Some Chinese AI chip companies are now designing less competent processors to maintain access to Taiwan Semiconductor Manufacturing Co (TSMC) production in the face of U.S. sanctions, four people with knowledge of the matter said.
In an effort to hamper the Chinese military’s breakthroughs in artificial intelligence and supercomputing, Washington has imposed a series of export controls on highly sophisticated processors from companies such as Nvidia and chip-making equipment. These restrictions also prevent TSMC – which uses U.S. chipmaking tools – and other foreign chipmakers from accepting orders to produce them.
The latest U.S. export controls imposed last October have revealed how narrow China’s advanced chip production capacity is and how dependent Chinese AI chip design companies are on TSMC, the world’s leading contract chipmaker, sources said.
Four sources, one of whom has direct knowledge of the matter, declined to be identified due to the sensitive nature of chip issues in China.
(For the top tech news of the day, sign up for our Today’s Cache tech newsletter)
Two of China’s top AI chip companies, MetaX and Enflame, presented a downgraded version of their chips to TSMC in overdue 2023 to comply with U.S. restrictions, according to two people.
Companies have previously touted their chips as comparable to Nvidia’s graphics processing units (GPUs).
Shanghai-based MetaX has developed a downgraded version of the product called the C280, both people said, adding that supplies of its most advanced C500 GPU ran out earlier this year in China.
MetaX, founded in 2020 by former Advanced Micro Devices executives, did not respond to a Reuters request for comment.
Enflame, also based in Shanghai and founded in 2018, also did not respond to a request for comment. It counts among its supporters the technology giant Tencent, which raised $2.7 billion last year.
TSMC declined to comment on individual customers, saying only that it works with customers to ensure it complies with the jurisdictions appropriate to its operations.
Both MetaX and Enflame are so-called “miniature giants” – teenage companies selected by the Chinese authorities due to their potential in key sectors, which makes them eligible for state support.
Last month, MetaX secured government funding for a project to develop a domestically produced high-level AI training chip and has multiple R&D projects and factories across China. Enflame sells its chips to state-owned enterprises and has cooperated with several local governments on projects.
In addition to tech giant Huawei, there are about 50 AI chip startups in China that want to compete with Nvidia, the U.S. company’s CEO Jensen Huang estimated in December.
However, some of these companies have had U.S. export restrictions placed directly on them and are no longer able to look overseas for foundries, putting them in even greater production trouble.
Production problems for Chinese AI chip startups are likely to further benefit Huawei, which is targeting Nvidia in China after the US company had to develop weaker chips specifically for the Chinese market due to export restrictions.
Since technology tensions with the United States escalated in 2018, China has stepped up efforts to become self-sufficient in chips, pumping huge sums into the sector.
Last month, the government announced the third edition of the China Integrated Circuit Investment Fund, which will provide $48 billion in financing for the industry, bringing the total amount provided by the fund since 2014 to more than $100 billion.
The sector also benefited from separate local government funds and a number of subsidies, including tax breaks and low-interest loans.
While China has an estimated 44 foundries, only Semiconductor Manufacturing International Corp (SMIC) has the capacity to produce vast quantities of highly advanced GPUs, two sources said. They also claim that until recently, SMIC’s production capacity at this level was entirely reserved for Huawei.
SMIC did not respond to a request for comment.
Huawei, which was cut off from access to foreign chip production in 2020 as a result of US sanctions, declined to comment. Washington says the company poses a threat to U.S. national security, which the company denies.
Three of the four sources said SMIC agreed this year to allocate a narrow portion of its production capacity to Chinese AI chipmakers, which Washington has imposed direct sanctions on and blocked overseas production.
One such company was state-backed Cambricon, which sources said has been struggling since U.S. restrictions were placed on it in overdue 2022 over concerns that it may be supplying AI chip technology to the Chinese military.
Cambricon, which said on a call with analysts last year that it was struggling with product supply pressures, did not respond to a request for comment.
In response to American sanctions, China accused Washington of generalizing the concept of national security and using state power to expand repression against Chinese companies.
