, we had to race to keep up with all the venture funding in China. That came to an abrupt halt last year, but those now may be thawing as well. With drone maker Autoflight raising hundreds of millions of dollars from CATL, and flying car maker Xpeng AeroHT raising $150 million. We detect a theme.

A memoir from one of the Omnivision co-founders. Interesting read both for the personal journey involved and also the ways in which China’s semis industry has evolved so much over that time period.

One industry analyst’s view of how RISC V can help China’s semis industry get out from US sanctions - “One less finger wrapped around our neck” sums up it up. Makes explicit the idea that should the RISC V organization fall under US restrictions, there is enough talent in China to create their own fork.

The World Integrated Circuit Association released a list of the “Top 100 Semiconductor Cities of the World”. The PRC has two cities in the top 10, which sparked a surprising number of headlines there. To give some perspective - Santa Clara (population 120,000) is ranked #1, San Jose (pop. 970,000) is #4, Milpitas (pop 78,000) is #23; Shanghai (pop. 26 million) is #5 and Beijing (pop. 21 million) is #9.

Huawei

Huawei sold 10% of its auto software company, Yinwang, to Avatr an EV company. The deal valued Yinwang at about $16 billion and in communications around the deal, Huawei revealed that Yinwang had about $3 billion in losses accumulated over the past three years, with revenue last year of $660 million. There is a lot going on here. The headlines revolved around Huawei’s financials, but we already had some of the data. More interesting is parsing the strategy behind this. We imagine Huawei has the most advanced automotive software stack in China, why would Avatr’s parents (state-owned Changan Auto, a large ICE vendor, and battery giant CATL) want this deal? Why wouldn’t they build their own stack and eschew a key dependency on an outside company? How much did the State encourage this deal?

A sanctions-proof laptop - the open source version of Huawei’s Harmony operating system (OS) running on a RISC V powered CPU. One take on this is that there will be almost no software to run on it. On the other hand, it does have a browser, that may be enough. We could see this becoming a common replacement for Android powered embedded systems which seem to power all sorts of random devices in China. But it could eventually lead to something more substantial.

Much is made of China’s “Wolf” discipline which in the context of tech companies refers to a somewhat ruthless work ethic. We are not entirely convinced that this ethos is really endemic, as opposed to sporadic, among PRC start-ups, but this academic studied it in depth. Most relevant here is tracing its origins to Huawei’s founder Ren Zhongfei.

Digitimes wonders what is hampering production of Huawei’s 910c chip. Remember, Huawei’s achievements in working with SMIC to get to “5nm” is highly impressive, but also that Huawei is unique among PRC companies with the technical and financial resources to achieve those results.

Automotive, Industrial and Macro-Economic

The PRC government has been “conducting a survey” among domestic auto makers to evaluate their rate of domestic semiconductor usage. Maybe this is just a survey, there is a lot of data out there now about this topic. Or maybe this survey is what we would call a “push poll” in the US. A not so subtle set of suggestions. Either way, domestic semis use is about 10% across the PRC auto industry. Double the figure two years ago, and higher in some categories, but still very low.

On the other hand, the big auto makers, especially the EV makers, are pushing hard to design their own auto processors and ADAS chips. Along those lines, Geely announced the second generation of its chip, this one built at 5nm, there is no mention of which foundry they used (answer: TSMC). In the near term this is bad news for MobileEye, as many of Geely’s peers are similarly advanced in their efforts. Designing semis carries a fairly steep learning curve, so the fact that Geely is on its second generation already is noteworthy.

China approved ten new nuclear plants. This received a fair amount of coverage in the US, but we wanted to emphasize the scope of China’s nuclear power capabilities. On a related note, China’s “Green Leap Forward”, massive investments in alternative energy sources. And one more source on that same topic. Finally, China’s wind and solar capacity now exceeds its coal electricity generation, a major achievement.

Lots of news recently about China’s industrial expansion. A bunch of data came out recently that shows the PRC is pushing hard on manufacturing exports to bolster an economy damaged by the doldrums of its real estate industry. We want to highlight Brad Setser’s response; “Not having an industrial policy means accepting China’s industrial policy.”

PRC regulators restricted access to trading data “to stave off foreign capital flight” from China’s equity markets. As much as PRC policy makers sometimes seem like hard-calculating visionaries, it is good to remember they are not, and often implement highly counter-productive policies.

Amidst all the talk of US companies moving their supply chains out of China, Yicai reports the extent to which much of Vietnam’s recent manufacturing boom is just an extension of China’s, with PRC companies driving much of the gains.

Xiaomi launched its EV earlier this year, and it is totally not a copy of a Porsche. Apparently, they are not planning to export any of them.

Michael Pettis on why China struggles to boost domestic demand. The implication being Beijing’s only tool for growing the economy is exports.

Uber which was essentially pushed out of China, is going to buy 100,000 BYD EVs. And of course, BYD is adopting Huawei’s autonomous driving software.

Diversions

For years, we have noticed a massive disconnect between what we read in the US about China and what life feels like there. The press is filled with stories about “Big Issues” - trade, technology, geopolitics. Lost in all that is any sense of what average people do in China. For one thing, some of them are are now taking up surfing, others are, apparently, night kayaking. Of course, they play a lot of video games like Black Myth: Wukong. And let’s not forgot the country’s once-thriving rock, rap and punk music scenes.

