The Sino-US tech war could soon be fought on a new front: over Intel’s all-conquering X86 architecture, which provides the building blocks for design of the computer processing unit (CPU) chips used in PCs and servers.
The first shots in the conflict came at the end of June, when the Pentagon released a list of 20 Chinese companies with connections to the Chinese military.
It included Inspur, which ranks as China’s largest manufacturer of server hardware and software (50.8% domestic market share in 2019, according to IDC). The group, which has three listings in Hong Kong, Shanghai and Shenzhen, is wholly reliant on Intel’s Xeon range of X86 CPU chips for its server products (our first article on Inspur was in WiC241).
The publication of the Pentagon’s list prompted a tightening of US export restrictions, forcing Intel to halt shipments to Inspur while it made sure it was compliant with the new procedures. The issue seems to have been settled within a matter of days and if that’s as far as it goes, Inspur’s production is unlikely to be unduly affected.
But the question is whether that it is likely to be the end of the matter, given the current direction of Sino-US relations.
X86 architecture underpins the designs of most high-performance servers, many of which are deployed in data centres (a fast-growing sector because of the rapid spread of cloud computing in China).
Intel enjoyed 96.1% global market share in X86-based chips at the end of last year, according to Mercury Research. The other manufacturer is also American, Advanced Micro Devices (AMD), which accounts for the remainder. The two firms buttress one another through a cross-licencing agreement (after AMD developed the industry standard 64-bit extension to the X86 instruction set).
There are a couple of other server CPU architectures that give developers more freedom to custom-build their own server chips. One is UK-based Arm Holdings’ Aarch64 instruction set and the other is the University of Berkeley’s RISC-V open standard architecture.
However, so far, neither of the two architectures has been able to erode the X86’s hold. In 2019, servers relying on its architecture generated 88.2% of global revenues, compared to 11.8% for non-X86 based ones, according to IDC.
These ratios have been fairly constant for the past five years.
Chinese companies have a few options should Inspur become subject to a Huawei-style squeeze on supply from American sources. One would be to buy their servers from Taiwanese ODMs (original design manufacturers) such as Wiwynn or Quanta. Another would be to switch to Chinese producers of CPU processors. One of these is Huawei and the other is Lenovo.
Huawei has already started to reduce its dependency on US-based software and hardware by designing its own series of Kunpeng server processors, using chips based on Arm’s Aarch64 instruction set. However, it is running into difficulties working out who is going to make them, especially as Washington has pressured Taiwan’s TSMC into dropping most of its business with the Shenzhen-based giant.
Will Chinese firms as a whole decide that it makes more sense to favour Aarch64 over X86 for future server chip architecture? That will probably hinge on what happens to Arm Holdings after its cash-strapped owner SoftBank put it up for sale (see WiC501).
This week the Wall Street Journal reported that SoftBank has an offer for Arm worth about $32 billion. Sino-UK tensions almost certainly mean the Japanese group will be blocked from selling it to Chinese entities. An American buyer, on the other hand, would be bad news for China’s efforts to erode US dominance in key parts of the semiconductor supply chain, although the Chinese could also make life difficult for an American acquiror with their own antitrust review (in 2018 Beijing stymied Qualcomm’s $44 billion acquisition of Dutch chipmaker NXP simply by withholding antitrust approvals).
China does have one other significant server chip designer, Zhaoxin. It was established in 2013 as a joint venture between the Shanghai municipal government and Taiwan’s VIA Technologies. But its chips are about four years behind Intel’s in technical terms. And it faces a familiar stumbling block in becoming self-sufficient: Zhaoxin’s production relies on VIA’s X86 licence to develop CPU chips.
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