When "Jurassic Park" Goes to China

I spent last week in the French Polynesian islands for a quick vacation.  One of my favorite moments there was approaching the magnificent landscape of Moorea on a ferry, because it reminded me of one of my favorite movies growing up -- Jurassic Park.

My mind wanders in weird ways, especially when I’m off the grid. In this case, thinking about dinosaurs led my neurons to the semiconductor design technology that was used to render Jurassic Park, MIPS (Microprocessor without Interlocked Pipelined Stages), and an overlooked article that exposed MIPS as the latest American technology that has now become a key ingredient in China's pursuit of technological self-reliance.

How did MIPS end up in China

A little more than a month ago, Reuters published a detailed account of how MIPS got licensed to the Chinese company, CIP United, through a series of acquisitions, spin-offs, investments, and a bankruptcy. But the story did not get nearly as much attention as it deserved, publishing at a time when Huawei just got slapped with another round of sanctions, and the "fear and loathing" of TikTok and WeChat was approaching a new height -- both much shinier objects.

The entire story is worth reading to appreciate the complexity of the wheeling, dealing, and off-shoring that were necessary to on-shore a piece of important American technology to China. As for the tl;dr to grasp the transaction's current business and geopolitical significance, these are what I believe to be the most salient details:

• CIP now controls the licensing rights of MIPS in China, Hong Kong, and Macau, a deal worth $60 million USD; one of its current customers is Huawei.
• CIP has the right to develop derivative technologies based on MIPS. (This is not unusual for a proper license holder; companies like Broadcom and NEC have licensed MIPS to do the same.)
• A 2019 CIP investor presentation explicitly stated its intent on using MIPS to help China fulfill its "Made in China 2025" plan.
• CFIUS did not review this transaction, because it typically reviews direct investments, acquisitions, or joint-ventures, not licensing agreements.
• Wave Computing, the company that currently owns the MIPS technology, filed for bankruptcy in April 2020, but its licensing agreement with CIP remains in effect.

The MIPS Journey

This technology transfer is significant, because the MIPS architecture is not an obscure research project or unproven tech from a young startup. It was once prominent in the semiconductor industry -- first developed by Stanford professor (later president) John Hennessey and his computer science students back in 1981. Its creation led to the founding of MIPS Computer Systems, which IPO’ed in 1989, then was acquired by Silicon Graphics and rebranded to MIPS Technologies, which was spun out and IPO’ed again in 1998, before declining as a company. During its prime, MIPS was considered a legitimate contender in the semiconductor design space among Intel and Arm. Besides rendering Jurassic Park movies, it was widely used to power gaming consoles like Nintento 64 and PlayStation 2, as well as many PCs and workstations during the 90s.

Eventually, its chip-related patents were sold to the UK company, Imagination Technologies, which a Chinese government-funded private equity firm called Canyon Bridge tried to acquire in September 2017. However, the MIPS portion of Imagination was forced to be spun out again, because not doing so would have triggered a CFIUS review -- a death knell particularly for Canyon Bridge, who was already on the CFIUS naughty list for its attempt to buy Lattice Semiconductor. As his first CFIUS review as president, Trump blocked the Lattice acquisition in that same September.

The wayward MIPS journeyed through a VC firm, a research lab, and eventually to Wave Computing, all of which are affiliated with the famed Filipino entrepreneur, Dado Banatao. The now-bankrupt Wave also counts the same Canyon Bridge plus Alibaba as minority investors (“minority” as in less than 10% ownership).

The Reuters team put together this graphic that condensed many of the important events into a helpful timeline:

Although MIPS’s business traction is waning, it is still central to many university computer science programs when teaching the fundamentals of how a computer works. It was sadly not part of one of Stanford's foundational courses, CS107, that I took as a graduate student there, so I never had a chance to play with it.

MIPS’s Technology and China Implication

As a semiconductor design technology, MIPS falls in the RISC category, as opposed to CISC; it was in fact one of the first RISC-based chip architectures that gained wide usage.