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In which we recount our travels across China, Hong Kong and Taiwan. Despite all the negative headlines and geopolitical concerns, the companies we spoke with actually had a fairly upbeat take on business.

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China Tour July 2025

Over the past few weeks we visited nine cities in Asia, staying in seven hotels and racking up the most air miles since before the Pandemic. Our trip centered on the Yangtze delta - Ningbo to Shanghai, and the Peral River delta - Shenzhen - Hong Kong and environs. There is a lot to see in China and we only scratched the surface, but were able to meet almost two dozen companies. Below our high level findings, please drop us a line if you would like to talk in greater depth about our meetings.

We spent two weeks in China - visiting Ninbgo, Hangzhou, Shanghai and several nearby cities, and Shenzhen. This is the heart of China’s semiconductor and electronics industry, with the exception of Beijing which we did not have time to visit on this trip. We met with an even mix of hardware makers and semiconductor companies. And on the semis side we met with an equal number of design companies and companies engaged somewhere in the manufacturing chain. We did not meet with AI software companies, we are saving that for another trip, but as we will detail below AI was of course a topic on everyone’s minds.

Overall Sentiment

As we were preparing for the trip a lot of people asked us some version of “How are things in China?”, with the clear implication that they think things are not alright. The tone of recent US press coverage of China tends to be fairly pessimistic - all those reports of empty apartments and a crashing real estate market While we were visiting the news broke that 40 rural banks had failed.

And while there are many legitimate concerns about the state of China’s economy, we saw none of them. Everyone we spoke with was upbeat. Both in terms of their company’s prospects, but also personally. On past visits, we often found we were asked more questions about the best school districts and the best real estate markets in the US than about markets and business trends. This trip no one seemed interested in moving.

Of course this is highly anecdotal. Many people we know from China left a long time ago. And we were only in the areas around Shanghai and Shezhen, the two richest parts of the country.

Still, we had expected a more somber tone. Much of our writing in the past year and a half in this newsletter centered on all that doom and doom sentiment. In recent weeks, we have seen that tone start to improve, and on the ground few people had any such deep, existential questions. Instead, we found most people upbeat and fairly optimistic, looking for avenues of growth, not exits.

Automotive

The big topic for most companies is automotive. The rise of China EVs has provided a good boost to much of the industry here, offsetting cyclical downturns in other markets. That being said, most everyone we spoke with sees EVs hitting pause this year and reducing inventories of components. The US EV market seems to have stalled. And while the market in China is a bit better, there is a definite sense that there are too many OEMs competing which is making all those competitors highly conscious of their working capital requirements. A case of long-term optimism and short-term worry.

AI

Of course everyone talked a lot about AI, but almost no one had seen much impact on their business from it. To be clear, we were focussed on analog and industrial companies, and deliberately did not look to meet with processor or AI software companies on this trip. Nonetheless, even companies who we would have expected to be excited about AI were fairly non-plussed on the subject. For the most part they are not seeing AI use cases or applications which would drive the need for their parts.

Smartphones

Very mixed signals for smartphones. Our sense is that China consumer demand is bottoming out, but no one was particularly confident about that prediction. In general, we saw signs of smartphone OEMs rebuilding component inventory, but this is a long way from robust growth.

Competitive Advantage

Of course the one topic hanging over every conversation we had during the trip was the ongoing trade war. We met with a couple companies who are on or adjacent to the entity list, and everyone else worried what they had to do to avoid falling under US sanctions.

Most companies lamented that the US regulators are a major source of anxiety. In particular, they bemoaned the arbitrary nature of the rules, the criteria are not clear. This fuels speculation that the goal of the sanctions is not National Security as the US claims, but instead to cripple China’s semis companies. An old friend from Huawei told us the joke making the rounds in their circles lately is “If you are not on the US entity list, are you even really a high tech company?.”

But more than anything else, our experience highlighted the utter absurdity of the situation. There is no easy way to replace China’s role in the electronics industry. We saw this time and again with the companies we visited. This includes companies that dominate their fields like optical modules, or just the sheer depth of companies that make machine tools for electronics assembly. China is filled with well-funded, growing companies that enrich, or at least facilitate, the entire supply chain in some way. We got asked many times about the ability of other countries - the Philippines, Malaysia, Vietnam, etc. - to replace China in the supply chain. And while we are definitely seeing foreign companies ease their way out of China, the sheer depth of the supply chain there means that any some attempt to do so will take decades.

At the same time, every company we spoke with also asked about the state of the US market and ways to better tap into it. That whole rich supply chain is dependent on the US consumer. There is just no ready way to peel this apart, nor do we think most companies really want to.

The absurdity of all this was driven home by one EDA company we met. EDA software, used for developing chips, has emerged as one of the critical links in the US sanctions. While the laws are not clear (see above), most US EDA companies have started to tread very cautiously with customers in the PRC. This has driven a boom in sales of domestic EDA tools. The company we met with had secured a healthy amount of venture funding last year as a result. Their sales were growing nicely, but the one topic they most wanted to discuss was how they could expand into the US market. They already have sales to a major US chip company, and they were looking for ways to expand more in the market with largest pool of high-value customers.

