Previously, Reuters reported that Nvidia is building a new business unit focused on designing custom chips for cloud computing companies and other companies, including advanced artificial intelligence processors. Nvidia executives met with representatives from Amazon, Meta, Microsoft, Google and OpenAI to discuss the production of custom chips for them.
Broadcom and Marvell are already well-known custom chip duo, the former has customized the TPU for Google for nearly 10 years, and recently reached a cooperation with Meta to produce custom chips for it, and the latter is Amazon's long-established partner, AWS's Trainium is from Marvell.
The data center custom chip market will grow to $10 billion this year and double by 2025, according to research firm 650 Group's Alan Weckel estimates, while Needham analyst Charles Shi said the broader custom chip market will be worth about $30 billion by 2023, accounting for about 5% of annual global chip sales.
The 10 billion dollar market in the narrow sense, the 30 billion dollar market in the broad sense, even Nvidia, which has a market value of trillion dollars, is also moved, and it is not difficult to imagine the fierce competition in this market in the future.
It is worth mentioning that the above three giants are all located in Silicon Valley in the United States, and the reason is very simple, only the soil for the thriving growth of Internet companies will promote the development of cloud services and AI, and will give rise to the demand for customized chips such as high-performance computing and data centers, and will allow manufacturers such as Broadcom, Marvell and Nvidia to find business opportunities.
The Internet soil of Silicon Valley has brought a vast market for custom chip designs, and something similar is quietly happening on the other side of the ocean, on small islands of fabs.
The wind of custom chips
According to Nikkei, the combined sales of Taiwan's top three companies that provide semiconductor design support to customers have more than tripled in four years, fueling the rapid growth of the U.S. technology industry and creating opportunities for local foundries to produce chips.
According to Nikkei, so-called semiconductor design support, in which design service companies specialize in providing high-mix, low-volume chips for specific applications such as home appliances, communications, and servers, from design, development, and commercialization, engineers work closely with customers to create customized products.
According to the data, the top three chip design service companies in Taiwan, China, namely Alchip, Global Unichip and Faraday, have total annual sales of NT$68.6 billion (about 15.504 billion yuan) as of December 2023, more than three times that of the end of December 2019.
Among the three companies, Worldchip has the fastest growth, with sales up about 7 times over the same period, a new record for the sixth consecutive year, and record revenue, earnings, net profit and earnings per share, and despite the recent correction in the company's share price, it is still one of the most expensive stocks in Taiwan, which is already 10 times the share price four years ago.
Why can Taiwan's customized chip companies also take advantage of this shareholder wind?
The reason is actually not difficult to understand, although Broadcom, Giants like Marvell can provide a variety of design services, but the advantage of Taiwan's local enterprises is that the current semiconductor supply chain manufacturers are concentrated in Taiwan, the so-called near-water building first-come, first-come, whether it is chip manufacturing or chip packaging, can be solved in Taiwan, local companies also have an inextricable relationship with foundry packaging and testing companies, which is incomparable to Silicon Valley in the United States, compared with the proximity to the market, close to the source of the factory allows them to form their own unique advantages in customizing chips.
In fact, TSMC, the leading foundry, is the majority shareholder of GUC, while UMC, which is also a major foundry, is the majority shareholder of Faraday.
Taiwan media pointed out that Alchip participated in the design of Tesla's Dojo 1 part, and the idea helped Microsoft Athena develop its own chips, while Faraday's IP and ASIC design service customers include Broadcom and Suoxi Technology.
Morgan Stanley (Da Morgan) Securities pointed out in the "ASIC Design Service Industry" report released in January 2024 that the three major benefits are driving the growth of the next wave of ASICs, and among the manufacturers in Taiwan, Da Mo expressed optimism about five manufacturers including Shixin and Faraday, and all gave "outperform" ratings.
Zhan Jiahong, an analyst of Damo Semiconductor Industry, believes that there are three major advantages to the development of the ASIC industry, including the rise of automotive high-performance computing (HPC), the mainstream of the server market based on Arm-based CPUs, and the semiconductor IP core is driving the design of future AI chips.
Zhan Jiahong pointed out that in the field of AI automotive chips, due to the growing demand for automotive HPC ASICs, in addition to Tesla's full autonomous driving (FSD) design, electric vehicle manufacturers in Chinese mainland are also developing their own designs to cope with geopolitical risks, such as the domestic ideal car has adopted the design service of Worldchip.
In terms of Arm-based CPU ASIC design, after Amazon AWS launched Graviton, Microsoft launched Cobalt, Meta is also considering launching Arm-based server CPUs, and Creative is competing with its American counterparts, which has pushed Creative's stock price up 10% due to this potential opportunity.
