Chinese chip designers slow down processors to dodge US sanctions

Alibaba and start-up Biren Technology are tweaking their most advanced chip designs to reduce processing speeds and avoid US-imposed sanctions aimed at suppressing Chinese computing power.

Alibaba, Biren and other Chinese design houses have spent years and millions of dollars creating the blueprints for advanced processors to power the country’s next generation of supercomputers, artificial intelligence algorithms and data centres. These are produced offshore by the world’s biggest contract chipmaker Taiwan Semiconductor Manufacturing

But sanctions announced by Washington last month that cap the processing power of any semiconductor shipped into China without a licence have thrown a wrench into their ambitions.

Both Alibaba and Biren had already conducted expensive test runs of their latest chips at TSMC when Washington unveiled the controls. The rules have forced the companies to halt further production and make changes to their designs, according to six people briefed on the situation.

They mark another blow for Alibaba, the tech group founded by billionaire Jack Ma. Its shares have lost 80 per cent of their value since Beijing cancelled sister group Ant’s initial public offering two years ago. The group’s new chip was to be its first graphics processing unit and was close to being unveiled, according to three people close to the matter.

The US export controls extend to third-country chip manufacturers because almost all semiconductor fabrication plants use American components or software, meaning the rules may amount to an embargo on all high-end processors entering China. Washington earlier restricted such imports from California chip companies Nvidia and AMD.

Meanwhile, China’s own domestic chip plants are possibly decades away from producing cutting-edge chips such as those designed by Alibaba and Biren.

Analysts said Washington’s sanctions, of which the high-end processor restrictions are one part, aimed to forcibly slow China’s tech sector development.

“Attempting to freeze a country in place for a technological level of hardware is a big deal,” said Paul Triolo, head of tech policy at consulting group ASG. “That is what the US is trying to do by restricting sales and closing off the manufacturing road map to get to these advanced levels of hardware.”

Triolo said high-end processors were the building blocks for research into supercomputing and AI, which power everything from autonomous driving to drug discovery. “If Commerce doesn’t give out licences then China has a real problem,” he said.

However, the US Department of Commerce was unlikely to grant such licences, said Kevin Wolf, an expert on export controls at Akin Gump. “This part of the rule states that such applications will be ‘presumptively denied’,” he said.

China’s semiconductor design sector is quickly catching up to US rivals, helped by huge funding from the government and venture capitalists.

Biren is among the most advanced and vocal of these groups, also known as fabless semiconductor companies. The company has raised over Rmb5bn ($695mn) from investors, including Hillhouse Capital, Qiming Venture Partners and Chinese and Russian state funds, to create a processor it claims outperforms rival GPUs from Nvidia and AMD.

“You have to be low-key,” said a Shanghai-based founder of a rival fabless start-up. “They’ve done too much PR and their specs are out there in black and white. Now it’s difficult for TSMC to help them find a way out.”

Three Chinese engineers at design groups working with TSMC said it was difficult for the Taiwanese group or any fab to accurately judge a processor’s power. So TSMC had begun to ask Chinese clients to self-report their chips’ output and sign disclaimers.

A person close to TSMC said Biren’s public presentations touting its processors had forced the contract chipmaker to halt supplies because the chips’ performance probably met the specifications banned by the US restrictions. “Unless they can prove that they are OK under the export controls, we will not be able to ship to them,” the person said. “Whenever there is a red flag, we will have to review.”

Chinese engineers said figuring out what was compliant was complicated because of Washington’s unclear rules for calculating a key metric in the thresholds for chips called the bidirectional transfer rate, or the speed with which they send data to each other. The export controls cap chips at below 600 gigabytes per second (GB/s).

“There are several ways in which [this transfer rate] can be calculated,” said a senior engineer at Biren, who asked not to be named. The company had begun to tweak its designs to reduce processor speeds in the hope of getting them manufactured by TSMC, the person said.

Archived versions of Biren’s website from before the US imposed sanctions show specifications for its first processor, the BR100, that would give it a transfer rate of 640 GB/s, exceeding the US limits. Now Biren’s site shows slower specs for the BR100 of 576GB/s, according to calculations from research group Bernstein.

Dylan Patel, chief analyst at semiconductor research group SemiAnalysis, who first noticed Biren’s change of specs, said the company was attempting to slow down its processors by disabling part of the chip.

“They are not changing the chip design, so it’s like saying ‘pinky promise we won’t re-enable it later on’ and it’s unclear if the [US] government will accept that,” said Patel.

Biren celebrated the unveiling of its “record-breaking” new chip line in August with a lavish press conference attended by Shanghai’s top officials. But its website has deleted one photo from the event: founder Mike Hong posing in front of the chip’s specs.

People briefed on the situation at Alibaba’s T-Head semiconductor unit said the team was studying how to modify its new 5-nanometer processor designed for AI work. Changes being contemplated could require another production test run at TSMC, which would mean a months-long delay and could cost $10mn or more, they said.

The unit’s biggest fear was turning into HiSilicon, the chip design unit of telecom equipment maker Huawei, which has been shattered by US-imposed sanctions, said one of the people.

“Many of T-head’s core team members are from HiSilicon, so it’s like a nightmare all over again,” the person said. “Internally, we’ve all agreed we will do anything to remain compliant . . . at least then we can still operate.”

Biren did not respond to a request for comment.

A spokesperson for T-head said: “T-Head core products are solely for Alibaba Group’s proprietary use and compliant with all relevant regulations.”

TSMC declined to comment.

This article has been amended to clarify that Sequoia Capital China did not invest in Biren, despite a preliminary agreement to do so, and to add Hillhouse Capital as an investor.