At the same time, all this growth in semis companies has created problems of its own. We spoke with one RF company that had a very solid pedigree, some leading products and healthy venture backing. But when we pushed them on the fact that they have at least two dozen domestic competitors (to say nothing of four major US competitors) their answer was basically a shrug. Their goal is to keep costs low, design high quality products and hope that commercial success would be enough to eventually position them to start acquiring their local competitors. This is a great strategy, but it is one being replicated by half of their domestic competitors, while the other half are just trying to churn out the lowest priced products they can for as long as the venture funding lasts.

We also met a state-run semiconductor company. This company is part of a massive conglomerate that has businesses in a dozen other areas - transportation, food stuffs, banking, and of course real estate. They have had a small division making electronics for 20+ years, and have carved out niches in several electronics categories. They now have one of China’s largest fab capacities - all trailing edge, largely analog. When asked what their strategy is, they immediately pointed to their expansion plans. They are currently in the process of building two 12-inch wafer fabs with a staggering amount of capacity. That capacity is going to be a problem for companies like ST Micro, ADI and On, but it going to be an even bigger problem for their domestic competitors, many of whom have similar expansion plans.

The Glories of Huaqiang North Road Malls

One of the highlights for us visiting China is spending time at Shenzhen’s Huaqiang Electronics markets. This area contains multiple shopping malls sprawling over a half dozen city blocks where everything electronic is for sale - from PCs and smartphones down to individual components and repair services.

We have been visiting this market for close to 20 years and in many ways not much has changed, but we still manage to find multiple new shopping malls each time we visit. Probably the biggest change has been the diversification of the customer pool. Huaqiang started out as a clearing house for local electronics makers to source parts, then branched into wider distribution of parts and end devices. Today it is a destination for global electronics buyers that in many ways puts CES to shame in overall scale.

This was noticeable in storefront signages. Most stalls in Huaqiang have no name, or just a Chinese name. But there is a growing number of stores with signs in English, Urdu, Arabic and French - speaking to a global clientele. We saw customers from dozens of countries stopping in to buy consumer devices, networking products, fiber optic cables, printers and much more.

Still, the heart of Huaqiang is the distribution of mass market semiconductor products. Not the flashy GPUs and CPUs we spend most of our time discussing but low-priced analog or mixed signal products that appear in everything to little fanfare. It is hard to find a Qualcomm modem here, let alone an Nvidia GPU, but there are plenty of every part made by Texas Instruments, Intersil, Vishay and Renesas and all their peers.

We spoke to a handful of vendors of these parts. None of them cared about US sanctions, there parts come nowhere near the threshold of leading edge compute. They actually were not that interested in speaking with us in general, once they learned we were not there to buy a few hundred micro-controllers or a thousand feet of networking cable.

Because business is good. It is hard to comprehend just how many vendors operate here - likely tens of thousands, and none of the stalls were empty. We stopped by the management office of one of the malls, and the staff there looked harried from the rigors of keeping up with the needs of the building.

Photo Tour

All photos by D2D

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In which we explore emerging signs of a Spring thaw in China’s chip industry, albeit with continued pressure of fabless companies there; growing adaption in PRC companies specialization in response to the US sanctions; and the emerging asset class of trading semis in Shenzhen’s Huaqing North Road.

We will be in China for much of July. If you would like to meet up or if there are companies you recommend we meet while we are there, please drop us a line.

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Noteworthy Items

Semis and Deep Tech

China’s chip imports were up 22% in the first quarter of the year, cue celebration as this is a sign the economy is improving. China’s chip exports were up 28% in the same period, cue concers about a deepening of the trade war.

Two big fundraising news items. China’s Big IC fund has reportedly allocated $47 billion for its next fund, and flagship chip designer Unisoc raised $552 million in funding. We actually read these as positive for the US government’s chip restrictions. The Big IC Fund did not deliver the results the government intended, leading to the jailing of several of its executives. The fund’s new direction seems to be invdesting more in the biggest chip companies. Unisoc has had much government support over the years, and that has not made it particularly successful. It is not clear how more money is going to solve any of these entities’ problems.

In small business circles in the US, there is a lot of talk about the transfer of wealth underway as Baby Boomers retire and sell the companies they built. There is a similar phenomenon taking place in China’s semiconductor circles. In the 1980’s many people left their rural hometowns to strike it rich in Shenzhen, and an industry grew up around semiconductor distribution. As those entrepreneurs started to retire, Covid-related shortages led first to a huge boom in business and then an ensuing crash. Now there are signs that the ‘second generation’ of distributors are returning to their parents’ businesses. An interesting read for what it says about the state of the industry but also for a deeper look at some of the people working inside it.

One of the implications of the article above is the extent to which semiconductors are an investible asset class, at least within the narrow confines of Shenzhen’s Huaqiang North Road electronics malls. We have spent a lot of time in this area over the years and so we are not surprised that fortunes have been made buying low and selling high in what is a fairly inefficient market. The hot product of the moment is the latest Broadcom Tomahawk ethernet switch chip, which seems to be in even higher demand than Nvidia GPUs (which admittedly are very hard to find in China, publicly). And just like investors in equity markets search for proxies, prices for domestic Ethernet chips are up considerably as well this year.

