Pictured is a chip factory in Suqian City, Jiangsu Province, Eastern China, April 1, 2022.
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BEIJING – China lags so far behind the US in semiconductor technology that some investors are betting on startups to fill that void.
The The US this month imposed new restrictions to maintain its lead over China in advanced chip technology. Analysts point out that while the rules immediately cut US and Chinese business revenue, they only affect companies selling the most advanced semiconductor technology.
Much of China’s demand, they said, is for chips with much simpler technology, and that Chinese companies are still small players for now.
That gap leaves a huge market opportunity far more isolated than US restrictions – and an opportunity that Chinese startups can exploit, some venture capitalists say. .
Vertex Ventures China is a company that raised money from foreign investors to buy the idea.
Tay Choon Chong, managing partner and head of Vertex Ventures China, says the company has raised nearly $500 million for a new China tech fund that will close early next year — more than planned. Before that it was 400 million USD.
“In China right now, what’s the disruption?” he say. “The biggest disruption is that the West won’t supply China with technology. We see this as our best opportunity.”
Tay said that Chinese chip businesses can see double-digit annual growth because the market is worth tens of billions of dollars, noting that China imports about $400 billion worth of chips a year.
He said specific areas of opportunity include chips that magnify phone signals or control screens in cars.
Another company that is pouring international money into China’s chip industry, WestSummit Capital Management, said its strategy had not changed when the new US rules were enacted.
That’s because WestSummit only invests in chips made with mature technologies – intended for the mass, consumer market, said Bo Du, the company’s chief executive officer.
Adult chips use older technology and are often less sophisticated than the most advanced chips, which are used in today’s consumer products mainly in high-end smartphones. level and personal computers.
He said 79% of the global chip market is in the mature technology category – a percentage that rises to 94% if just looking at automotive chips. Du served as a senior engineer at US chipmaker AMD, among previous positions in the industry.
He claims to be backed by WestSummit GigaDevice Semiconductor is one of the Chinese companies well positioned to capture the growing market.
Shares are down about 50% for 2022 but are up more than 2% so far this week despite a broad-based market decline.
According to a Natixis report, China accounts for about 40% of global chip demand each year.
However, Chinese companies account for only 5.2 percent of the global market – mostly at the lower end of the industry, the report said.
“The [new U.S.] Alex Liang, partner at the law firm Broad and Bright in Beijing, said:
“However, chipmaking is a mature technology that has been in development for many years. It’s hard to separate American and non-American technology after all these years of intertwined developments.”
The US has taken many steps this year to limit China’s technological capabilities.
The The Biden administration has seen China as a strategic competitorafter the Trump administration blacklisted specific companies such as China’s largest chip maker, Semiconductor Manufacturing International Co.
Patrick Chen, CLSA’s head of research in Taiwan, said that in order to “develop things from scratch, I’d say the latest move has probably pushed China back more than five years”.
Some products, such as cars, may have to sacrifice some artificial intelligence features that aren’t necessary at the moment, he said, although manufacturers can keep basic sensors or micro-controllers because they don’t use the most advanced chips.
Despite the large market opportunity, early-stage investments in Chinese chip startups still face risks from potential lawsuits and the complexity of the technology itself, Vertex’s Tay said. . He said a company needs to make sure it has the expertise and the money to get its product to market at the right time.
Others are more skeptical.
The complex and extensive chip supply chain has become a hot investment – and speculative – area in China since Beijing began emphasizing technological self-reliance.
Hongye Wang, China-based partner at venture capital firm Antler, said that during last year’s bubble market, it was difficult to determine which startups could succeed. He describes the ratio as about 10 in 1,000 – about 1%.
Wang said that like most VCs in China this year, he hasn’t made any investments this year, in part because Covid restrictions limit face-to-face meetings with entrepreneurs. core.
“I believe the market for high-tech startups will be even better than the year before Covid-19, because this market is holding so much money for those tech startups,” he said. he said.
For many Chinese companies struggling to survive today, the consequences of US actions are still being worked out. The new US regulations target everything from American employees of Chinese chipmakers to foreign companies selling to China.
Chen Deng, a partner at Hylands Law Firm, said a sub-sector that is getting more attention is the so-called famous Chinese chip companies that rely on outsourcing manufacturing to operate. These businesses must now look beyond a simple revenue exposure model to assess compliance risk, she said.