China Macro Through the Lens of Semis

WFE Advances, Fabless Struggles

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Noteworthy Items

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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For Paid Subscribers below we take a look at some of the unintended consequences of the US restrictions on China semis.