There are growing signs of a recovery in Chiaa’s semis markets. We have seen this in the results of Western companies who compete in some of these end markets - industrial, IoT, MCUs, etc.. In China we are now seeing some companies start to raise prices, so far this is fairly limited to packaging, testing and materials companies, but it is an encouraging sign, maybe. The optimistic take on this is that the market is bottoming. The pessimistic take is that these companies have no choice but to pass on inflation-related cost increases, which will just end up further squeezing the profitability of the fabless companies.

China’s semis analysts seem to spend a lot of time thinking about US-based ADI. Many of the best PRC chip companies compete with ADI, or at least compete in some of ADI’s markets and aspire to compete with them. (For some reason, Texas Instruments, does not garner as much attention.) So analysts in China have been heartened by ADI’s results seeming to bottom out cyclically, as that hopefully implies recovery for the company’s nascent peers in China.

An academic team from China, with European collaboration published a paper about building “micron-sized” robots for use in healthcare. The article explicitly mentioned the 1966 film “Fantastic Voyage”.

We have been covering the travail of many semis companies as they transition from dependence on venture funding to dependence on local government funding. Of cousre this was always going to have consequences. One analyst recounts the story of a company that sold its headquarters building to raise money, this sparked fears of the company leaving town, alarming its local government backers. The conclusion is that the industry may be turning around soon and companies need to do whatever they can to survive.

One unsurprising consequence of the US chip sanctions has been to encourage PRC semis companies to specialize in areas where they have solid domestic customers. One area where that has worked out well is solar systems - China leads the world in these and they require a fair amount of microcontrollers (MCUs). This is an interesting case study in how PRC companies are adapting and in a very limited scope out-developing foreign competitors.

A sobering critique of the US CHIPS Act. Some of this is what you would expect from a PRC analyst. While there is definitely some spin in the piece, much of it is also a legitimate critique of unintended consequences and unexpected bottlenecks. Whlie we are on the subject of unintended consequences, half of Japan’s semicap equipment exports now go to China.

Reading offical output from PRC government sources can be a chore, with a lot of very formal, vague language that is deliberately hard to for outsiders to parse. This speech by a leading China computer science professor to China’s legislature is refreshingly clear. Much of it is a history of compute and a rough summary of the changes brought about by “AI”. But read to the end and his specific policy calls are worth noting. His take is that China needs to build both ‘open’ (general usage) and ‘closed’ (government and military) AI systems, He also makes familiar claims that “data is a national strategic asset”, the country needs entities to build “large AI models”, and the country needs an “integrated computing power network”. The first two are common refrains heard from every government. The third one strikes us as very PRC-specific.

A tutorial on how to sell chips to foreigners - buy our manual for RMB 188 now RMB 88, then sign up for our online seminar. This could have been any self-help course anywhere on the Internet, but this one focused on how to read spec sheets for clues on what customer are thinking, be fast and efficient, recognize that your company probably lacks sufficient sales channels, but know that all this is worth the effort.

Huawei

Like all the big tech companies, Huawei is reportedly rolling out its AI platform later this month. Huawei “Project 1” will combine its Pangu large langauge model with integration into its Harmony mobile operating system. Worth keeping an eye on this. We hope they call it HI - Huawei Intelligence.

Huawei’s Harmony OS is now reportedly the second most widely used mobile OS in China, after Android and ahead of Apple’s iOS. This is in terms of new adds, the iOS installed base in China is still much larger. That being said, Huawei is doing very well with its new phones.

Automotive, Industrial and Macro-Economic

Car maker Nio is opening a new manufacutring plant that almost doubles its capacity. This is worth reading less for the news, which is just one of many simmilar stories in the press lately, and more for the way in which the company bends over backwards to prove that this factory is not “excess capacity”, and is only there to fill existing demand for its products. The PRC government and companies are very aware of global criticism of China’s capacity glut flooding export markets.

Diversions

Over the years, we have met many eccentric foreigners living China, but no one is this crazy. American Derek Sandhaus is looking to popularize China’s baijiu liquor outside of China. Having had more baijiu than we would like to (or can) remember, we can attest to the very high level of difficulty he has set for himself. That being said, Ming River Sichuan Baijiu, does look tempting. We will buy the next paid subscriber to this newsletter a bottle.

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In which we examine the latest emphasis on “Leapfrogging” - the idea that PRC companies can overcome technological bottlenecks by moving ahead to next generation tech. We also see tentative signs of a spring thaw after a long Semis Winter, Huawei’s strategy of poking US politicians seems to have backfired, and a very colorful profile of Nvidia’s Jensen Huang

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Noteworthy Items

Semis and Deep Tech

We have linked to a lot of stories this year about the gloomy outlook that has set in among China’s semis landscape. So a few recent articles (most with Spring in the title) caught our eye for claiming that we are coming through the end of the semiconductor winter. Critically, this author claims that the logjam blocking M&A is unclogging. China’s semis complex is in dire need of rationalization, so progress here is crucial. This author points to another important milestone, many foundries are starting to raise prices, another important sign of improvement,

That being said, we are not out of the woods yet. Many chip companies are pivoting their models to tap into local government funding sources. Or as this author puts it “Chip companies started in the B2C market (making chips for high volume consumer applications) to B2B (chips for industrial markets) to B2VC (perpetually raising money to fund further losse) and are now moving to B2Mayor.”