The “R” in RISC stands for “reduced”, while the “C” in CISC stands for “complex”. I wrote a short technical explainer of RISC vs. CISC in a previous post “RISC-V, China, Nightingales”, so I won’t repeat those points here. There are many more detailed descriptions of these two instruction set architectures (ISAs) around the Internet, if you want to get into the weeds of it all. I won’t summarize them here, since it’s not that relevant to our discussion of MIPS and China.

One technical characteristic of MIPS that is relevant and worth noting is its design decision to move the software layer towards the hardware layer, as opposed to the reverse direction, which was the mainstream design philosophy at that time. This choice was at least in part due to the Hennessey-led research team’s strength in compilers, which is the layer of software that translates source code (i.e. your if-then statements) into machine code that a microprocessor can...well...process!

This is significant because making a MIPS-based chip perform well could mean needing more software than hardware expertise. This dynamic is likely true for all RISC-based chip architectures, because RISC is by definition a more “reduced” or simple set of instructions. Overall, there is more software than hardware talent and that trend will continue if only because software engineers are much better compensated than hardware ones at large. One place that is producing software engineers more quickly than anywhere else is China. The number of open source developers on GitHub, the dominant open source software collaboration platform, is a decent proxy for the total number of developers. China (minus Hong Kong) is now a close second to the U.S., while third place India still lags behind by a large margin. If you include Hong Kong, one of the fastest growing regions on GitHub, with China, the total number may in fact exceed that of the U.S.

Of course, not everything that happens on GitHub is strictly about software. The open source ISA, RISC-V, maintains an active set of code repositories. This software-over-hardware dynamic also does not mean China can catch up to the U.S. overnight simply with access to MIPS. But this design decision, made almost 40 years ago, may tip the scale for China in the long-run.

CFIUS Fail

While there are many more intrigues to the MIPS technology that we can dig into, its journey to China illuminates a larger issue: CFIUS is failing as a regulatory body. This Committee is ill-equipped and ill-designed to strike the balance between protecting national security, while maintaining a business environment that’s still open to foreign investments and not thwart economic competitiveness.

First created in the 1970s under President Gerald Ford, CFIUS hardly met at all during its first four decades of existence, thus has barely accumulated any institutional knowledge or domain expertise. Trump’s blocking of Canyon Bridge’s acquisition of Lattice was only the fourth time such an intervention has happened in CFIUS’s history up to that point. I’m not suggesting that more intervention is better, but the entire process still feels ad-hoc and politically-motivated, and thus lacks procedural justice and Due Process, which became more evident during the whole TikTok ordeal.

With the passing of the Foreign Investment Risk Review Modernization Act (FIRRMA) in August 2018, some CFIUS reform is under way. For one, the Treasury Department bureau in charge of leading CFIUS, the Office of Investment Security, has been bumped up to the Assistant Secretary level from the Deputy Assistant Secretary level, though the Assistant Secretary position was not filled until September 2019. For readers who aren’t familiar with the organizational structure of a Federal agency, if the Treasury Department was a company and the Treasury Secretary was its CEO, an Assistant Secretary is more like a VP and a Deputy Assistant Secretary is more like a Director. Effectively, the post-FIRRMA CFIUS moved up from middle management to upper-middle management -- more important but still not that important. FIRRMA also trains the CFIUS fire more squarely on China, without mentioning the country by name, and authorized the possibility of a “CFIUS fund”, so the Committee may, one day, have more money to hire more people and build more capacity to properly review more transactions, like the licensing agreement of MIPS to CIP.

These reforms always take a long time to materialize, and the Trump administration has been uniquely bad at attracting and retaining capable people to work in government. As CFIUS figures itself out, slowly and hopefully surely, technology transfer from America to elsewhere is only getting more complex -- the MIPS licensing not only meandered through a myriad of acquisitions and divestments, but also various entities in the Cayman Islands and Samoa.

At the time of this writing, there are six job openings on usajobs.gov when you search for CFIUS. It’s going to take more than that to build a regulatory body serious and capable enough to do its job.

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