D2D China: M&A Floodgates are Opening
PRC Semis consolidation is picking up steam; Huawei raising money and its server supply chain, Xiaomi doubles down on semis, TP Link retreats from semis, and more.
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”.
“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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