Oct 28, 2022

William 30 mins ago Pictured is a chip manufacturing plant in Suqian City, east China’s Jiangsu Province, April 1, 2022. Edition of the future | Edition of the future | Getty Images BEIJING — China is so behind the United States in semiconductor technology that some investors are betting on startups to fill that void. The United States imposed new restrictions this month to maintain a lead over China in advanced chip technology. Although the rules immediately reduce revenue for U.S. and Chinese companies, they only affect companies selling the most advanced semiconductor technology, analysts pointed out. The bulk of Chinese demand is for chips with much simpler technology, they said, and Chinese companies are still small players today. That gap leaves a big market opportunity far more insulated from U.S. restrictions — and one that Chinese startups can tap into, some venture capitalists have said. Interests of investment funds Vertex Ventures China is a company that has raised funds from overseas investors to buy into the idea. The company has raised nearly $500 million for a new Chinese technology fund that is expected to close early next year – more than previous plans of $400 million, said Tay Choon Chong, managing partner and director of Vertex Ventures China. In China right now, what is the disruption? The biggest disturbance is that the West is not going to give the technology to China. We see this as the best opportunity for us. Tay Chun Chong Managing Partner, Vertex Ventures China “In China right now, what’s the disruption?” he said. “The biggest disruption is that the West will not provide technology to China. We see this as the best opportunity for us.” Chinese chip companies can see double-digit growth every year since the market is worth tens of billions of dollars, Tay said, noting that China imports about $400 billion worth of chips a year. He said specific areas of opportunity include chips that amplify phone signals or control car screens. Another firm investing international money in China’s chip industry is WestSummit Capital Management, which says its strategy did not change when new US rules came out. That’s because WestSummit only invests in chips made with mature technologies — for mass market, civilian use, said Bo Du, the company’s chief executive. Mature class chips use older technology and are generally less sophisticated than more advanced chips, the use of which in consumer products today is primarily in smartphones and high-end personal computers. He said 79% of the global chip market fell into the mature technology category – a share that jumps to 94% if you look only at automotive chips. Du was a senior engineer at US chipmaker AMD, among other previous industry roles. He said GigaDevice Semiconductor, backed by WestSummit, is one of the Chinese companies well positioned to capture the mature market. The stock is down about 50% for 2022, but is up more than 2% so far this week despite a broad market decline. US restricts Chinese chips China accounts for around 40% of global chip demand each year, according to a Natixis report. However, Chinese companies account for only 5.2% of global supply, mostly at the lower end of the industry, according to the report. Learn more about China from CNBC Pro “The [new U.S.] make it more lucrative to develop non-US chipmaking technology because it means less policy restrictions and uncertainty,” said Alex Liang, a partner at law firm Broad and Bright in Beijing. “However, chipmaking is a mature technology that has been developed for many years. It is difficult to separate American and non-American technology after all these years of intertwined development.” The United States has taken several steps this year to limit China’s technological capabilities. The Biden administration has singled out China as a strategic competitor, following the Trump administration’s blacklisting of specific companies such as China’s largest chipmaker, International Semiconductor Manufacturing Company . To “develop everything from scratch, I would say the latest decision would have probably set China back more than 5 years,” said Patrick Chen, head of research for CLSA in Taiwan. Some products, such as cars, may have to sacrifice some nonessential AI functionality for the time being, he said, although manufacturers may keep basic sensors or micro control units because they don’t use the most advanced chips. Imminent risks Despite great market opportunities, seed investments in Chinese chip startups still face potential lawsuit risks and the complexity of the technology itself, Vertex’s Tay said. He said a company needs to make sure it has enough expertise and money to get its products to market on time. Others are more skeptical. The complex and extensive chip supply chain has become a hot – and speculative – investment area in China since Beijing began to emphasize technological autonomy. Along with a perceived bubble in the market last year, it’s hard to identify which startups might succeed, said Hongye Wang, China-based partner at venture capital firm Antler. He described the odds as being around 10 in 1,000, or around 1%. Wang said that like most VCs in China this year, he hasn’t made any investments this year, in part because Covid restrictions have limited face-to-face meetings with contractors. “I think the tech startup market would be even better than the year before Covid-19 because that market holds too much money for those tech startups,” he said. For many Chinese companies trying to survive today, the consequences of US actions are still being worked out. The sweeping new US rules target everything from American employees of Chinese chipmakers to foreign companies selling in China. One sub-sector that is receiving particular attention is China’s so-called fabless chip companies that rely on outsourcing manufacturing to operate, said Chen Deng, a partner at Hylands Law Firm. She said these companies must now look beyond a simple revenue exposure model to assess compliance risk. cnbc Business Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor. William 30 mins ago