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News Jun 21, 2020 04:50 pm EqualOcean

The Largest Weakness in China’s Chip Market -- Mask Aligner Manufacturing

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Jul 20, 2020 10:10 am ·

Cambricon Launches Star Market IPO – Why We Are Bearish on It

► Chinese AI accelerator developer Cambricon went public on July 20. ► In the oversaturated market, its IP business is barely promising. ► Other segments seem no better. ► It is walking a fine line amid the great tech decoupling. Artificial intelligence hardware maker Cambricon (688256:SH) has kicked off trading on the Shanghai Stock Exchange’s tech-heavy submarket – the Sci-Tech Innovation Board – marking several milestones in China’s economic development story at once: first, the Beijing-based unicorn represents the so-called new generation of local technology startups – in some ways, it is paving the path for AISpeech, Enflame, Horizon Robotics, ThinkForce and others; second, the company plays a critical role in the current national strategy of the ‘tech-savvy’ Chinese government, providing processing power for both cloud and edge applications, a fundamental part of various hyped concepts such as the ‘new infrastructure’; third, the chipmaker’s shares are now listed on the Star Market, Beijing’s brainchild that has been widely deemed the biggest achievement in the course of the country’s long-lasting financial sector reform. Given the fact that the company’s public debut is occurring in the most acute period of the Sino-American technology standoff, the importance of this move, from the macro perspective, is unquestionable. The picture looks bright from a bird's eye view. But the devil, as usual, is in the details. The firm’s IP business is rather dead Almost every publication – and EqualOcean is not an exception – covering this IPO has mentioned the two-year relationship between Cambricon and Huawei. As the integrated circuit designer’s prospectus shows, HiSilicon, Huawei’s semiconductor arm, used to be practically the only ‘commercial donor’ for the Beijing startup’s ambitious R&D endeavors – in 2017 and 2018 it accounted for over 97% of Cambricon’s total operating income. The parties previously signed four IP-related contracts, running through the end of 2019. At some point, per an industry source, the Shenzhen tech colossus proposed an ‘offer that one can’t refuse,’ asking the chipmaker for exclusivity. Yet Cambricon, for which it was way too early to choose sides in the unfolding global conflicts – surprisingly for some – could and did refuse. As a result, Huawei followed an Apple-esque all-in-house strategy, in a trice switching its identity from Cambricon’s key partner to its most serious competitor in the ample Chinese market. Losing such a valuable client has been extremely harmful, but this is just the tip of the iceberg. What causes more concern is that none of the existing Chinese consumer electronics vendors of a significant size need the company’s services at the moment: the segment is pretty much monopolized by the duo of Qualcomm (QCOM:NASDAQ) and MediaTek (2454:TW). Although the list of key strategic investors in this offering comprises smartphone leviathan OPPO, home appliances giant Midea Group and Lenovo (00992:HKEX), which took part in the company’s Series A in 2018, the industry has seen no signs of large-scale commercial cooperation between Cambricon and these players. OPPO, for one, is now reportedly developing its own system-on-a-chip (SoC) capabilities to power upcoming next generations of handsets. In a nutshell, the chipmaker’s IP business is at a high risk of becoming history. Other segments seem no better As we showed in the previous article, the company’s revenue soared by around 280% in 2019, hitting CNY 444 million. Nonetheless, CNY 271 million, or over 60% of the total volume, originated from one single project. In April 2019, the Chinese Academy of Sciences (CAS), which has incubated Cambricon and currently holds 18.24% of its shares, signed (link in Chinese) a three-phase contract with the administration commission of Zhuhai’s Hengqin island, a special economic district in the southern province of Guangdong. According to the agreement, the AI chip unicorn was supposed to provide core hardware for the area’s Internet data centers (IDCs). The first two phases were completed and paid up in 2019; the final part is due for 2022. On the one hand, the company’s deep academic roots helped it maintain buoyancy and allowed it keep growing fast even after it lost HiSilicon. But a new kid on the block intending to challenge the likes of NVIDIA (NVDA:NASDAQ) on a global scale can’t rely upon taxpayers’ money solely. In other words, the only way to boost Cambricon’s flexibility is through increasing its presence in the private sector – so far, this has been a problem. In these vulnerable times, most of China’s vast private tech corporations prefer self-reliance over outsourcing. Meanwhile, potential partnerships with state-owned enterprises (SOEs) may lead to extra hurdles in the foreign markets. So far, the company has proven its technological prowess but is yet to demonstrate its business acumen and marketing skills. Tech tussles are an issue While Cambricon has not been directly affected by the merciless American sanctions (most likely, because of the chipmaker’s relatively small scale), Huawei’s decision to stop cooperation with the firm is, in some ways, a result of the ongoing tech clash. Moreover, it’s not that only Huawei is taking the fall – the entire Chinese tech industry is on thin ice. Examples abound. Supercomputer manufacturer Sugon (603019:SH), a client of Cambricon primarily involved in the aforementioned Zhuhai IDC project, was banned from accessing the United States’ technologies by the Trump administration in June 2019. Cloud computing and big data service provider Inspur (600756:SH), a partner of Cambricon, has also become a victim of the geopolitical rift: in June 2020, the Pentagon included it on the list of commercial entities tied with China’s military forces, triggering a suspension of chip supply from Intel (INTC:NASDAQ), its essential provider.  There is another shoe to drop. Like any other fabless high-end chip designers, Cambricon needs TSMC (2330:TW) to manufacture its microdevices. For instance, the MLU-290, its latest 300W chip for data centers with a capability of 1024 TFLOPS, is built on the foundry’s 7 nm process node. As many know, the mainland’s flagship fabrication plant SMIC (00981:HKEX, 688981:SH) is lagging behind the Taiwanese counterpart technologically and is unable to turn Cambricon’s latest ideas into reality. And the coming, more sophisticated products will, indeed, require even higher precision. Talents, probably the most crucial component of success in semiconductors, are also limited in China. Chen Tianshi, the chipmaker’s low-profile founder, called this problem “one of the key challenges ahead” during the pre-IPO investor conference on July 7.  In the famous business triad – technology, capital and labor – Cambricon intends to mainly leverage the former two. Its technology, however, is not sought-after – like that of, say, British upstart Graphcore – and the CNY 2.58 billion raised in this offering is minuscule compared to how much the world’s finest chipmakers have invested in the field. Now, the company’s future is not just uncertain, but also partly driven by wayward Chinese investors.

