ByteDance's move into chips unnecessary, but highly logical
Despite two decades of trying, China still trails Taiwan, South Korea and the US in semiconductor manufacturing. Its tech titans, such as Huawei Technologies Co., have proven they can design leading-edge components but nobody in the country has demonstrated any proficiency to make them at scale
image for illustrative purpose
It is most likely keen to jump in to develop machine-learning chips that drive its recommendation algorithm
ByteDance Ltd.'s push into semiconductors is both unnecessary and highly logical. Perhaps most importantly, the move is likely to have supporters at the senior-most levels in Beijing.
China's premier purveyor of short videos and news curation is currently hiring in roles including software and hardware engineers that relate to the semiconductor sector, Bloomberg News' Zheping Huang wrote, citing job announcements. The company confirmed it's seeking staff in preparation for a possible move into the field. ByteDance's products include TikTok, Douyin and Toutiao - all internet platforms delivered via apps and Web browsers. It doesn't do hardware, so there's no obvious need to have its own chips.
Yet Amazon.com Inc. and Alphabet Inc.'s Google stand as examples of internet companies that delved into semiconductors purely for their server farms, since massive data centres are also huge users of computer processors. Thanks to the licensable core technology developed by British semiconductor design company Arm Ltd., it's pretty easy to jump in and have a go at designing your own chips. Because Arm provides the framework, well-trained engineers need only adapt the recipe to their own needs.
Since the back-end work done by Amazon, Google and ByteDance is quite repetitive - e-commerce transactions, search results, content suggestions - there's room to evolve from generalised processors to more application-specific components. Taken to the extreme, you can get a type of chip that's literally called an application-specific integrated circuit, or ASIC.
China's Bitmain Technologies Ltd. and Canaan Inc. stand as perfect examples of this transition from using off-the-shelf components to designing the chips themselves. Initially, Bitcoin mining - the brute-force solving of a mathematical equation - was done using standard central processing units. Then it migrated to graphical processors because such chips are masters at parallel computing - a boon for Nvidia Inc., which designs chips used to improve graphics in computers and games machines. Finally, some smart cookies decided that a specialised chip was the most efficient approach, and now we have Bitmain'sAntminer offering.
ByteDance is most likely keen to jump in to develop machine-learning chips that drive its recommendation algorithm. The Beijing-based company's competitive advantage is its mastery in the realm of suggesting just the right content that will keep consumers coming back and staying longer. This is no trivial breakthrough, and one where rivals would love to gain ground.
In truth, though, custom silicon isn't truly necessary. Current processors already do a fine job. Bringing your own chip design to fruition takes time and money. At the end of the day, you still need to find someone to manufacture it.
This is where Beijing would be very pleased to see the world's most valuable startup - worth around $140 billion according to CB Insights - create demand for the nation's fledgling chipmaking sector. Despite two decades of trying, China still trails Taiwan, South Korea and the US in semiconductor manufacturing. Its tech titans, such as Huawei Technologies Co., have proven they can design leading-edge components but nobody in the country has demonstrated any proficiency to make them at scale.
For all the talk of China being a major buyer of chips, its design houses aren't as big a driver of the industry as people imagine. The nation mostly buys components that are both developed and manufactured overseas. Taiwan Semiconductor Manufacturing Co., for example, received just $7.9 billion in orders from China last year - less than a third of the business it got from US clients.
It's hard for Chinese custom chipmakers to justify building a leading-edge factory at a cost of $3 billion with a market of such limited scale. Sure, local players like Semiconductor Manufacturing International Co. have already plowed ahead, but its revenue last year was just $3.9 billion, a level that simply can't sustain continued development and investment.
Small player
With major tech players - including Tencent Holdings Ltd. and Alibaba Group Holding Ltd. - being called to account due to their size, and ByteDance itself dragged into the Beijing-Washington tensions by then-President Donald Trump, the company would do well to show its loyalty.
President Xi Jinping wants the nation to be technology-independent, with semiconductors at the heart of that strategy. To get there, he's going to need more patriotic local companies to get into the design business in order to drive demand and push manufacturers forward. Thankfully for him, ByteDance is heeding the call. Expect more to follow. (Bloomberg)
