Is China's venture ecosystem imploding?

China used to have an incredibly robust venture industry, but its glory days seem to be behind it.

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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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Noteworthy Items

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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For Paid Subscribers below we dig into the domesticization (or lack thereof) of China’s wafer fabrication equipment (WFE) market.