Wave of Fabrication

We launch our PRC fab tracker, digging into the wave of fab capacity already on line and coming soon.

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In this issue, we dig deep into the rapidly growing number of PRC semiconductor fabs. They may not use the most advanced technology, but they make up for that in volume. We also look at the growing number of semis M&A transactions, a list of Huawei’s top foreign and domestic suppliers, and more.

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Noteworthy Items

Semis and Deep Tech

In the wake of the US election we saw a round of Semis Trade War-related posts. Our take is that it was fairly subdued, which we suspect is a sign the PRC government is playing wait-and-see for what the new administration brings. That still left room for several posts along the lines of “where things stand now”, laying out the ‘front lines’ of the fight. This post in particular caught our eye. It is very broad touching on the entire supply chain, and fairly sober in its analysis. It essentially lays down a gauntlet - these are the PRC’s strengths, this is where the industry is headed, what is the US going to do about it? In particular, it has a pretty upbeat (for PRC, scary for the US) review of China’s trailing edge capacity.

A month ago, this analyst proposed that the way forward for China’s semis industry is to have the large, well-capitalized public semis companies acquire the struggling, under-capitalized private companies whose death throes threaten everyone’s profitability. Then, two weeks later, we saw that play out when Jingfeng Mingyuan acquired Yichong Technology, consolidating the LED market a bit. This is the model the PRC has used in many other industries, notably banking, to force consolidation in troubled but critical sectors. We think the scale of the problem is too wide in semis, but maybe it will work.

Whatever the model, China’s semis industry still badly needs a large dose of consolidation. There are more signs that this is picking up. Huahai Chengke recently acquired Warwick Electronics (which goes by the Chinese name Huawei, but not that other Huawei) in what was a fairly competitive process for the target. Probably a good time to be an M&A Semis banker in China. On the other hand, the fact that two companies were fighting over Warwick may also indicate that there is a small pool of good targets.

Several relevant PRC government agencies have created what could best be described as a joint export control agency. We imagine the behind-the-scenes politics on this were the main driver, but also seems likely to signal that the PRC will be giving a lot more scrutiny to export controls.

China Resources is a massive state-owned enterprise (SOE) with operations in dozens of industries. It has operated and invested in semis for several decades, largely at the commodity end of the technical spectrum. They recently consolidated one of their larger entities to gain full control over it. We know they have big ambitions in semis (and massive capex underway), and this seems to be a meaningful step to get themselves more fit for larger competition.

By now, everyone is familiar with the strategic bottleneck of EUV technology, produced only by ASML and severely limited by US sanctions. PRC companies are searching for ways around this chokepoint. For example, last year, Huawei announced it had developed its own EUV light source. We are also hearing a lot about Nano Imprint technology, as an entire alternative lithography system. From what we can tell, it is also years away from commercial viability, and no one is even sure it will definitely work.

State-backed CPU maker Hexin is reportedly running out of money, and struggling to pay its employees. Three years ago, dozens of CPU and GPU start-ups popped up in the PRC. Many of them looked promising, at least on paper. As much as US sanctions made life difficult for these companies, a bigger problem is that there are several dozen of them in a world which already has too many CPU companies.

A good overview of the sensor market. Read this in part for the analysis of the complexities of the Internet of Things sensor arrays - more sensor fusion, ambient power harvesting, etc.; but it concludes with what are essentially a request for government policies to encourage or standardize terms for vertical solutions.

Huawei

Huawei released a list of its top 500 suppliers. There are a few ways to read this. The most obvious is the company is signaling to the government how much of their supply chain is domestic, waving the flag and encouraging others to follow suit. Another is to the US, to show how resilient they can be even under the US sanctions. But there is one other way to read the list. Since it still sources a large number of parts from US vendors, Huawei is laying down an implicit threat.

Nissan is the first foreign automaker to buy Huawei’s digital cockpit ADAS system.

Software

If you can’t beat them join them. Amazon launched a store on JD.com, one of China’s largest Amazon competitors.

A number of AI-related companies have gotten the go-ahead to IPO including autonomous driving software company CiDi (Hong Kong), GPU maker Moore Threads (Shanghai), and autonomy company Pony.AI (NASDAQ).

Automotive, Industrial and Macro-Economic

Battery maker SVOLT canceled its plans for building a battery factory in Germany. There is too much capacity in the PRC battery complex, just as there is in semis, squeezing everyone’s profitability and access to capital. The big difference is that in batteries, there is a clear champion in the form of CATL. On that note, here are some excerpts from a talk given by a CATL executive. Nothing too exciting in his comments, but we all need to start paying more attention to CATL. Most intriguing were his forecasts around the range of low end (sub USD $15,000) cars getting to 200 km. If you need to go further, buy two and park one half way.

Xiaomi launched the world’s fastest EV. And it totally does not in any way, shape or form, completely resemble a Porsche.

A good piece on what went wrong for VW in China, and increasingly everywhere else too.

Diversions

PRC IP and telecoms company Datang is suing PRC semis flagship Unisoc.

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