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Jul 20, 2020 09:35 am ·

Shares of Chinese AI Chip Maker Cambricon Surge 300% on IPO Day in Shanghai

On July 20, Cambricon (688256:SH), which makes AI accelerators for data centers and edge devices, started trading its newly-listed stock on the Shanghai Stock Exchange’s Star Market, the bourse’s one-year-old technology board. In the first minutes of public transactions, the share price soared by 300%, reaching CNY 258 and driving the company’s total market capitalization to CNY 103 billion, or approximately USD 14.73 billion. Read more about why we are bearish overall about Cambricon’s stock. Headquartered in Beijing, Cambricon is among China’s largest hardware developers designing integrated circuits to enable machine intelligence.  Check out our overview of the chipmaker’s product mix. Founded in 2016, it was valued at USD 2.5 billion two years later.  There are piles of private capital behind the company’s growth: it was backed by state-affiliated entity SDIC Venture Capital, the country’s biggest investment organization, China International Capital Corporation (CICC), the venture capital arms of Lenovo (00992:HKEX) and electronics producer TCL (000100:SZ), as well as the Chinese Academy of Sciences, alma mater of Cambricon’s founder Chen Tianshi, to name a few. In March 2020, the chipmaker filed a prospectus with China’s market regulator, which approved the listing in June. The company then priced its public offering at CNY 64.39 apiece, planning to issue around 40 million shares, around one-tenth of the total.  Owning 33.19% of the firm, Mr. Chen has entered the club of Chinese billionaires thanks to this IPO.

