Hello and welcome back to TechCrunch’s China roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world.
The tech industry in China has had quite a turbulent week. The government is upending its $100 billion private education sector, wiping billions from the market cap of the industry’s most lucrative players. Meanwhile, the assault on Chinese internet giants continued. Tech stocks tumbled after Tencent suspended user registration, sparking fears over who will be the next target of Beijing’s wrath.
Incisive observers point out that the new wave of stringent regulations against China’s internet and education firms has long been on Beijing’s agenda and there’s nothing surprising. Indeed, the central government has been unabashed about its desires to boost manufacturing and contain the unchecked powers of its service industry, which can include everything from internet platforms, film studios to after-school centers.
A few weeks ago I had an informative conversation with a Chinese venture capitalist who has been investing in industrial robots for over a decade, so I’m including it in this issue as it provides useful context for what’s going on in the consumer tech industry this week.
China is putting robots into factories at an aggressive pace. Huang He, a partner at Northern Light Venture Capital, sees three forces spurring the demand for industrial robots — particularly ones that are made in China.
Over the years, Beijing has advocated for “localization” in a broad range of technology sectors, from enterprise software to production line automation. One may start to see Chinese robots that can rival those of Schneider and Panasonic a few years down the road. CRP, an NLVC-backed industrial robot maker, is already selling across Southeast Asia, Russia and East Europe.
On top of tech localization, it’s also well acknowledged that China is facing a severe demographic crisis. The labor shortage in its manufacturing sector is further compounded by the reluctance of young people to do menial factory work. Factory robots could offer a hand.
“Youngsters these days would rather become food delivery riders than work in a factory. The work that robots replace is the low-skilled type, and those that still can’t be taken up by robots pay well and come with great benefits,” Huang observed.
Large corporations in China still lean toward imported robots due to the products’ proven stability. The problem is that imported robots are not only expensive but also selective about their users.
“Companies need to have deep technical capabilities to be able to operate these [Western] robots, but such companies are rare in China,” said Huang, adding that the overwhelming majority of Chinese enterprises are small and medium size.
With the exceptions of the automotive and semiconductor industries, which still largely rely on sophisticated, imported robots, affordable, easy-to-use Chinese robots can already meet most of the local demand for industrial automation, Huang said.
China currently uses nearly one million six-axis robots a year but only manufactures 20% of them itself. The gap, coupled with a national plan for localization, has led to a frenzy of investments in industrial robotics startups.
The rush isn’t necessarily a good thing, said Huang. “There’s this bizarre phenomenon in China, where the most funded and valuable industrial robotic firms are generating less than 30 million yuan in annual revenue and not really heard of by real users in the industry.”
“This isn’t an industry where giants can be created by burning through cash. It’s not the internet sector.”
Small-and-medium-size businesses are happily welcoming robots onto factory floors. Take welding for example. An average welder costs about 150,000 yuan ($23,200) a year. A typical welding robot, which is sold for 120,000 yuan, can replace up to three workers a year and “doesn’t complain at work,” said the investor. A quality robot can work continuously for six to eight years, so the financial incentive to automate is obvious.
Advanced manufacturing is not just helping local bosses. It will eventually increase foreign enterprises’ dependence on China for its efficiency, making it hard to cut off Chinese supply chains despite efforts to avoid the geopolitical risks of manufacturing in China.
“In electronics, for example, most of the supply chains are in China, so factories outside China end up spending more on logistics to move parts around. Much of the 3C manufacturing is already highly automated, which relies heavily on electricity, but in most emerging economies, the power supply is still quite unstable, which disrupts production,” said Huang.
The shock of antitrust regulations against Alibaba from last year is still reverberating, but another wave of scrutiny has already begun. Shortly after Didi’s blockbuster IPO in New York, the ride-hailing giant was asked to cease user registration and work on protecting user information critical to national security.
On Tuesday, Tencent stocks fell the most in a decade after it halted user signups on its WeChat messenger as it “upgrades” its security technology to align with relevant laws and regulations. The gaming and social media giant is just the latest in a growing list of companies hit by Beijing’s tightening grip on the internet sector, which had been flourishing for two decades under laissez-faire policies.
Underlying the clampdowns is Beijing’s growing unease with the service industry’s unscrutinized accumulation of wealth and power. China is unequivocally determined to advance its tech sector, but the types of tech that Beijing wants are not so much the video games that bring myopia to children and algorithms that get adults hooked to their screens. China makes it clear in its five-year plan, a series of social and economic initiatives, that it will go all-in on “hard tech” like semiconductors, renewable energy, agritech, biotech and industrial automation like factory robotics.
