TSMC is currently prohibited from producing advanced
processors for China, as it uses US chipmaking tools, and hence falls under the
purview of recent American chip sanctions targeting Beijing.
Those sanctions — in place since October 2022, and reviewed
annually — have exposed just how limited China’s production capacity for
advanced chips is.
They have also shown how dependent Chinese AI chip design
companies are on TSMC – the world’s leading chip contract manufacturer, the
sources told Reuters.
Among the companies downgrading their processors are top
Chinese AI chip firms MetaX and Enflame. Both firms submitted downgraded
designs of their chips to TSMC in late 2023 to comply with US restrictions,
according to two of the people.
TSMC declined to comment on individual customers, saying
only that it works with clients to make sure it is in compliance with
jurisdictions relevant to its operations.
‘Little giants’
Both companies previously marketed their chips as being
comparable to graphics processing units (GPUs) sold by US chipmaker Nvidia.
Shanghai-based MetaX has developed a downgraded product
called the C280, sourced said. The company, founded in 2020 by former Advanced
Micro Devices executives, ran out of stock of its most advanced GPU, the C500,
in China earlier this year.
Meanwhile, Enflame, which is also Shanghai-based and founded
in 2018, counts tech behemoth Tencent among its backers and raised $2.7 billion
last year. The firm also sells its chips to state-owned enterprises and has
cooperated with several local governments on projects.
Both MetaX and Enflame are so-called “little giants” – young
companies selected by Chinese authorities for their potential in critical
sectors, making them eligible for state support.
MetaX last month gained government funding for a project to
develop a domestically produced high-level AI training chip and has multiple
R&D and fab projects across China.
Pumping state-funds into chip firms is part of China’s
efforts to develop self-sufficiency in chips and counter increasing US
sanctions.
Last month, Beijing announced the third iteration of its
China Integrated Circuit Industry Investment Fund with $48 billion of funding
for the industry. The infusion brought the total amount provided by the fund
for semiconductors, since 2014, to over $100 billion.
SMIC stepping in
China’s chip sector has also benefitted from separate local
government funds and a range of subsidies including tax breaks and low-interest
loans.
But the real challenge lies in the country’s lack of fabs.
China has an estimated 44 foundries, but of these, only
Semiconductor Manufacturing International Corp (SMIC) is capable of producing
large volumes of highly advanced GPUs, sources said.
SMIC is the country’s largest chipmaker and has close ties
to Huawei — a firm directly sanctioned by the US. Huawei has over the past year
emerged as the biggest rival to Nvidia in China.
Until recently, SMIC’s production capacity of that level was
entirely reserved for Huawei, they added.
But sources say SMIC agreed just this year to allot a
limited amount of its production capacity to some Chinese AI chip firms that
had been individually sanctioned by the US and blocked from overseas
production.
One such firm was state-backed Cambricon which the sources
said has been struggling since it was hit with US restrictions in late 2022 on
concerns it could supply AI chip technology to the Chinese military.
Cambricon, which said in a call with analysts last year that
it was facing product supply pressures, did not respond to a request for
comment. Reuters