In its FY2Q24 earnings report for 2023, NVIDIA disclosed that the U.S. government had imposed controls on its AI chips destined for the Middle East. However, on August 31, 2023, the U.S. Department of Commerce stated that they had “not prohibited the sale of chips to the Middle East” and declined to comment on whether new requirements had been imposed on specific U.S. companies. Both NVIDIA and AMD have not responded to this issue.

TrendForce’s analysis:

• Close ties between Middle Eastern countries and China raise U.S. concerns:

In NVIDIA’s FY2Q24 earnings report, it mentioned, “During the second quarter of fiscal year 2024, the USG informed us of an additional licensing requirement for a subset of A100 and H100 products destined to certain customers and other regions, including some countries in the Middle East.” It is speculated that the U.S. is trying to prevent high-speed AI chips from flowing into the Chinese market via the Middle East. This has led to controls on the export of AI chips to the Middle East.

Since August 2022, the U.S. has imposed controls on NVIDIA A100, H100, AMD MI100, MI200, and other AI-related GPUs, restricting the export of AI chips with bidirectional transfer rates exceeding 600GB/s to China. Saudi Arabia had already signed a strategic partnership with China in 2022 for cooperation in the digital economy sector, including AI, advanced computing, and quantum computing technologies. Additionally, the United Arab Emirates has expressed interest in AI cooperation with China. There have been recent reports of Saudi Arabia heavily acquiring NVIDIA’s AI chips, which has raised concerns in the U.S.

• Huawei is expected to release AI chips comparable to NVIDIA A100 in the second half of 2024; competition is yet to be observed:

Affected by U.S. sanctions, Chinese companies are vigorously developing AI chips. iFlytek is planning to launch a new general-purpose LLM (Large Language Model) in October 2023, and the AI chip Ascend 910B, co-developed with Huawei, is expected to hit the market in the second half of 2024, with performance claimed to rival that of NVIDIA A100. In fact, Huawei had already introduced the Ascend 910, which matched the performance of NVIDIA’s V100, in 2019. Considering Huawei’s Kirin 9000s, featured in the flagship smartphone Mate 60 Pro released in August 2023, it is highly likely that Huawei can produce products with performance comparable to A100.

However, it’s important to note that the A100 was already announced by NVIDIA in 2020. This means that even if Huawei successfully launches a new AI chip, it will already be four years behind NVIDIA. Given the expected 7nm process for Huawei’s Ascend 910B and NVIDIA’s plan to release the 3nm process-based Blackwell architecture GPU B100 in the second half of 2024, Huawei will also lag behind by two generations in chip fabrication technology. With the parameters of LLM doubling annually, the competitiveness of Huawei’s new AI chip remains to be observed.

• China remains NVIDIA’s dominion in the short term:

Despite the active development of AI chips by Chinese IC design house, NVIDIA’s AI chips remain the preferred choice for training LLM models among Chinese cloud companies. Looking at the revenue performance of the leading Chinese AI chip company, Cambricon, its revenue for the first half of 2023 was only CNY 114 million, a YoY decrease of 34%. While being added to the U.S. Entity List was a major reason for the revenue decline, NVIDIA’s dominance in the vast Chinese AI market is also a contributing factor. It is estimated that NVIDIA’s market share in the Chinese GPU market for AI training exceeded 95% in the first half of 2023. In fact, in the second quarter of 2023, the China market accounted for 20-25% of NVIDIA’s Data Center segment revenue.

The main reason for this is that the Chinese AI ecosystem is still quite fragmented and challenging to compete with NVIDIA’s CUDA ecosystem. Therefore, Chinese companies are actively engaged in software development. However, building a sufficiently attractive ecosystem to lure Chinese CSPs in the short term remains quite challenging. Consequently, it is expected that NVIDIA will continue to dominate the Chinese market for the next 2-3 years.

