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Chinese AI chip firms are scaling down their designs to secure TSMC production

ByYasmeeta Oon

Jun 5, 2024
Chinese AI chip firms are scaling down their designs to secure TSMC production

Chinese AI chip firms are scaling down their designs to secure TSMC production

SINGAPORE – Several Chinese AI chip companies are now designing less powerful processors to maintain access to production capabilities at Taiwan Semiconductor Manufacturing Co (TSMC), in light of stringent U.S. sanctions, according to four sources with knowledge of the matter.

In an effort to curb advancements in artificial intelligence and supercomputing by China’s military, the U.S. has implemented a series of export controls targeting advanced processors and chip manufacturing equipment. These controls affect companies such as Nvidia and also prevent TSMC, which uses U.S. chipmaking tools, and other foreign manufacturers from fulfilling orders for these sophisticated processors.

Key Points of U.S. Sanctions:

  • Targeted Companies: Nvidia, TSMC, and other overseas manufacturers.
  • Objective: Prevent China’s military from advancing in AI and supercomputing.
  • Impact: Limits on producing advanced chips for Chinese firms.

The latest set of U.S. export controls, introduced in October 2022, have highlighted China’s limited capacity to produce advanced chips domestically and its heavy reliance on TSMC, the world’s leading chip contract manufacturer. The four sources, one of whom has direct knowledge of the issue, requested anonymity due to the sensitivity of chip-related matters in China.

Key Chinese AI Chip Companies Affected by U.S. Sanctions

CompanyYear FoundedResponse to SanctionsMajor Backers
MetaX2020Downgraded chip designs, developed C280
Enflame2018Downgraded chip designsTencent
CambriconStruggling with supply pressures, allocated SMIC capacity

Two prominent Chinese AI chip firms, MetaX and Enflame, submitted downgraded chip designs to TSMC in late 2023 to comply with U.S. restrictions. Previously, these companies marketed their chips as comparable to Nvidia’s GPUs. According to two sources, MetaX developed a downgraded product called the C280 after running out of its most advanced GPU, the C500, earlier this year.

MetaX, founded in 2020 by former executives of Advanced Micro Devices, did not respond to requests for comments. Similarly, Enflame, founded in 2018 and backed by tech giant Tencent, also did not respond. Last year, Enflame raised $2.7 billion and has been collaborating with several local governments on projects.

Both MetaX and Enflame have been identified as “little giants” by Chinese authorities, making them eligible for state support. MetaX recently received government funding for a project to develop a high-level AI training chip domestically. The company also has multiple R&D and fabrication projects across China. Enflame sells its chips to state-owned enterprises and collaborates with local governments on various initiatives.

Since 2018, when tech tensions with the U.S. escalated, China has intensified efforts to achieve self-sufficiency in chip manufacturing, investing massive sums into the sector. The government announced the third iteration of its China Integrated Circuit Industry Investment Fund last month, providing $48 billion in financing, bringing the total fund amount since 2014 to over $100 billion. Despite these efforts, only Semiconductor Manufacturing International Corp (SMIC) has the capacity to produce large volumes of highly advanced GPUs.

Until recently, SMIC’s production capacity was entirely reserved for Huawei, which has faced its own set of U.S. sanctions since 2020. This year, SMIC agreed to allocate a limited amount of its production capacity to Chinese AI chip firms that have been directly sanctioned by Washington, including state-backed Cambricon.

Huawei, unable to access overseas chip manufacturing since 2020 due to U.S. sanctions, declined to comment. Washington justifies these sanctions by alleging Huawei poses a threat to U.S. national security, a claim the company denies. In response to U.S. sanctions, China has accused Washington of broadening the concept of national security to stifle Chinese companies.

  • Chinese firms are designing less powerful chips to comply with U.S. export controls.
  • U.S. restrictions have revealed China’s dependency on TSMC for advanced chip production.
  • MetaX and Enflame have downgraded their chip designs to maintain production access.
  • SMIC is the only Chinese foundry capable of producing advanced GPUs in large volumes.
  • China’s efforts towards self-sufficiency include significant government funding and subsidies.

The ongoing tech tensions between the U.S. and China have significantly impacted Chinese AI chip companies. With stringent export controls in place, these companies are forced to adapt by designing less powerful processors to comply with the restrictions and retain access to crucial production capabilities at TSMC. As China continues to invest heavily in achieving self-sufficiency in chip manufacturing, the sector’s future will likely depend on the evolving geopolitical landscape and the responses from both the U.S. and Chinese governments.

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Featured Image courtesy of DALL-E by ChatGPT

Yasmeeta Oon

Just a girl trying to break into the world of journalism, constantly on the hunt for the next big story to share.

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