Qualcomm announced a partnership with PRC AI model maker Momenta. Fairly straightforward, especially given Qualcomm’s renewed focus on reaching out to software developers. The odd thing about this is the fact that the press release only appears in Chinese, and did not seem to surface on Qualcomm’s general list of English language press releases.

US think tank CSIS recently penned a sober assessment of the impact to date of the US China chip sanctions, with a list of recommendations. And a review of those from a Chinese analyst. The summary of this is that this has become a dance with each side responding to the other, with no end in sight.

A few new chips caught our eye - a new memory controller for mobile devices and a non-Von Neuman ‘Synaptic Neural Network” AI accelerator”. Neither are likely to alter the landscape as much as the authors claim, but further examples of the hope of “leapfrogging”. And then there is Super Star Future Semis, interesting AI products, even better name.

This profile of three Japanese companies in the semiconductor supply chain is interesting in its own right. But we also sense an undertone with a hint of jealousy.

A somewhat optimistic look at the future of China’s lithography industry. A recurring theme in China’s tech press right now is “leapfrogging”, the idea that China may lag in established technologies, but it can spring ahead by jumping to new technologies. In this case, we think that is a misreading of the idea of leapfrogging, and is likely impossible in something as advanced as lithography.

Very colorful profile of Nvidia’s Jensen Huang. PRC media seems to be walking a very fine line when it comes to Huang. They tend to highlight the fact that he is ethnically Chinese, and play up his ‘maverick spirit’. At the same time, they are worried about his growing influence across much of China tech - AI, robotics, autonomy, all important areas. They are not quite clear if he is friend or foe, and so far he is doing a great balancing act. Bonus points - the language in this article is very vernacular, and translations into English come out very weird.

Another hit piece on TSMC. PRC media is maintaining the heat, this article highlights T SMC’s “rising costs”. There definitely seems to be a coordinated campaign to denigrate the company, in part to lower the perceived stakes for PRC companies losing access to the foundry.

This history of China’s EDA industry is another example of their hope to ‘leapfrog’.

Huawei

The US government revoked several waivers given to US companies to ship chips to China. This article provides the Chinese view of these latest restrictions. This focus of the latest round was Intel and Qualcomm shipping to Huawei. Huawei has developed a pattern for making announcements awkward for US politicians. They unveiled their “5nm” Kirin 910S chip while US Commerce Secretary Raimondo was in Beijing. Then Huawei unveiled its AI PC featuring Intel’s Ultra X CPUs, but they announced it two days after Intel finally got its US CHIPS Act funding. What is unclear in this is why Huawei is deliberately picking fights in this way. It does not look like there is any real strategy behind this, as evidenced by reports that the company has no back-up plan for losing access to Intel and Qualcomm at this time.

Huawei’s Honor line solidifies its top spot in China’s smartphone market.

Automotive, Industrial and Macro-Economics

Overview of Auto Semis and advances towards ADAS and the “Digital Cockpit”. Interesting premise in that the article presents Qualcomm as the dominant player in the space and poses China auto OEMs as searching for an alternative which they claim is Mediatek. We think this framing is a bit ahead of reality, but worth reading for a good overview of the development of the sector.

A list of China’s top research labs. Part of the fun of this job is untangling the complex relationships behind China’s technology industry. The state obviously maintains a heavy role in development and industrial policy, but the way in which it exerts that influence is not always clear. Three are close ties between the major think tanks/policy bodies like the Chinese Academy of Science and these types of research labs, and both interact with or seed companies in some way. You can often trace industrial or technical domain clusters back to these labs. So it is worth keeping an eye on these institutes.

France welcomes PRV Electric Vehicle (EV) makers to open factories in France. Insert your favorite Trojan Horse memes.

Air China purchases $11 billion of domestic jets. This is a big milestone. The next thing to watch will be whether other countries follow suit, especially those with poor relationships to the US - notably sanction laden Russia and Iran.

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In this issue we take a look at the steps PRC electronics companies are taking to embed themselves in local economies around the world, likely in anticipation of rising trade restrictions. The broader market needs to understand that these companies learned how to maneuver around trade barriers within China, navigating local restrictions.

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Noteworthy Items

Semis and Deep Tech

Beijing-based Mobvoi filed to go public. They are probably the first generative AI company to show financials publicly. The company offers its own GPT-style consumer product, but makes most of its money licensing its model to enterprises. Revenue last year reached RMB 500 million, with an operating loss of RMB 387 million, so that’s not great. Lots of good information here on the state of China’s AI market.

Randall Stewart attended Semicon China, and is as confused about the state of China’s semis industry as the rest of us. A big presence from Japanese and Korean firms, but almost no US companies in attendance.

Profile of Hygon, arguable China’s leading CPU vendor. This company has been around for a while, which means it has really survived more than thrived. That may be changing and Hygon could end up as a big beneficiary of the US sanctions, but the story is probably more complicated than that.

PRC press is reporting that the Chinese version of Intel’s Gaudi 3 AI accelerator will offer 92% less performance than the international version of the chip. We are not sure about those numbers, but a window into the anxiety China’s software companies are experiencing under the US restrictions.

