Source: ARK Disrupt Issue 123: May 7, 2018. By @jwangARK

China plans to invest $47 billion in its domestic semiconductor industry to enable disruptive technologies like artificial intelligence (AI) and autonomous driving. Focused on chip manufacturing and design, this state backed fund adds to a $22 billion fund raised in 2014.

Chip manufacturing requires large capital outlays and deep materials science expertise, creating formidable barriers to entry. Because a state-of-the-art chip fab costs billions of dollars, only three companies in the world –IntelTaiwan Semiconductor, and Samsung – can manufacture chips using the latest 7-10 nanometer (nm) process.

That said, Moore’s Law is slowing down, so semiconductor companies are manufacturing more chips using older processes, giving China a chance to catch up. Taiwan’s TSMC, for example, plans to open a 16nm fab in Nanjing this June, catapulting China’s chip manufacturing to a generation just short of the latest process.

Chip design demands software expertise. Startups in China seem to be making good progress in this arena: with just $100 million in funding, Cambricon has designed a number chips aimed at accelerating artificial intelligence applications. Last week, it unveiled two new AI chips that offer higher performance, at least on paper, than counterparts from Nvidia and Google. Real world performance and software support likely will tell a different story.

While China probably will find success in the manufacturing of more commoditized semiconductors, if history is any guide, it will find competing on the world stage to prove much more challenging.

View original article and other research here.


ARK’s statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.