China has also vowed to fight inequality in education and wealth. In the authorities’ eyes, expensive, for-profit after-schools dotting big cities are hindering education attainment for children from poorer areas, which eventually exacerbates the wealth gap. The new regulatory measures have restricted the hours, content, profits and financing of private tutoring institutions, tanking stocks of the industry’s top companies. Again, there have been clear indications from President Xi Jinping’s writings to bring off-campus tutoring “back on the educational track.” All China-focused investors and analysts are now poring over Xi’s thoughts and directives.
Despite semiconductor shortages peaking during the second quarter of 2021, Ford says it delivered better-than-expected operating results by leveraging strong demand for new vehicles, like its Bronco SUV, according to its most recent earnings report.
In April, Ford had expected to lose about 50% of its planned Q2 production, resulting in a profit loss for the period. However, the automaker was able to generate companywide adjusted earnings before interest and taxes of $1.1 billion, according to the report.
With demand for the Mustang Mach-E, which CEO Jim Farley said is already profitable on Wednesday’s earnings call, and other Ford vehicles up 7x from last year, Farley said “the business is ‘spring loaded’ for a rebound when semiconductor supplies stabilize and more closely match demand,” according to a statement released by Ford.
Looking ahead, the company said it “has lifted its target for full-year adjusted free cash flow to between $4 billion and $5 billion, supported by expected favorable second-half working capital as vehicle production increases with anticipated improvement in availability of semiconductors.”
Outwardly, Ford appears to be optimistic, but when pressed during the call, Farley was slightly more cautious and realistic.
“We do see the chip issue running through this year and we could see it bleeding into the first part of next year,” he said. “We’ve had discussions with the FAB suppliers. They’re telling us that they’re reallocating capital, they’re increasing supply for automotive, etc. But I think this is one of those things where we need to see the relief coming through before we can really feel comfortable that we’re out of the woods here.”
Farley said the industry is seeing signs of improvement in the flow of chips now in the third quarter, but “the situation remains fluid.”
He’s not wrong. Semiconductor sales in May were up 4.1% over April, which saw sales increase 1.9% over March 2021, according to the Semiconductor Industry Association. Additionally, a World Semiconductor Trade Statistics report released in June forecasts global annual sales to increase 19.7% in 2021 and 8.8% in 2022. Earlier this month, the Taiwan Semiconductor Manufacturing Company said it expects the shortage of semiconductors in the manufacturing space to be greatly reduced starting this quarter due to its increased production efforts. The company said it already increased microcontroller unit production by 30% YOY in the first half of the year and intends to bring that up to over 30% pre-pandemic 2018 levels.
Sounds promising, but not everyone is on the same page here. Singapore-based Flex, a global chip manufacturer, recently warned that the global chip shortage would last into mid-2022, worsened by the increased demand for cars, especially electric ones, as well as pandemic-induced purchases of video game consoles, tablets, laptops and other entertaining electronics.
Just as Ford is trying to reduce battery supply anxiety by becoming the manufacturer via battery cell partnerships with SK Innovation, Farley said Ford is also working closely with semiconductor fabricators and suppliers to help them with future projections of how many chips it expects to need.
A big reason there’s a semiconductor shortage is because automakers cut their orders when the pandemic caused a drop in sales last spring. But when Q3 2020 rolled around and demand for passenger vehicles rebounded, chipmakers were already spoken for, filling orders from customers in consumer electronics and IT.
In Ford’s defense, it’s not easy to predict a pandemic and how many chips one would need for that. Let’s hope this doesn’t lead to a hoarding scenario like the Great Toilet Paper Crisis of 2020.
Get ready for a startup throwdown of global proportions (literally). We’re the proud hosts of the Extreme Tech Challenge (XTC) Global Finals, and the pitch competition action starts tomorrow, July 22 at 9:00 am (PT).
Pro housekeeping tip: Attending this virtual pitch fest is 100% free, but you need to register here first.
Not familiar with XTC? It’s the world’s largest pitch competition focused on solving humanity’s most vexing challenges. You gotta love a competition that serves the greater good — and a startup ecosystem for purpose-driven companies determined to build a more sustainable, equitable, healthy, inclusive and prosperous world.
The road to the XTC finals was crowded, to say the least. More than 3,700 startups from 92 countries applied to compete in one of these categories: Agtech, Food & Water, Cleantech & Energy, Edtech, Enabling Tech, Fintech, Healthtech and Mobility & Smart Cities.
Talk about a daunting endeavor. Team XTC, which consisted of deeply experienced investors, entrepreneurs and executives, winnowed down that field to these seven competing finalists: Wasteless, Mining and Process Solutions, Testmaster, Dot Inc., Hillridge Technology, Genetika+ and Fotokite.
Tomorrow’s competition takes place in two rounds, and each startup team will have to bring its best if they hope to impress this panel of judges — all leaders in sustainability and social impact.