China’s robotics industry “enjoys blissful uncertainty”. Blissful in that Nvidia is solving a lot of their software problems, uncertainty because maybe they lose that access some day. Beyond the playful framing, interesting to note how quickly China’s robotics companies are advancing. The simple summary of that is China has a lot of good mechanical engineers to make robots do interesting things, but lacks the software engineers needed to provide complete systems.

A common theme in PRC government economic policies in recent years is a greater reliance on the State. In semis, this seems to mean a favoring of state-owned electronics companies. Given these entities’ track records over the decades, this seems to exactly what the US government wanted when it implemented their sanctions.

RISC V has fallen a bit below the radar in the US, but remains a vibrant topic in China. There is growing interest in RISC V based FPGAs. These are a high priority item for the PRC government (think missle guidance and radio communications). so RISC V makes a fair amount of sense. At some point, some of these companies could potentially start to expand on the global stage.

In the US, M&A has become a fairly staid process. It may not feel that way for our readers in the middle of a deal, but look back in history and today’s deals offer little in the way of broad drama. That is not the case in China semis. The level of brinkmanship and sharp elbows there resembles the 1890’s railroad wars more than the 1990’s Barbarians at the Gate. There is a fair amount of cognitive dissonance in Chinese markets. On the one hand, the State seems to be moving in everywhere, but many parts of many markets are pure Darwinian struggle.

Apparently, China has had policies to encourage growth in its EDA sector for more than 20 years. Last year, with US sanctions taking hold, domestic semiconductor design tools companies had one of their best years on record, and have now captured a whole 10% of the domestic market…Interesting also to see the course of development here with every city boasting its own EDA company, but a cluster apparently growing in Shanghai. And while 10% is not great, there are ways in which Chinese EDA makers are looking to leapfrog competitors. There is no point in building tools for digital processors, but other markets like RISC V offer a more approachable opportunity.

The pace of change in automotive semis is frenetic, especially for an industry that moves this slowly. Globally, automakers are making big changes to the ways in which they use semis in cars, moving from discretes to modules. At the same time Chinese companies are steadily gaining ground, at least domestically. At some point, do these trends converge?

Huawei

Huawei is reportedly building a new campus in Shanghai to focus on building semiconductor wafer fabrication equipment. Even though China already has hundreds of WFE companies, Huawei may end up as the most advanced and the lead candidate for catching up to ASML. Interesting implication here - for those worried that US sanctions are just going to end up strengthening China’s domestic competitors, what if it just ends up helping Huawei. Not great for the US, but not necessarily great for China.

DigiTimes examines how Huawei is surviving (thriving?) beneath US sanctions. Domestic replacements, internal solutions, US waivers and loopholes, a fair amount of duct tape and big support from the government.

Automotive, Industrial and Macro-Economics

Last year, 10,000 “semiconductor companies” closed for business in the PRC, but 11,000 new ones opened. At some point, these numbers are just silly. The vast majority of these companies are not even tangentially really semiconductor companies, but there does seem to be some movement towards much-needed consolidation in the sector.

A profile of battery maker CATL. Everyone seems very worried that Li-on batteries are in overcapacity globally, and CATL’s response to that always seems to be to add more capacity. Many of the expansions can in part be explained by the company’s desire to appear local everywhere they want to sell products (see below for more).

One of the hardest things foreigners find in understanding the PRC’s economic policies is the gap between what the central government says and what actually happens at a local level. This analyst provides a good review of this issue (and a Twitter thread summary) with his analysis of Local Government Funding Vehicles (LGFV). LGFV’s are collectively a debt-laden mess right now and a big part of the problem Beijing faces in righting the economy.

Volkswagen signed a fairly extensive partnership agreement with Xpeng. There has been speculation for months that VW was going to have to license automotive software from someone in China, and Xpeng is a better alternative than Huawei. For their part, Xpeng could probably use some support and cash. Still, not a good look for the European automotive sector’s future.

Hytera makes personal, mobile radio systems (aka walkie-talkies). Their growth in recent years, and their prevalance on the Russian front lines in Ukraine have sparked fears of the company becoming labeled as the “Little Huawei”, with all that entails for US government scrutiny.

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Semis and Deep Tech

An important story about salary trends for chip designers in China. Over the past five years, these have gone through the roof. But lately, they have not only slowed, but are trending downwards, with new graduates attracting salaries 30%-40% lower than last year’s graduates. There are also a lot of lay offs taking place across the sector. China’s government seems to think that semis can be an export engine that will turn the country’s economy around, but companies there think they have too many employees, which does not bode well for the government’s ambitions. (See article below for paid members for more on this.)

We have been writing a lot about the gloom around China semis in recent months, and the trend continues. In recent weeks, a dozen chip companies have pulled their IPOs, even while there are another 30 in the pipeline waiting to list. (Another source has it as 20 have pulled their IPO with 40 more still in line)

A comparison of ADI and Texas Instruments with their domestic competitors. Significant gaps in performance and a 10%-pt difference in gross margins tell the story best.

Apple opened a design lab in Shenzhen to focus on user hardware experiences. On the one hand, this makes a lot of sense, as much of this type of work has to flow through Foxconn and the supply chain in Shenzhen. On the other hand, this announcement along side Tim Cook’s visit to Shanghai to open a new Apple store seem intended to signal to China that Apple is still deeply invested in the country. However, this is taking place while Apple is adding capacity at Foxconn India.