(Photo credit: NVIDIA)

According to Taiwan’s Economic Daily, TSMC Chairman Mark Liu stated on 9/6 that semiconductor technology development “has reached the exit of the tunnel, and there are more possibilities beyond the tunnel; we are no longer bound by the tunnel.”

Regarding TSMC’s progress in establishing a factory in the United States, Liu mentioned that this project has received support from the local government and has made significant progress in recent months. He added, “We will certainly make it very successful.”

As for the recent shortage of chips caused by generative AI, Liu noted that it is not due to TSMC’s manufacturing capacity but rather the sudden threefold increase in CoWoS (Chip-on-Wafer-on-Substrate) demand. TSMC will continue to support the demand in the short term but cannot immediately ramp up production. Liu estimated that TSMC’s capacity will catch up with customer demand in about a year and a half, considering the capacity bottleneck as a short-term phenomenon.

Regarding SoftBank Group’s subsidiary, Arm, planning an initial public offering (IPO) to raise funds, Liu also revealed that they are evaluating whether to become an investor in Arm, with a decision expected in the next one or two weeks. He emphasized Arm’s importance within the semiconductor ecosystem, expressing TSMC’s desire for a successful Arm IPO.

Huawei’s official website unexpectedly unveiled its latest flagship smartphone, the Mate 60 Pro, on August 29, 2023, followed by the release of the Mate 60 the next day. The Mate 60 Pro’s performance, powered by the Kirin 9000S SoC, has garnered significant attention in the market.

TrendForce’s Insights:

• Kirin 9000S Offers Comparable Computing Power to 2021 Flagships, But Energy Efficiency May Lag

According to benchmark test results from the Geekbench Browser, a product known as Huawei LNA-AL00, believed to be housing the Kirin 9000S, first appeared in test data on March 30, 2023, and has been continually updated since. The test results for Huawei LNA-AL00 during this period fall into two ranges. One range is roughly equivalent to the Qualcomm Snapdragon 8+ Gen 1, while the other is on par with the Qualcomm Snapdragon 888. This suggests potential variations in Kirin 9000S versions.

Further analysis of the Kirin 9000S reveals that its CPU architecture maintains the 1+3+4 configuration of the Kirin 9000 but operates at slightly lower clock speeds, with a difference of approximately 10-20%. The GPU is Huawei’s in-house Maleoon 910. However, in comparison to the Kirin 9000, which employs TSMC’s 5nm process, the Kirin 9000S has a larger chip size, roughly 30% larger. Additionally, the presence of a large Vapor Chamber beneath the Mate 60 Pro’s screen indicates that the Kirin 9000S may have higher energy consumption, reflecting the use of a less advanced process than TSMC’s 7nm. Overall, Kirin 9000S is expected to offer computing performance similar to mainstream flagships from 2021-2022, but its energy efficiency might align with levels seen in 2019-2020.

• Maintaining Performance Gap with Other Flagship SoCs Will Be a Key Challenge for Huawei and SMIC

Based on available information, Kirin 9000S is likely produced by SMIC. Currently, SMIC’s advanced process nodes include 14nm, N+1, and N+2. Since SMIC has indicated that the N+1 process is not equivalent to 7nm, it is speculated to fall between 10-8nm. To produce Kirin 9000S, it would need to utilize an N+2 process closer to 7nm, which is currently the most suitable process node for domestic wafer foundries in China.

Kirin 9000S undoubtedly represents the pinnacle of China’s domestic IC design and manufacturing capabilities. In terms of computing performance, it lags only 2-3 years behind Qualcomm and MediaTek’s upcoming flagship SoCs set to be launched in the second half of 2023. However, without access to EUV equipment, SMIC faces significant challenges in developing processes below 7nm, and even achieving mass production at 5nm is not a short-term goal.

