The excitement surrounding ChatGPT has sparked a new era in generative AI. This fresh technological whirlwind is revolutionizing everything, from cloud-based AI servers all the way down to edge-computing in smartphones.

Given that generative AI has enormous potential to foster new applications and boost user productivity, smartphones have unsurprisingly become a crucial vehicle for AI tech. Even though the computational power of an end device isn’t on par with the cloud, it has the double benefit of reducing the overall cost of computation and protecting user privacy. This is primarily why smartphone OEMs started using AI chips to explore and implement new features a few years ago.

However, Oppo’s recent decision to shut down its chip design company, Zheku, casted some doubts on the future of smartphone OEMs’ self-developed chips, bringing the smartphone AI chip market into focus.

Pressing Needs to Speed Up AI Chips Iterations

The industry’s current approach to running generative AI models on end devices involves two-pronged approaches: software efforts focus on reducing the size of the models to lessen the burden and energy consumption of chips, while the hardware side is all about increasing computational power and optimizing energy use through process shrinkage and architectural upgrades.

IC design houses, like Qualcomm with its Snapdragon8 Gen.2, are now hurrying to develop SoC products that are capable of running these generative AI base models.
Here’s the tricky part though: models are constantly evolving at a pace far exceeding the SoC development cycle – with updates like GPT occurring every six months. This gap between hardware iterations and new AI model advancements might only get wider, making the rapid expansion of computational requirements the major pain point that hardware solution providers need to address.

Top-tier OEMs pioneering Add-on AI Accelerators

It’s clear that in this race for AI computational power, the past reliance on SoCs is being challenged. Top-tier smartphone OEMs are no longer merely depending on standard products from SoC suppliers. Instead, they’re aggressively adopting AI accelerator chips to fill the computational gap.

The approaches of integrating and add-on AI accelerator were first seen in 2017:

• Integrated: This strategy is represented by Huawei’s Kirin970 and Apple’s A11 Bionic, which incorporated an AI engine within SoC.
• Add-on: Initially implemented by Google Pixel 2, which used a custom Pixel Visual Core chip alongside Snapdragon 835. It wasn’t until the 2021 Pixel 6 series, which introduced Google’s self-developed Tensor SoC, that the acceleration unit was directly integrated into the Tensor.

Clearly, OEMs with self-developing SoC+ capabilities usually embed their models into AI accelerators at the design stage. This hardware-software synergy supplies the required computing power for specific AI scenarios.

New Strategic Models on the Rise

For OEMs without self-development capabilities, the hefty cost of SoC development keeps them reliant on chip manufacturers’ SoC iterations. Yet, they’re also applying new strategies within the supply chain to keep pace with swift changes.

Here’s the interesting part – brands are leveraging simpler specialized chips to boost AI-enabled applications, making standalone ICs like ISPs(Image Signal Processors) pivotal for new features of photography and display. Meanwhile, we’re also seeing potential advancements in the field of productivity tools – from voice assistants to photo editing – where the implementation of small-scale ASICs is seriously being considered to fulfill computational demands.

From Xiaomi’s collaboration with Altek and Vivo’s joint effort with Novatek to develop ISPs, the future looks bright for ASIC development, opening up opportunities for small-scale IC design and IP service providers.

Responding to the trend, SoC leader MediaTek is embracing an open 5G architecture strategy for market expansion through licensing and custom services. However, there’s speculation about OEMs possibly replacing MediaTek’s standard IP with self-developed ones for deeper product differentiation.

Looking at this, it’s clear that the battle of AI chips continues with no winning strategy for speeding up smartphone AI chip product iteration.

Considering the substantial resources required for chip development and the saturation of the smartphone market, maintaining chip-related strategies adds a layer of uncertainty for OEMs.With Oppo’s move to discontinue its chip R&D, other brands like Vivo and Xiaomi are likely reconsidering their game plans. The future, therefore, warrants close watch.

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AI Sparks a Revolution Up In the Cloud

The US ban on Chinese industries has left China struggling with a seemingly severe shortage of chips. However, China’s tech giants refuse to surrender; instead, they’re pivoting quickly to survive the game.

Since 2019, the US Department of Commerce has added Chinese leading companies like Huawei to its entity list. Restrictions were expanded in 2020 to include semiconductor manufacturing, making a huge impact on SMIC’s advanced processes below 14nm.

Starting in 2021, the US has been intensifying its control by placing more IC design houses on the list, which include Jingjia (GPU), Shenwei (CPU), Loongson Tech (CPU), Cambricon (AI), Wayzim (RF&GPS), and Yangtze (NAND Flash). Furthermore, the export of advanced EDA tools, equipment, CPUs, and GPUs to China has also been banned.

The goal of such measures is to hinder China’s progress in high-tech fields such as 5G/6G, AI, Cloud computing, and autonomous driving by eroding the dominance of its tech giants over time.

China has been aggressively pursuing a policy of domestic substitution in response to the US’s increasing control. As part of this effort, leading domestic IC design companies like Horizon, Cambricon, Enflame, Biren, Gigadevice, and Nations Technologies have been ramping up their efforts for comprehensive chip upgrades in a variety of applications.

Chinese Brands Ramping up for ASICs

There is a particularly intriguing phenomenon in recent years. Since 2019, China’s leading brands have been venturing into chip design to develop highly specialized ASICs (Application Specific Integrated Circuits) at an unprecedented speed. This move is aimed at ensuring a stable supply of chips and also advancing their technical development.

