September 20, 2020: Unreliable Entity List, RISC-V, TSMC, Tesla in China

This issue covers the period between September 14 - September 20, 2020 with six news stories – three from English language sources, three from Chinese language sources. Disclaimer: all translated article titles are done by me, not official translations from the media outlets.

Before you go on, please check out last week's deep dive post: "Era of Regulatory Grift: TikTok-Oracle, NXP-Qualcomm, Arm-Nvidia"

“China’s first entity list may target foreign entities blocking Chinese firms' supplies: experts” (English Source: Global Times)

My Thoughts: This “Unreliable Entity List” emerging out of the Ministry of Commerce is perhaps the most important policy item to watch for the rest of 2020. Unlike the retaliatory tariffs during the US-China trade war -- an old well-established tool -- using an entity list to target specific companies or technologies is new for China. How it will be used to retaliate against U.S. sanctions of Chinese companies to appease a domestic audience, without inadvertently hurting the domestic economy will be the key. The companies in the “rumor mill” of this Unreliable Entity List are: Qualcomm, Cisco, Apple, FedEx, and HSBC.

“SiFive to Debut RISC-V PC for Developers based on Freedom U740 next-gen SoC” (English Source: Embedded Systems News)

My Thoughts: Long-time readers of Interconnected know how strongly I feel about open source technologies, so much so that it’s one of the most popular tags of this newsletter. While open source is most commonly associated with software, it is increasingly disrupting hardware. RISC-V is an open source instruction set to design semiconductor chips -- a topic I’ve written about in-depth in “RISC-V, China, Nightingales”. And one of the fastest growing startups in the RISC-V ecosystem is SiFive, whose core business is generating RISC-V-based chip design IPs to license out. With this upcoming RISC-V PC product, SiFive is “moving up the stack” to generate more developer buy-in and participation -- a critical element for any technology to gain widespread adoption. Intel and Arm’s proprietary instruction sets became dominant because they each successfully incentivized developers to build useful applications on top of their technologies in PC/servers and mobile, respectively. RISC-V will have to do the same to be a serious open source alternative to the proprietary incumbents.

“TSMC’s Estimated Wafer Prices Revealed: 300mm Wafer at 5nm Is Nearly $17,000” (English Source: Tom’s Hardware)

My Thoughts: this blog post contains some fascinating, granular technical information on the cost and corporate accounting associated with each stage of making a semiconductor chip. To be clear, the topline cost of $17,000 per 300mm wafer at 5nm density is an educated guess, not officially confirmed by TSMC. And while the number looks expensive, the post revealed that the cost per chip for 5nm is $238 versus $233 for 7nm and $331 for 16/12 nm. (In this comparison, the bigger the “nm” number, the larger and less advanced the chip, and usually the more power it consumes while delivering similar or less performance.) Combining this comparison with TSMC’s recent announcement that its 5nm chip runs 15% faster while using 30% less power than 7nm chip -- a ratio that’s bound to improve over time, it's 5nm wafer price seems no longer that expensive.

“Build like crazy and divvy-up Lingang: Tesla’s China friends and their ‘self-cultivation’” (Chinese Source: 36Kr)

My thoughts: As I’ve written previously in “Tesla, China, the ‘Tech Cold-War’”, Tesla’s growing presence in China will have far reaching implications in US-China relations and the future center of gravity of several important technology trends -- self-driving, electric vehicles, and advanced manufacturing. This 36Kr article documents the rapid progress that Tesla’s Shanghai Gigafactory is making and the influence it already has on many layers of domestic suppliers. Stage 2 of the factory’s construction was reportedly completed in seven months, which is about half the time spent on similar projects. Meanwhile, current and aspiring suppliers to Tesla China are fighting fiercely for land to build their facilities as close to the Gigafactory as possible, located in Lingang in the outskirts of Shanghai. Elon Musk has publicly talked about Tesla’s competitive advantage being its advanced manufacturing capabilities, and gushed about China’s ability to deliver on that front in the most recent 2020 World Artificial Intelligence Conference in Shanghai. The symbiotic relationship between American tech leaders and China’s ability to meet their demands have done wonders to accelerate the Chinese economy’s climb up the value chain. Microsoft Research seeded the birth of cloud computing (the founder of Alibaba Cloud, Wang Jian, was a former Microsoft researcher). Apple’s iPhone fueled a massive ecosystem of efficient, high-quality consumer electronic manufacturers. Will Tesla be that next jolt to catapult China to the next level? How will domestic EV makers like XPeng, Nio, and Li Auto benefit from this massive tailwind?

“Bill Gates: if American can’t sell chips to China, America will lose high-paying jobs” (Chinese Source: AI Frontier)

My thoughts: The recent rumor that SMIC, China’s national champion of semiconductor manufacturing, could be the next victim on the U.S. Entity List was a stark reminder of the vulnerability of China's semiconductor sector. However, this article tries to drive a counter narrative that further sanctioning by the U.S. could hurt American semiconductor companies badly. The narrative is underpinned mostly by a Semiconductor Industry Association report stating that 73% of US-made semiconductor products are replaceable and a Bill Gates interview with Bloomberg that sanctions will cause America to lose high-paying jobs in the sector. I think China will still feel the bulk of the pain, by far, while American companies endure a few leaner years. According to a BCG report, American semiconductor companies could lose 8% of global market share and 16% of revenue in the next three to five years, if the current sanction posture is maintained. Sanctions tend to be a race to the bottom; this US-China Tech Cold War is no exception.

“Is it our turn to step on America’s neck? China should veto Nvidia acquisition of Arm” (Chinese Source: Independent Blogger)

My thoughts: This is a post written by an independent blogger, whose blog is overtly patriotic. I normally don’t cite bloggers with a clear ideological bent, but this one was reposted by Tencent’s daily technology news portal, which garners a huge amount of traffic. The fact that this post was republished by Tencent signals a tacit form of endorsement, and reflects the mainstream public sentiment of how aggressively China should fight back, especially with the pending Arm-Nvidia deal implicating so many strategic technologies like semiconductor IP. If such a veto happens, it is but the latest example of a series of regulatory grift that I discussed in-depth in my post last week: “Era of Regulatory Grift: TikTok-Oracle, NXP-Qualcomm, Arm-Nvidia”.

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