D2D China: The Great Leapfrog forward

Can PRC companies overcome by skipping a few steps?

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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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