As Qualcomm and MediaTek advance their products to 4nm and below, the Kirin series will likely remain constrained by SMIC’s process technology, making it difficult to significantly increase clock speeds and reduce power consumption. This situation will lead to a gradual widening of the performance gap between the Kirin series and Snapdragon 8 Gen series, and the Dimensity series. As they grapple with the responsibility of technological advancement, maintaining a competitive performance gap for the Kirin series against other flagship SoCs will be a primary challenge for Huawei and SMIC moving forward.

(Photo credit: Huawei)

DRAM Spot Market
Compared with last week, transaction prices in the spot market have generally stopped falling, but there is no sustained upward momentum. Although suppliers and other spot sellers have been firm on prices and are unwilling to make further concessions, the overall transaction volume has continued to shrink because there has been no turnaround in the demand for end products. Further observations are needed to determine the trajectory of spot prices in the future. Nevertheless, TrendForce believes that suppliers will need to further expand the scale of their production cuts in 4Q23 in order to effectively reduce their existing inventories. The average spot price of mainstream chips (i.e., DDR4 1Gx8 2666MT/s) dropped by 0.07% from US$1.451 last week to US$1.450 this week.

NAND Flash Spot Market
Concluded prices have largely leveled to that of last week without dynamics for ongoing increment. Buyers, despite active stocking behaviors seen recently, are no longer following up on prices aggressively under the yet-to-be-improved level of actual end demand. Subsequent spot price trends will require further observation, though TrendForce believes that NAND Flash suppliers would be forced to expand production cuts during 4Q23 so as to further abate their existing inventory. 512Gb TLC wafer spots have risen by 0.63% this week, arriving at US$1.588.

According to a report by Taiwan’s Central News Agency, Tien Wu, CEO of the semiconductor packaging and testing giant ASE Group, believes that the semiconductor industry is experiencing ongoing inventory adjustments, with uncertainties remaining in the global economy. However, he maintains a positive long-term outlook, asserting that semiconductor demand remains robust. Wu also revealed that ASE Group is expanding its operations in Penang, Malaysia, with expectations of doubling its revenue to $750 million within 2 to 3 years.

The 2023 Semicon Taiwan is set to begin on the 6th, and when discussing the economic outlook for the second half of the year, Wu noted that the semiconductor industry is well-aware of the current inventory corrections and the lingering global economic uncertainties. Nevertheless, he maintains relative optimism about the industry’s long-term development.

Regarding the company’s involvement in advanced packaging, such as Chip-on-Wafer-on-Substrate (CoWoS), Wu mentioned that ASE Group offers corresponding services in this field. When asked about the contribution of artificial intelligence (AI) applications and advanced packaging to the company’s portfolio, he stated that it’s currently challenging to evaluate. However, he emphasized that AI is a significant focus for ASE Group.

In response to inquiries about whether customers have requested ASE Group to shift a portion of its production capacity outside of Taiwan (Taiwan+1) to mitigate risks, Wu clarified that there have been no specific requests from customers regarding proportional capacity transfers or deadlines for such transfers. Production capacity adjustments are primarily made flexibly, contingent on the readiness of the local supply chain. He emphasized that customer discussions regarding capacity adjustments are rational and logical.

Wu stressed that customer demands are being met in accordance with logic and regulatory considerations. In response to urgent service needs, ASE Group is expanding its operations in locations outside Taiwan. However, this does not signify a complete relocation of Taiwanese production capacity, nor does it indicate that customers have mandated such a shift.

He disclosed that ASE Group’s expansion is taking place in Penang, Malaysia, with the first five-story building expected to be completed by July next year. Plans are in place for a second building by 2025. Currently, ASE Group’s Penang facility generates approximately $350 million in annual revenue. It is projected that within 2 to 3 years, the facility’s revenue will double to $750 million.

In addition to its California presence, Wu highlighted that the ASE Group subsidiary, ISE Labs, has expanded its capacity in San Jose to meet customer demands. He emphasized that ASE Group continues to expand its operations in Taiwan as well, including locations in Zhongli, Kaohsiung, Taichung’s Tanzi.

(Photo credit: ASE)