Editing by Xin Lanhua

Chinese CPU companies have grown rapidly in recent years, with breakthroughs in advanced processes and their ecosystem. But they face hidden worries and risks, particularly with instruction-set-based architectures, which could subject them to loss of autonomy and control in geopolitical changes, while independently developed instruction brings ecosystem application problems.

In the 2021 Top 100 Chinese Semiconductor Companies List released by JW Insights recently, four CPU companies are making into the list: Phytium Technology (No.36, 飞腾)， Hygon (No.52, 海光), Loongson Technology (No.53，龙芯中科), and Zhaoxin (No.58, 兆芯).

JW Insights senior analyst Li Ying looks further into this industry sector and the top players in her latest article.  More  from her writing: 

Market demand for CPUs from PCs and server makers is experiencing robust momentum in China. IDC research data shows that China’s PC shipments will reach about 67.66 million by 2025, driven by AIoT, cloud computing, and digital transformation.  

The rapid growth of data centers has pushed up the demand for servers. IDC predicts that China’s server market value is expected to reach $25.731 billion in 2022 and $41.029 billion in 2025, with a compound growth rate of 12.5%.

The CPU has always been considered the most demanding field in the IC industry because of its high R&D threshold and complex ecosystem construction.

China will remain the world’s largest CPU consumer market in the long run. Adequate CPU inventory is critical because of geopolitical issues and its extensive consumer base of electronic information devices.  

Accordingly, the Chinese government has provided rounds of support for CPU development, benefiting related companies. Hygon and Loongson Technology filed for IPO in Shanghai’s STAR　Market last November and December.

However, Chinese CPU makers face three major challenges:  

First, China’s CPU makers adopt different cores, facing different problems. The first type is the instruction set + self-developed architecture, represented by Loongson Technology. The second is the Arm instruction set authorization-based architecture, represented by Phytium Technology and Huawei Kunpeng. And the third is x86-authorized architecture, represented by Hygon and Zhaoxin.

Both IP core authorization and instruction set architecture authorization have the risk of being controlled, while the independently developed instruction set faces problems in ecosystem application. These are the two significant barriers restricting Chinese-made CPUs.

Second, higher performance demand requires significant improvement in multi-core design, high-speed interface, advanced manufacturing processes, and packaging technology. Chinese foundries still have a long way to go in making CPUs.

Third,  these companies must mull over how to build a sound ecosystem. The CPUs they produce are mainly adopted by government organizations, state-owned enterprises and institutions, and specific industries. How to enter the commercial market is a question.

More and more companies are adopting the Arm architecture for their CPUs, for example, Apple, Amazon, Google, Marvel, Alibaba, and ZTE. Arm-equipped CPUs feature continuously improved performance and ecosystem.

However, it is still difficult for Arm to compete with Intel’s X86 architecture, which has developed technology barriers and a mature ecosystem. Arm architecture is complex and requires high investment and a long development cycle. According to TrendForce, Arm architecture-adopted server chips will still be challenging to compete with x86 by 2023.

Huawei is a good example. It sold its x86 server business in 2021, indicating its focus on Kunpeng. But it still needs to  tackle issues in the future on how to make them, build a complete Kunpeng ecosystem, and seize market opportunities

Apart from x86 and Arm, the emerging open-source RISC-V architecture is expected to become the third force. But it is difficult to replace those two in the short term because of their strong ecosystems.

JW Insights believes that the market will accept Kunpeng and Phytium more if they can adopt the Arm V8 instruction set. In addition, China’s CPU companies should expand B2B,  then B2C markets, which require much more resources and time.  

Third, China’s CPU companies need to improve their supply chain management in manufacturing with advanced processing. They need to integrate resources and consolidate technologies. The future competition will involve CPU performance, ecosystem,  comprehensive capabilities as well as various computing power.