A big topic for us this year is the growing trend of companies designing their own semiconductors. The global semis industry has consolidated leading to higher prices for many categories. At the same time, the costs of designing a chip have fallen considerably as design expertise has permeated into many regions and clusters. So we thought that periodically we would compile a list of companies reported to be working on something that they used to buy from others.
sAt the top of the list is Cisco. Cisco has been designing their own chips for decades, long before the current trend. Their work is not particularly glamorous, but they deserve top billing if for no other reason than that longevity. Unlike many others on this list, their chips are largely very close to their core competency – networking. They are unlikely to build a general purpose CPU because it is not strategic to them, but they do build some very sophisticated processors.
Next on the list is Apple, who is probably the best run semiconductor company in the industry right now. They have the A Series in the iPhone, the M Series for their laptops, and a host of other chips. They may not be able to keep up the gains they have made, but it seems likely that they can continue to drive out improvements keeping them ahead of the competition, and we will see what they do when (if?) they roll out their own wireless modem.
Next on the list is Google who really kicked off the current wave when they unveiled the Tensor Processing Unit (TPU), but who is now building their VCU chips for transcoding videos and their Tensor applications processor for something, and even have their own set of internally developed, fairly sophisticated design tools. Google seems to be unleashing its software teams to build whatever chips they need, which could be highly disruptive to the industry.
Not to be outdone, Amazon has built their own server CPU and their own AI training and inference chips, They are likely building others, but those two alone probably represent $10 billion of TAM elimination for the merchant chip vendors.
The other hyper-scale Internet companies also all seem to be throwing their hat into the ring. Microsoft is building something, maybe with Marvell. Facebook appears to be partnering with merchant vendors for something highly custom. But given the amount of hardware engineers it has hired in the past 18 months, and the notable lack of products they have brought to market, they may have larger chip ambitions. In China, Alibaba and Baidu both have their own chips, although in fairness it is very unclear if these are actually in production or if they are actually designed by those companies or just semi-custom chips from others. So let’s put an asterisk there.
The big news last week was that Tesla unveiled its latest AI chip. As far as we can tell, none of the other car companies are designing their own chips, bur are either working with third parties like Qualcomm or investing in start-ups who build those chips. As always, Apple is the exception, or they would be if they were actually building a car.
The other smartphone vendors are building applications processors (AP) – Samsung’s Exynos line predates the iPhone. Xiaomi and the BBK Group (Oppo, Vivo, et al) all appear to be building APs of some sort.
As we noted back in May, the storage companies are building their own chips, as are GE, Bosch and possibly some of the other industrial companies.
So far, these are mostly massive companies, which is why we found this article in the Chinese press so interesting (Google translate does a credible job). TP Link is not tiny, they are the world’s largest maker of cable modems, with a large Wi-Fi access point business as well, but they are not at the same scale as most of the others on this list. Nonetheless, they are apparently building their own Wi-Fi processor, and we would not be surprised if they are also working on a chip for their cable modems. Wi-Fi processors are fairly hard to build, Apple actually failed at their attempt to build one (this predates Apple Silicon’s current management). TP Link is noteworthy because they compete in what are largely commodity markets, so R&D dollars are likely tight. That being said, there are estimates that Chinese companies can build their own chips for under RMB 50 million (~$8 million), excluding foundry production costs. If true, then we suspect we will see many other companies start to make their own chips as well.
And this may be one area where China really pushes ahead in semis. We have written extensively about China’s approach to semis. The government there is investing a lot of money, subsidizing thousands of companies that can claim some tie to chips, and so it is quite likely that there are many hardware companies tapping into those funds to design their own chips. China has ample chip design capabilities, especially for simpler chips as we would find embedded in various pieces of electronics. As a side note, we are hearing that the decline of Huawei’s HiSilicon chip business has resulted in a flood of very talented chip designers coming on the market in all sorts of places.
Stepping back, it is clear we are living in a very dynamic age. Semiconductors are in a strange place. US venture investors have no interest in the space, and Chinese private equity funds have ‘too’ much interest. The global semis market continues to consolidate, and so more and more companies are building their own. Producing leading edge semis is getting increasingly expensive, but designing chips is getting cheaper. Semis companies are trading at all-time high valuations, but their is an ocean of competitors out there, including some of the biggest customers for those semis.
Compiling this list is fun, everybody needs a hobby. We plan to upset this list periodically as we expect to grow meaningfully in coming months.
Photo Credit: Digits to Dollars