March 14, 2021: State of the Cloud; More Semiconductor Investment; Open Source in China

Hello Interconnected Readers:

This Interconnected Weekly issue covers more news on China’s semiconductor industry as it continues to balloon. I also shared some thoughts on Bessemer Ventures’ 2021 State of the Cloud report, the Apache Software Foundation, and yet another Chinese tech company IPO on Wall Street.

[If you’d like to skip ahead to the six news stories and commentaries from last week – three from English language sources, three from Chinese language sources -- here are this issue’s items:

• “Chinese companies are making their own semiconductors” (English Source: Protocol)
• “State of the Cloud 2021” (English Source: Bessemer Ventures)
• “Why I Didn't Open-Source My Second SaaS" (English Source: PanelBear)
• “Hundreds of millions worth of term sheets without due diligence; Investors say: using the Internet startup way to invest in chips does not work” (Chinese Source: China-Venture)
• “Energy Monster submits US IPO prospectus; Alibaba, Hillhouse Capital help push first shared-charging product’s first listing” (Chinese Source: iponews)
• “Wu Sheng Elected to Apache Software Foundation Board of Directors for 2021” (Chinese Source: Open Source Community News)]

Kevin

Before you read on, please check out last week's deep dive post: "Semiconductor Design Consolidation: MIPS -> RISC-V"

“Chinese companies are making their own semiconductors” (English Source: Protocol)

My Thoughts: Continuing with a recent semiconductor-focused theme on Interconnected (three of my last posts were focused on semiconductors in China), this article from Protocol is worth reading. Two things stood out to me. First is how the semiconductor investment boom is giving old, unsexy companies an opportunity to reinvent themselves (or at least a new excuse to attract fresh capital). Appliance makers like Gree and Midea are starting their own chip subsidiaries and raising money with them. Second is the continued importance of local governments’ role. I emphasized this point in “China's ‘Semiconductor Theranos’: HSMC”, where the Wuhan East-West Lake District Government played an outsized role in HSMC’s rise and fall. Zhuhai, a southern city and part of the so-called Greater Bay Area, is now poised to become a semiconductor hub worth more than $15 billion dollars by 2025.

“State of the Cloud 2021” (English Source: Bessemer Ventures)

My Thoughts: Bessemer Ventures’ annual State of the Cloud report and presentation is always worth reading (or watching). This year’s report is especially so given how much the cloud industry has grown last year -- one of the biggest beneficiaries of the global pandemic. The cloud industry, as Bessemer defines it, is now worth $2.2 trillion dollars. Bessemer sees a changing of the guard stock market growth leaders, from the FAANG (Facebook, Amazon, Apple, Netflix and Alphabet) stocks to cloud stocks. Thus, they coined a new acronym: MT SAAS (Microsoft, Twilio, Shopify, Amazon, Adobe, Salesforce). The acronym doesn’t quite have the ring of FAANG, so might not stick, but the growth of cloud will no doubt continue. (For more of my commentary on cloud, please go to the Cloud Industry tag -- one of the most popular one on this newsletter.)

“Why I Didn't Open-Source My Second SaaS” (English Source: PanelBear)

My Thoughts: This is a personal blog post from an entrepreneur that was trending on HackerNews, not a media report. I want to share it because the author described some hard-learned lessons from building his previous open source project to be a SaaS product as a solo-preneur, detailing why it failed. As much as I love open source, as both a way to create new technologies and as the basis for creating new companies, it has many drawbacks. One important point Clint Smith made during the second Company Building webinar I hosted last week was you must know why you open source before committing to it -- not a list of reasons, but one core reason (We will publish the transcript and audio of this session soon).

“Hundreds of millions worth of term sheets without due diligence; Investors say: using the Internet startup way to invest in chips does not work” (Chinese Source: China-Venture)

My thoughts: Despite high-profile failures like HSMC (and possibly others that have yet to be exposed), investment from VCs continues to pile into new semiconductor startups in China, often without due diligence. Many of these funds made their first pot of gold from investing in China’s consumer tech market and appear to approach their semiconductor investments with the same set of expectations. Of course, that won’t work. Tackling any part of the semiconductor supply chain or production process takes about a decade to mature. That being said, China’s domestic stock market is being “flexible” in allowing strategic industries to IPO and raise money from the public market without much maturity. There are already 22 semiconductor companies listed on the Shanghai STAR market. Thus, for these investors, they can “exit” long before the companies produce any quality semiconductor products at scale -- and that’s just fine for these VCs.

“Energy Monster submits US IPO prospectus; Alibaba, Hillhouse Capital help push first shared-charging product’s first listing” (Chinese Source: iponews)

My thoughts: Energy Monster, a mobile charger maker, is the latest in a continuous stream of Chinese tech companies going public in the US. Any systemic risk posed from the delisting of three Chinese telcos back in January (see more in “Lame Duck Delisting”) has yet to produce much deterrence. Like I discussed in “Wall Street Blunts the ‘Delisting’ Hype” last year, taking companies public is a profitable business stream for Wall Street, Chinese companies are a big source of that business, and the bankers will do what they need to do to keep that business flowing.

“Wu Sheng Elected to Apache Software Foundation Board of Directors for 2021” (Chinese Source: Open Source Community News)

My thoughts: Wu Sheng, the creator of the open source project Apache Skywalking, has been elected the first Chinese national to serve as a member of the Apache Software Foundation (ASF) board. As you can see in this ASF slide below, Apache-affiliated projects that originated from China are growing. The same can be said for China’s overall contribution to open source globally. Having a seasoned open source creator like Wu Sheng be represented in ASF governance is long overdue.

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