As we regularly note, do not sleep on Transsion. China’s third largest phone maker is the market share leader in Africa and is now investing heavily in India.

Wafer Fabrication Equipment (WFE)

WFE has become a major area of focus for state-backed funds in China since October 2022.

This has resulted in a boom for domestic WFE makers, as seen in their latest financial results. These companies are enjoying a big boost as the result of US restrictions and the Chinese government’s support. Executives here claim that China can shift its entire WFE supply chain to domestic companies this year, but that statement should come with a lot of footnotes as to which parts of the supply chain and which nodes they can support.

Most telling is that there are signs that some Chinese WFE makers have begun to export their products. This is an important milestone as global sales provide meaningful validation. But as above, the devil is in the details, this is not cutting edge EUV lithography.

This author provides a roadmap for China’s WFE makers and foundries to catch up with the rest of the world. A lot of this relies on reverse engineering and sourcing used equipment from around the world. There is also an emphasis on learning how to provide service and support for these systems, as this side of the business is now emerging as an important point of control for US sanctions. At the same time, the article conveys a sense of just how complex this supply chain is and how many things China needs to get right.

Finally, an overview of Chinese presenters at a recent global metrology forum. Some interesting work on fundamental technologies, whose commercialization is likely still fairly distant. Interesting in that this is being presented to a global audience, but also note how few attendees there are in the rooms photographed.

RISC V

There was a big RISC V event in China this month and so we found several stories about the project. Ironically, someone asked us about RISC V last week, and we had to struggle to think of any big RISC V news in the US in the past few months. It has been very quiet here on that front.

China’s EDA industry is betting its future heavily on RISC V. This makes sense strategically as it cannot be cut off easily by the US government. It also makes sense commercially, as there is a lot of demand for RISC V products in China. At the same time, RISC V seems to be doing best in China, and with an emphasis on chips for embedded and IoT products, which is not a giant market.

China is starting to see clusters of RISC V design companies emerge in Beijing where a lot of Chinese chip companies are based, but also in Hangzhou around Alibaba who is doing a lot of work around RISC V and has some of the most advanced chips on the instruction set.

Huawei

A history of Omnivision, from its origin, transition to Chinese control, and today as (possibly) the leading image sensor vendor to Huawei phones.

Huawei and Amazon settled Huawei’s patent lawsuit in Germany, with the two companies signing a cross-licensing agreement.

Huawei led the world in patent filings in 2023.

Automotive, Industrial and Macro-Economics

Ericsson is cutting staff in China, not surprising given their slowing business there and overall financial condition. There were rumors going around that Ericsson plans to exit China entirely, which Ericsson subsequently denied. Sony encountered something similar recently as well. These kinds of comments have been popping up around many foreign companies lately, and usually there is no substance to them, but they demonstrate a high degree of anxiety in China’s tech industry.

A big topic of late is the drive by China’s EV makers to increase the domestic sourcing of their semis. This study shows the success of that with domestic semis doubling their share in China - from 5% to 10%. China’s auto makers still have a very strong preference for foreign microcontrollers and other parts. More on this from a different source.

Ali Cloud has slashed prices for many of its services. This seems to be a trend among the global cloud providers, but we have to wonder if there is more to this story when viewed from China’s domestic perspective.

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Lithos Graphene has some thoughts about the state of China’s lithography industry. The summary: they are far behind the rest of the world.

Satellites are rising in prominence in discussions of cellular networks. China has plans in this field, looking to incorporate their satellite technology into the 6G Standard.

Lidar maker Hesai is suing the US government for its inclusion on the entity list. If this makes it to trial we will be reading all the discovery materials we can get our hands on. An important test case.

Interview with a semis industry talent recruiter. A few things stand. First, note how high salaries have gotten for ASICs designers in China, closer to US levels than Taiwan. The article also looks at the industry through the lens of Zeku, the chip design team of handset maker Oppo. It went from the highest paying designer to out of business in just a few years. It’s 3,000 employee got snapped up quickly, but its closure forced many other non-chip companies to rethink their internal plans. Now factor Oppo reportedly restarting these efforts.

There is a theme in this week’s press links. We came across an almost universal notion that China’s chip industry is too crowded. This is leading to layoffs, company closings and an IPO winter. But as long as the spigot of government funding remains open, we are unlikely to see major consolidation.

The decline and bankruptcy of Baowei Storage is a tale that is likely to play out in many other companies. Too much competition, weak pricing leads to unsustainable losses, and for reasons not entirely clear they were unable to get any more funding.

Another look at China’s top MCU companies. As we look for companies which will emerge on the global stage, we suspect at least one will come from this list.

A leading Chinese academic journal made a list of the top ten R&D achievements of 2023. Half of these strike us as gimmicks, the other half as arcane materials advances for which it will take many years to discern their significance.

A fairly sober analysis of the impact of US restrictions on China semis with a focus on whether or not the US will extend those restrictions to more mature process nodes. The author concludes that it will be much harder (but not impossible) for the US to restrict trailing edge fabs in China, but the harm it would do to China semis is much more serious than that of the leading edge restrictions.

Huawei

Call it a comeback. Huawei retakes the top market share position in smartphones in China.

