According to four people with knowledge of the situation, some Chinese AI chip makers are currently creating processors with lower power in order to continue doing business with Taiwan Semiconductor Manufacturing Co. (TSMC) despite US sanctions.
With the intention of impeding China’s military’s advancements in artificial intelligence and supercomputing, the United States has enforced certain export restrictions on advanced processors from firms like Nvidia and chip fabrication machinery. These limitations also prohibit other foreign chip manufacturers, like TSMC, from accepting orders to fabricate them, even though TSMC utilizes American machinery to make chips.
According to the sources, the most recent round of U.S. export restrictions implemented in October of last year revealed how reliant Chinese AI chip design companies are on TSMC, the world’s top contract producer of chips, and how restricted China’s production capability for sophisticated chips is.
The four sources declined to be named because chip-related issues are sensitive in China; one of them has direct knowledge of the matter.
According to two of the persons, two of the leading Chinese AI chip companies, MetaX and Enflame, submitted reduced designs of their chips to TSMC in late 2023 in order to comply with US limitations.
Previously, the businesses advertised their chips as being similar to graphics processing units (GPUs) from Nvidia.
According to the two individuals, Shanghai-based MetaX has created a lower-end product known as the C280. It also mentioned that early this year, its most sophisticated GPU, the C500, ran out of supply in China.
Former executives of Advanced Micro Devices founded MetaX in 2020; Reuters requested a comment, but MetaX did not reply.
Enflame, a 2018-founded Shanghai-based company, did not reply to a request for comment. It raised $2.7 billion last year and is backed by digital giant Tencent.
TSMC stated that it works with clients to ensure that it is in compliance with jurisdictions relevant to its activities, but it declined to comment on specific customers.
Enflame and MetaX are both considered “little giants”—young businesses that Chinese authorities have chosen for state support due to their promise in important industries.
In addition to having several R&D and fabrication projects throughout China, MetaX this month received government financing for a project to create a high-level AI training chip created locally. Enflame has collaborated on initiatives with multiple municipal governments in addition to selling its chips to state-owned businesses.
Jensen Huang, the chief executive of the U.S. business, estimated in December that China has about 50 AI chip startups vying to compete with Nvidia, in addition to the tech giant Huawei.
However, some of those businesses are now directly subject to U.S. export prohibitions and are unable to look for foreign foundries, which further complicates their production situation.
Production problems for Chinese AI chip companies would probably help Huawei, which is gaining ground on Nvidia in China after the American company was forced to create weaker chips, especially for the Chinese market, because of export restrictions.
SME ACCESS
China has been pouring enormous sums of money into the semiconductor industry in an attempt to become self-sufficient since tech tensions with the US erupted in 2018.
The government announced last month that the China Integrated Circuit Industry Investment Fund, now in its third incarnation, will offer $48 billion in financing for the industry. Since 2014, the fund has contributed over $100 billion in funding to the industry.
In addition, the industry has profited from various subsidies such as tax exemptions and low-interest loans, as well as from independent local government sources.
However, according to two of the sources, only Semiconductor Manufacturing International Corp (SMIC) is able to produce substantial volumes of extremely advanced GPUs in China, despite the country being home to an estimated 44 foundries. They added that Huawei had exclusive access to SMIC’s production capabilities at that level up until recently.
Huawei declined to comment. US sanctions shut off Huawei’s access to foreign chip manufacturing in 2020. The business disputes Washington’s assertion that it is a threat to American national security.
According to three of the four sources, SMIC decided this year to assign a small portion of its production capacity to Chinese AI chip companies that Washington had specifically sanctioned and prevented from producing their products abroad.
State-backed Cambricon was one such company, according to the sources, which has been having difficulties since it was subject to US limitations in late 2022 due to worries that it would provide AI chip technology to the Chinese military.
A request for comment from Cambricon was not answered. Last year, during a call with investors, the company stated that it was experiencing difficulties with product delivery.
In reaction to U.S. sanctions, China has said that Washington has broadened the definition of national security and expanded its use of state power to target more Chinese businesses.
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