Young Sohn, co-founder, XTC and chairman at Harmann International; Bill Tai, co-founder, XTC and partner emeritus, Charles River Ventures; Regina Dugan, president and CEO of Wellcome Leap; Jerry Yang, founder/partner of AME Cloud Ventures and co-founder of Yahoo!; Lars Reger, CTO and EVP at NXP Semiconductors; and Michael Zeisser, managing partner at FMZ Ventures.
In a classic, “but wait, there’s more” moment, the day also features several presentations from some of the leading voices in sustainability. Take a look at the two examples below, and check out the complete XTC finals agenda and the roster of speakers:
Germany technology and parts supplier Robert Bosch opened a €1 billion ($1.2 billion) chip factory in Dresden, Germany on Monday, the single largest investment in the company’s history. The plant, which will mainly supply automotive customers, is a major signal that connected and electric vehicles are here to stay.
“Regardless of which powertrain we talk about … always we need a semiconductor and sensor,” Bosch’s executive vice president of automotive electronics Jens Fabrowsky told TechCrunch.
The plant will handle front-of-the-line processing, or wafer fabrication, in the semiconductor manufacturing process. The 300-millimeter wafers will be sent to partners, typically in Asia, to do packaging and assembly of the semiconductors.
300 millimeters is a “new field of technology,” Fabrowsky explained. As opposed to the 150- or 200-millimeter wafers that are produced at Bosch’s nearby factory in Reutlingen, Germany, the larger wafer size offers greater economies of scale because you can produce more individual chips per wafer.
The 77,500-square-foot plant will run on what Bosch calls “AIoT,” a term that combines artificial intelligence and Internet of Things to denote a fully connected and data-driven system that’s unique to the facility. Bosch will not only have real-time data on the approximately 100 machines, but also on the power, water and other aspects of the facility — up to 500 pages of data per second, Fabrowsky said. The AI-driven algorithm should detect an anomaly from any of the connected sensors immediately.
Despite its high levels of automation, the plant will employ around 700 people once it is fully operational.
It is unclear whether the plant will help resolve the ongoing global semiconductor shortage, which has forced automakers like General Motors and Ford to slash production volumes and temporarily shutter manufacturing facilities.
“At the point when we decided [to build the plant] it was purely driven by technology,” Fabrowsky said. “It was clear we needed to go into 300 [millimeters], and we needed to invest in some more capacity.”
The facility will begin production in July with chips for power tools before beginning production on automotive chips in September. It generally takes over 20 weeks to make a semiconductor chip, Fabrowsky said, including 600 individual steps in the wafer facility alone.
The company will also be investing €50 million ($61 million) to extend the clean room facilities at its Reutlingen plant, Bosch board member Harald Kroeger said at a media briefing Monday.
Alibaba’s cloud computing unit is making its Apsara operating system compatible with processors based on Arm, x86, RISC-V, among other architectures, the company announced at a conference on Friday.
Alibaba Cloud is one of the fastest-growing businesses for the Chinese e-commerce giant and the world’s fourth-largest public cloud service in the second half of 2020, according to market research firm IDC.
The global chip market has mostly been dominated by Intel’s x86 in personal computing and Arm for mobile devices. But RISC-V, an open-source chip architecture competitive with Arm’s technologies, is gaining popularity around the world, especially with Chinese developers. Started by academics at the University of California, Berkeley, RISC-V is open to all to use without licensing or patent fees and is generally not subject to America’s export controls.
The Trump Administration’s bans on Huawei and its rival ZTE over national security concerns have effectively severed ties between the Chinese telecom titans and American tech companies, including major semiconductor suppliers.
Arm was forced to decide its relationships with Huawei and said it could continue licensing to the Chinese firm as it’s of U.K. origin. But Huawei still struggles to find fabs that are both capable and allowed to actually manufacture the chips designed using the architecture.
The U.S. sanctions led to a burst in activity around RISC-V in China’s tech industry as developers prepare for future tech restrictions by the U.S., with Alibaba at the forefront of the movement. Alibaba Cloud, Huawei and ZTE are among the 13 premier members of RISC-V International, which means they get a seat on its Board of Directors and Technical Steering Community.
In 2019, the e-commerce company’s semiconductor division T-Head launched its first core processor Xuantie 910, which is based on RISC-V and used for cloud edge and IoT applications. Having its operating system work with multiple chip systems instead of one mainstream architecture could prepare Alibaba Cloud well for a future of chip independence in China.
“The IT ecosystem was traditionally defined by chips, but cloud computing fundamentally changed that,” Zhang Jianfeng, president of Alibaba Cloud’s Intelligence group, said at the event. “A cloud operating system can standardize the computing power of server chips, special-purpose chips and other hardware, so whether the chip is based on x86, Arm, RISC-V or a hardware accelerator, the cloud computing offerings for customers are standardized and of high-quality.”
Meanwhile, some argue that Chinese companies moving towards alternatives like RISC-V means more polarization of technology and standards, which is not ideal for global collaboration unless RISC-V becomes widely adopted in the rest of the world.