Apple is rumored to be working on foldable devices. Not to be outdone, Huawei is working on a triple folding device. They are also designing a spatial computing headset.

A history of Huawei’s chip division HiSilicon. We learned a lot from this, the unit has an interesting history. And despite being viewed as an under-performer (especially by other parts of Huawei) it ended up with considerable capabilities.

Automotive, Industrial and Macro-Economics

China’s economy is not doing well. The real estate sector appears to be due for a structural downsizing, greatly reducing a major component of the economy. The government has many possible policy responses to the situation, but it appears to have chosen to export its way out of the hole it is in. There is a lot of talk about government bodies at all levels shifting their support from real estate to solar, electric vehicles and semiconductors as a replacement. This seems to overlook the fact that all of those are already operating in conditions of high over capacity. Maybe the government will try other approaches down the road, because there is only so far that those three can take the whole country. For everyone else expect to see surges in low-price imports from China.

The major US food chains are all expanding in China. Starbucks now has over 7,000 stores in China.

Car maker BYD is building a 600 node charging network in Brazil. Unlike in the US, Chinese EV brands are building competitive charging networks, which strikes us as unsustainable. On the other hand, who else is going to build the network in Brazil?

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We spoke to Chinese tech site IJ Wei (中文) about a whole range of interesting topics.

A balanced, sober view of China’s wafer fabrication equipment (WFE) industry (中文). The author focuses on lithography systems and China’s response to the US restrictions on EUV. He points out the restrictions have done exactly what everyone predicted they would do - force Chinese companies to innovate and search for a way around. He claims that China’s WFE industry is now self-sufficient up to 28nm, which is further than we had estimated but not entirely surprising. That being said, he is sanguine about the outlook going forward. He claims China lacks a sufficient ecosystem reaching all the way up and downstream to make much progress. And critically, he notes that there are ways for China to advance with Moore’s Law but that they will require an immense expense to achieve. This aligns with our view. There is no way to stop China from eventually moving ahead, but it will require enormous cost. True Huawei and SMIC made it to “7nm” and can probably get to “5nm”, but no other company has Huawei’s resources.

Some signs that semis prices are finding a bottom in China, at least in analog and MCUs (中文). On the other hand, China’s chip imports declined 15% in 2023 - which some have pointed to as a sign as growing sufficiency but is more likely just a reflection of the broader economy.

A look back at China semis in 2023 (中文). The title, “Layoffs, Price Wars and Waiting for a Recovery”, sums it up pretty well. Another review, this one focused on stock price performace and some big shifts in market cap among China semis (中文).

Texas Instruments “started a price war” in China analog chips, especially for automotive. At least that is how this author frames the ongoing decline in China analog chip pricing (中文). He contends that TI’s price cuts did not work and they saw little uptick in demand as a result. We think the jury is still out on that front, but it reinforces our view that TI is very aware of what is happening in China semis, and is probably the most advanced Western company in preparing for the future of China trailing edge over-capacity.

Qorvo sold its test and assembly facilities in China to contract manufacturer Luxshare. the last time Qorvo exited a plant in China it sowed the seeds of its own competition.

SK Hynix expanded its DRAM plant in China, one more waiver from the US government.

Hongshan, the venture firm formerly known as Sequoia China has funded a GPU start-up.

Huawei

Huawei has launched a new operating system (OS) - HarmonyOS NEXT. They claim that it has no links to Android, and that existing Android apps will not be supported on the OS. This has garnered a lot of attention. From the outside it is hard to judge the prospects for Harmony. In part because we just do not know much about it yet, but also because the benchmark of success for Harmony is different than how we would typically evaluate an OS. If Harmony NEXT only works in China and only ends up with a user base of few dozen million, it may still accomplish what Huawei needs from it.

Automotive, Industrial and Macro-Economics

There has been a lot of talk about excess battery capacity being built in China. This author provides a handy list of all the capacity coming on-stream in coming years. (中文) The bad news - there is a lot more capacity on its way. The good news, at least according to this writer, there is more than enough demand to soak up most of that capacity. No surprise that there were tons of interesting new battery systems on sale at CES this year.

A look at China’s bolt and screw industry. Interesting in its own right, who among our readers isn’t curious about this space. But also a good case study in how China moves up the value chain.

Car maker Nio unveiled a new high-end sedan, which comes with its internally designed automotive processor. We have known they were working on their own chip for a while, but their focus on autonomy re-opens the question as to whether China may get autonomous vehicles first.

A series of stories about India advancing its technology industry and the effect that is having on foreign companies looking to move out of China. Mobileye inks deals with car maker Mahindra. India’s Mindgrove Technologies began production of its low-power automotive chips, a place where Chinese companies have grown considerably. Digitimes says 10% of iPhone production came from India last year.

Horse Piss Colonialism in China. Posted for the headline alone, but an interesting study in how China subsidizes an obscure corner of its chemical industry to achieve domestic social political goals. Expand that logic to all of semiconductors, and many of China’s semis policies make more sense.

Software and the Cloud

Handset maker Oppo won an intellectual property (IP) lawsuit against Nokia in Chongqing. Noteworthy because part of the ruling includes a directive for Nokia on its global IP pricing, not just pricing in China. Nokia will probably ignore this ruling outside of China, but a likely indicator of where China’s IP framework is heading.

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