It can be said that Taiwan's chip design service manufacturers have long had a pivotal position in the global market, and the self-developed chips released by the Silicon Valley giants on the other side of the ocean, the first thing we see is the strong support of Broadcom, in fact. Behind Broadcom there is another group of Taiwanese chip engineers who have quietly worked hard, which is also a microcosm of the global development of semiconductors.
The competition is fierce, and each leads the way
Among the three Taiwanese companies mentioned above, Alchip is the most prominent one.
In the second half of 2013, most countries in Europe competed to introduce a bitcoin issuance policy, and the price of bitcoin began to soar, as of December of that year, the price of a single piece exceeded 1147 US dollars, surpassing the international price of gold, and Worldchip also began to enter the bitcoin market in 2014.
"Once, we were the world's largest arms dealer in Bitcoin!" Shen Xianglin, general manager and CEO of Worldchip Electronics, pointed out in an exclusive interview that because Worldchip had developed the world's first and most advanced process Bitcoin mining machine ASIC using 28nm in the past, and it was very powerful, it is said that miners will pay back in 7 days after mining.
Benefiting from the hot Bitcoin market, Alchip's revenue in 2014 increased from NT$2.58 billion to NT$4.69 billion, and its net profit after tax doubled from NT$113 million to NT$211 million, and when it went public in October 2014, its stock price rose from NT$95.9 to NT$118.5 the following month.
After 2015, the bitcoin market went all the way down, and the world chip suffered a heavy setback, and the stock price, revenue and profits plummeted, causing it to fade out of the mining machine chip for a while, and the subsequent market recovery returned again, but at this time, the world chip has turned to high-performance computing and artificial intelligence in time, which also laid the groundwork for it to become the leader of Taiwan's ASIC manufacturers.
In an interview in 2018, Shen Xianglin, the general manager of Worldchip, also told an interesting story: "TSMC originally did not accept Bitcoin orders, and it took us a lot of lips and tongues to persuade TSMC to use the latest process in the Bitcoin mining machine ASIC. Later, after TSMC stepped in, it felt very good. ”
It can be seen from this conversation that although Globalchip, founded in 2013, is an out-and-out newcomer in front of Faraday, which was founded in 1993, and Creative, which was founded in 1998, it is far better than the other two in seizing the opportunity to introduce opportunities, especially in the application of advanced processes, Globalchip is even a few points faster than the idea of having TSMC as a backer.
Of course, what is more interesting is that in December last year, due to the boom of customized chips, securities institutions have released new reports, JPMorgan pointed out that the development of customized chips (ASIC) is strong, and the global high-end ASIC market will have an amazing annual compound growth rate of 20% in the next few years.
In Taiwan's design service index stocks, securities institutions have expressed optimism about the worldchip, including Morgan Stanley, Citigroup Global, HSBC Securities, etc., have given positive investment ratings, but the views on creativity are mixed, although it has been upgraded before, but after Morgan Stanley downgraded the rating of "neutral", UBS and JPMorgan Chase's latest preliminary evaluation gave "sell" and "worse than the market" investment ratings respectively, and the balance is obviously tilted towards the bears.
The reasons given by securities institutions are very sufficient, Shixin has received orders for customized chips from multiple manufacturers, and is bullish as AI continues to be hot, while creative is involved in Microsoft's custom chips, but it is limited to manufacturing services, and the profit of a single customer is limited, and the difference between the two predicted stock prices is more than twice as much.
On March 1 this year, Shixin held a legal person briefing, general manager Shen Xianglin said that this year's growth will be "very, very strong", and will continue to hit a new high, in the face of Nvidia, ARM and other giants to seize ASIC, he said that Shixin is not afraid of competition, will continue to expand ASIC market share.
Shen Xianglin further said that NVIDIA's entry into ASICs has attracted great attention from the industry, but NVIDIA's move may conflict with the interests of customers. Mainly for cloud service manufacturers, Nvidia has provided AI GPU, AI GPU is quite expensive, in order to avoid being held back by Nvidia, large manufacturers will definitely use their own ASIC, at the same time, cloud service manufacturers have their own development plans, and the development direction does not want to be restricted by the shortage of AI chips, and ASICs are customized for a single customer, so Nvidia must also consider whether it is worth stepping into.
