D2D China: China Returns to CES

Huawei is everywhere again, G42 as seen from China and more

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Noteworthy Items

Semis and Deep Tech

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