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Jun 28, 2020 07:28 pm ·

Cambricon: Staggering Growth, IPO and Post-Huawei Uncertainty

► AI chips for terminal devices are not likely to be the focus of Cambricon in the near future. ► The company’s growth is likely to come from the sales of cloud and edge AI chips and intelligent computing cluster systems. ► The competition in these new fields is stiff, both countrywide and on a global scale – this will be a hard nut to crack for Cambricon. On June 23, Cambricon passed the Shanghai Stock Exchange Listing Committee’s review and is now expected to start trading on the Star Market in July. This article reveals the chipmaker’s product mix, its key problems and its role in China’s semiconductor renaissance. Founded in 2016, Cambricon is a company focusing on the research and development of AI chips for cloud, edge and terminal application scenarios.  Its revenue structure has so far been somewhat imbalanced. According to the prospectus, the biggest changes of its revenue structure came in 2017 and 2018 – over 98% of company revenues then came from the intelligent terminal processors’ IP business. While, in 2019, the intelligent computing cluster business became the main constituent of revenues, followed by cloud intelligent chips and accelerator business. Below, we describe each of Cambricon’s businesses. Terminal intelligent processor IP The terminal intelligent processor IP business (primarily, Cambricon 1A, 1H and 1M series) was the only significant source of the company's income in 2017 and 2018.  Cambricon’s former-largest client accounted for 98.34% and 97.63% of operating revenues in 2017 and 2018 respectively. Huawei signed four contracts with the company, three of which were completed in 2018; the last one was due at the end of 2019. Since that, the telecom equipment giant hasn’t placed any orders with Cambricon, as it started building IP for its System-on-a-Chip (SoC) series, Kirin, in-house in the second half of 2019.  That was the very reason for Cambricon’s revenues from its IP business decreasing from CNY 117 million in 2018 to CNY 69 million in 2019. The share of this segment in the firm’s revenue dropped from 99.69% to 15.49% over that period. The quest for self-sufficiency is an industry-wide trend. Not only Huawei but also Apple (AAPL:Nasdaq) is now designing chips by itself to better match requirements for product performance. Other Chinese companies (like vivo and OPPO, for example) have stable relationships with the likes of Qualcomm (QCOM:Nasdaq.) Unless the United States government starts to prohibit the supply, there is no reason for those vendors to replace the original partner with local entities. Most probably, the IP-related revenues of Cambricon will not increase in both absolute and relative terms in 2019. Cloud intelligent AI chips and intelligent computing clusters In addition to processors for the terminal, Cambricon also designs AI chips for the cloud, including MLU 100, 270 and 290. In the cloud, servers and data centers need to process a large amount of raw data, which has high requirements for computing power and data storage of basic hardware. The demand for data center services is growing fast. According to IDC data, the scale of China's smart server market in 2018 was USD 1.31 billion, with a year-on-year increase of 131%, and will reach USD 4.33 billion by 2023. The overall CAGR of the market will reach 27.08%. Considering that the budget of AI chips accounts for 30%-35% of the cost of AI servers, the future demand for AI chips in the Chinese server market is expected to exceed CNY 10 billion. Apart from cloud AI chips, Cambricon provides customized software and hardware solutions. For clients with AI computing construction capabilities, Cambricon integrates the cloud intelligent chip accelerator cards into the existing computing cluster.  The core of this business consists of three parts, including cloud intelligent chip accelerators (MLU 270, 100), the basic system software platform – Cambricon Neuware – and an intelligent computing cluster management system. Edge AI chips In November 2019, Cambricon launched MLU 220, an AI acceleration product dedicated to edge computing application scenarios. On the one hand, edge computing can effectively make up for the disadvantage of the insufficient computing power of terminal devices. On the other hand, it can alleviate potential problems such as data security, privacy protection, bandwidth and delay in cloud computing scenarios. The combination of edge computing and AI technology is widely deemed to be helpful in the development of smart manufacturing, retail, education, home IoT, energy management, transportation and other fields. At the edge side, with the rapid commercialization of 5G in China, various supporting industries in the 5G industry will usher in opportunities for rapid development, and application industries such as V2X, Industrial Internet and Internet of Things will gradually enter a new stage of development. According to CCID Consulting, China’s edge computing market will reach CNY 32.53 billion by 2022. Noticing the value of edge AI chips, major semiconductor companies have entered the area. For instance, Nvidia launched the Xavier NX in November 2019 and Huawei’s Ascend, the computing power of which is 8TOPS. As a new niche player in this field, Cambricon does not seem to have any competitive advantage. Cambricon as a part of China’s big semiconductor story Since the US launched stricter bans on Huawei, more attention has been paid to the domestic semiconductor industry. The Shanghai bourse’s new tech board is becoming a great channel for financing for those high-tech companies. For instance, the country’s top foundry SMIC submitted the application for the secondary listing on the Star Market on June 1, passed the registration review on June 22, and will launch trading in July.  With the support of the government, the semiconductor industry is likely to have new development opportunities. However, in contrast to SMIC, Cambricon is an AI chip designer, subject to ever-appearing challenges on both ends of the industry chain – upstream and downstream.  On the supply side, they need IP and EDA authorization from ARM, Synopsys and Cadence. On the customer side, the original largest customer started designing its own chips in-house. It’s hard for them to find a substitute as big as Huawei, or one as reliable and comparatively broad in its pool of terminal users. Turning to the cloud and the edge, AI chips can help Cambricon achieve new growth opportunities and, indeed, this contributed a lot to its increase in revenues in 2019. The problem is that with the development of IoT, Internet giants are also establishing companies to research and develop AI chips. For example, PingTouGe, Alibaba's wholly-owned chip arm, achieves cloud and terminal technological innovation through software and hardware convergence. In an industry with high R&D investment requirements, CNY 2.8 billion, which the firm aims to raise this time, can only support Cambricon in the short-term. How to survive in the increasingly competitive market, in the long run, depends on the strategy, product performance and many other aspects. We can say one thing with certainty: it’s not easy.

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Sep 23, 2020 02:56 pm ·

Xiaomi to Release Its First '8K + 5G' TV Series

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