Looking ahead to 2024, Shen Xianglin said that the growth of Worldchip will be "very, very strong" and will continue to break records. In terms of mass production, the growth of AWS AI chips this year is very significant, with an annual growth rate of more than 30%, mainly from strong demand from end customers, making the life cycle and annual demand of this chip larger than originally expected. In addition, Intel's demand is not a problem, mainly 7/5 nanometers, but it still depends on how much COWOS-S production capacity TSMC can give, and now COWOS-S production capacity is quite tight, and it should be difficult to get more production capacity this year. Not only that, Shen Xianglin said that at present, customers are also very confident in 5nm, the only problem is time, because customers have no experience, in the front and back end of the need for a lot of assistance, if everything goes well, 2025 will see mass production, if there is a delay, the main revenue will be contributed from 2026.
In fact, Worldchip's two main customers, one is Amazon and the other is Intel, and orders for customized chips from giants have made Worldchip make a lot of money. In addition, Shixin also has NRE (commissioned design) income, Shen Xianglin said that North America is very strong demand in this regard, the main momentum comes from start-ups and cloud service providers, this year's NRE performance will be better than in previous years, and it is estimated that the ratio of NRE to ASIC this year will be similar to that in 2023.
In contrast, creativity is not so commendable, creative's performance has hit a new high for four consecutive years, but last year's profit declined slightly, net profit per share of NT$26.18, Taiwanese media emphasized, creative from this year began to produce AI self-developed chips for Microsoft, but the help to operations does not seem to be so obvious, looking forward to this quarter, creative performance is expected to show a single-digit percentage decline, and the annual performance growth rate is only a single-digit percentage.
Creativity mentioned in the financial report that orders from large American customers, namely Microsoft, began mass production this quarter, and at the same time, Creativity assessed that the proportion of AI-related in its performance last year was a single-digit percentage, but this year it should reach a ten-digit percentage (17% to 19%).
The third company, Faraday, performed even more dismal because it failed to win orders from the giants, with its revenue and profit declining last year, with a net profit of NT$6.39 per share. In addition to the mature process cases that the company has been working on for many years, it has begun to deploy advanced processes and advanced packaging. Faraday recently announced that it has partnered with Intel and ARM to develop a 64-core SoC using Intel's 18A process. The solution is expected to be available in the first half of next year, but Faraday can begin negotiations now.
Faraday's general manager, Wang Guoyong, said that customers have different models for mature and advanced process projects, and when working on advanced process cases, they will first select the foundry they will work with, and then select ASIC design service providers from among their partners. Therefore, in terms of advanced manufacturing processes, Faraday hopes to win the favor of Samsung's and Intel-related customers.
From the above, we can also see that Shixin, which is good at seizing opportunities, not only made the largest pot of gold in the Bitcoin wave, but also made the biggest profit when the AI trend gradually rose, and it is no wonder that it has twice won the title of Taiwan's "stock king".
It is no exaggeration to say that the position of Worldchip in the field of customized chips in Taiwan is close to that of Broadcom in Silicon Valley, and as more and more cloud service vendors begin to choose customized chips, these two manufacturers are expected to become the most profitable party.
Eat meat and drink soup
Nvidia has always been the manufacturer that eats the biggest piece of meat, from game GPUs to bitcoin mining, and then to today's AI accelerators, it is the one that accounts for the most market and makes the most money.
After eating the meat, there is still soup left in the pot, who can drink the biggest soup? is the key to the AI chip market, it is quite difficult to compete head-on with NVIDIA, and dislocation competition is undoubtedly a way out, large model manufacturers, cloud service vendors, and even other Fabess and IDM specific needs, NVIDIA can not and will not solve, which leaves an opportunity to drink soup.
Charlie Kawwas, president of Broadcom Semiconductor Solutions Group, said that Broadcom won a 15% share of the AI chip market in 2023 and is expected to reach 25% in 2024, with a total revenue of more than $10 billion, emphasizing that Broadcom's customized XPU is a full 50% more than its competitors on HBM Broadcom can do it better, faster, and more power-efficient than anyone else.
Marvell is more pessimistic about this market, and while Marvell CEO Matt Murphy said that Marvell is developing AI chips for a third customer, which will be in production in 2026, he also told investors that the gross margins of custom chips are lower than the company's off-the-shelf products, so-called "commercial" chips, and that higher revenues will need to offset lower gross margins in order to maintain existing profit levels.
Of course, several Taiwanese manufacturers do not need to consider this part of the problem for the time being, they are still in a more segmented market, still in the stage of rapid growth, they began to actively contact customers in North America, want to find business opportunities from it, a wind of customized chips, from last year to today, has not seen its stop.
Worldchip is one of the best, and after it, which manufacturer can earn the next pot of gold in AI?
[Source: Semiconductor Industry Observation]