A closer look at how top companies across diverse application fields integrate ASIC chips into their technology roadmap:

• AI Cloud computing: Alibaba, Baidu, Tencent

China’s tech giants are leveraging advanced foundry processes, such as TSMC’s 5nm and Samsung’s 7nm, to produce cutting-edge AI chips for high-end applications like cloud computing, image coding, AI computing, and network chips.

Alibaba launched its AI chip, Hanguang 800, and server CPU, Yitian 710, in 2019 and 2021, respectively. Both chips were manufactured at TSMC’s 5nm process and are extensively used on Alibaba’s cloud computing platform.

In December 2019, Baidu released its AI chip, Kunlun Xin, which uses Samsung’s 14nm process, followed by its 2nd generation, which uses a 7nm process, for AI and image coding.

• Smartphone: Xiaomi, Vivo, OPPO

Due to the high technical threshold of SoC technology used in smartphones, mobile phone brands mainly develop their own chips by optimizing image, audio, and power processing.

In the year of 2021, Xiaomi released the ISP Surge C1, followed by the PMIC Surge P1. Vivo first released the ISP V1 in September 2021, followed by an upgraded product, V1+, in April 2022, and then V2 in November 2022.
OPPO, on the other hand, unveiled the MariSilicon X NPU in December 2021, which enhances the image processing performance of smartphones, using TSMC’s 6nm process, and later revealed the MariSilicon Y Bluetooth audio SoC TSMC’s 6nm RF process later in 2022.

• Home appliance: Konka, Midea, Changhong, Skyworth

The brands are focusing primarily on MCU and PMIC chips that are essential to a wide range of home appliances. They’re also incorporating SoC chips into their smart TVs.

For example, Hisense has jumped into the SoC game in January 2022 by releasing an 8K AI image chip for their smart TVs. Changhong manufactured an MCU with RISC-V architecture and a 40nm process in December 2022.

• Autonomous driving: NIO, Xiaopeng, Li Auto, BYD

The leading companies are developing ISP and highly technical SoC chips for autonomous driving, which has resulted in a slower development process.

In 2020, NIO formed a semiconductor design team for Autonomous driving chips and ISP. Xiaopeng started its Autonomous driving and ISP chip R&D project in the first half of 2021. Li Auto established two subsidiaries in 2022, with a primary focus on power semiconductors and ISP chips.

Finally, BYD, which has a long history of working on MCU and power semiconductor components, also announced its entry into the autonomous driving chip market in 2022.

Navigating the US’ Tech Crackdown

So why are these brands investing so heavily in self-developed ASICs?

One reason is to avoid the risks associated with export control policies from the US and its allies. Developing their own chips would mitigate the risk of supply chain disruptions caused by potential blockades, ensuring a stable supply and the sustainability of their technology roadmap.

In addition, there are many internal incentives for these brands – for instance, companies that have self-developed chips will be eligible for more government subsidies, as this aligns with the government’s aggressive policy to foster the semiconductor industry. Brands can also reduce their reliance on external suppliers by using their own ASIC chips, which can further lower the operating costs.

Technology wise, ASIC chips allow brands to enhance the features they require and enable better integration with the software, which could provide efficiency gains at system level – similar strategies are also being employed by Google and AWS with their AI chips, as well as by Apple with its M1 SoC.

With all things considered, it is certainly possible that we will see a persistent trend of more self-developed ASIC chips made by Chinese brands, which could potentially lead to significant changes in China’s semiconductor supply chain from the ground up.

According to TrendForce, the scope of IoT devices continue to expand under a wave of global digitization and smart machines including in industrial robotics, AGV/AMR, smart phones, smart speakers, smart cameras, etc. In addition, the deepening application of technologies such as autonomous driving, image recognition, speech and semantic recognition, and computing in various fields has catalyzed the rapid growth of AI chip and technology markets. The size of the global AI chip market is expected to reach US$39 billion in 2022, with a growth rate of 18.2%.

Since current utilization of AI chips are mostly in cloud computing, security, robotics, and automotive applications, they will enter a period of accelerated growth in 2023. In particular, the two fields of cloud computing and automotive applications will lead rapid market growth. By 2025, the size of the global AI chip market size is expected to reach US$74 billion, with CAGR from 2022 to 2025 reaching 23.8%.

ASIC chips have wide-ranging prospects, with market share in AI chips increasing year by year

From 2020 to 2021, the amount of data generated by datacenters and various terminal devices continued to rise, pushing chip technology to its limit, with demand for computing power becoming more difficult to meet. Therefore, many manufacturers have successively invested in high-end IC design and development. With increasing demand from various parties, the AI chip market is set to grow rapidly. The size of the AI chip market is expected to reach US$93 billion in 2026. CPU and GPU still occupy the lion’s share of the AI chip market and are growing steadily, while the ASIC market has expansive prospects and its advantages and characteristics can assist users in data processing, consumer electronics, telecommunication systems, and industrial computing develop product portfolios and shorten the innovation cycle of products, services, or systems.

TrendForce research shows that CPU, GPU, and ASIC chips will account for 33%, 34%, and 26% of the AI market, respectively, in 2026. The ASIC chip market will grow the fastest for two reasons. First, demand in the consumer electronic equipment market has increased and most developers of small and medium-sized equipment prefer 7nm ASICs. Second, workloads and structural demands of 5G, low-orbit satellite communications, cloud, and edge computing continue to increase, as telecommunications systems are the largest end-use market.

Since current utilization of AI chips are mostly in cloud computing, security, robotics, and automotive applications, they will enter a period of accelerated growth in 2023. In particular, the two fields of cloud computing and automotive applications will lead rapid market growth. By 2025, the size of the global AI chip market size is expected to reach US$74 billion, with CAGR from 2022 to 2025 reaching 23.8%.

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