The $5 Billion Purchase Order and World’s Most Critical Tech Firms

In the semiconductor industry, the most important and strategic company is Taiwan’s TSMC. TSMC is a contract chip manufacturer and its position in the global economy is huge. Samsung Electronics is also vital, but of course TSMC has a larger volume. As a global lead ASIC designer while in Analog Devices, I knew the destination: craft the silicon, and send the fabrication  files to Taiwan, and wait for days for that microchip to arrive. 

But to craft that silicon, you need another important company: Cadence, a computer aided design (CAD) tool, from a US company. In top US universities,  students are introduced to this CAD tool for designing integrated circuits, because the chip industry runs on it. Yes,  in the industry, that is what everyone uses to design the most complex chips in the world. So, mastering Cadence is a prerequisite for design jobs.

You have the design but no one can make it in Taiwan or anywhere without ASML equipment. Netherlands-based  ASML makes the world’s most advanced lithography tools which are used in foundries, as you turn wafer (born silica, a special sand!) into the most intelligent device species in the world.

These three companies – TSMC, Cadence and ASML – control our modern economy because without them, we will not have the advancements we are experiencing in the knowledge economy.  In that knowledge economy, we have companies like Google, Apple, Microsoft, Baidu, etc.

 Fascinatingly, these downstream players (yes, they feed on the powers of those three, which are the upstream players), are bringing new ordinances in the market through AI. One company, Nvidia, is the connecting layer between the downstream and the upstream, and has an unrivaled  position in the market today.  Nvidia was worth about $350 billion in Jan 2023; today, it is worth more than $1 trillion!

Understanding that Nvidia holds the ace, some Chinese internet companies are buying as many chips Nvidia can make: “China’s internet giants are rushing to acquire high-performance Nvidia chips vital for building generative artificial intelligence systems, making orders worth $5 billion in a buying frenzy fueled by fears the U.S. will impose new export controls.”

Baidu, ByteDance, Tencent and Alibaba have made orders worth $1 billion to acquire about 100,000 A800 processors from the U.S. chipmaker to be delivered this year, according to multiple people familiar with the matter. The Chinese groups had also purchased a further $4 billion worth of the graphics processing units to be delivered in 2024, two people close to Nvidia said.

Cadence, ASML and TSMC are the real upstream which are fundamental to the midstream companies like Analog Devices, Nvidia, Texas Instruments, and Qualcomm. But we know the downstream ones like Apple, Baidu, Tencent, Google and Microsoft. Because of AI, Nvidia has redefined the order with its AI chips and the network link for parallel computing.

If the AI optimism does not experience a bust, Nvidia will have an enormous impact in the future of industries through its technologies.

Update: these firms may be putting these orders to beat the new US sanctions.

President Joe Biden signed an executive order late Wednesday blocking and regulating some U.S. high-tech investments in China. The order — which comes after nearly two years of deliberations and anticipation from the business community — is targeted at advanced computer chips, micro electronics, quantum information technologies and artificial intelligence. While the details have yet to be released, the new terms, which won’t take effect until next year, may exempt passive investments and those in publicly-traded securities and index funds, Bloomberg reports. The order aims to deny China the “know-how, market access and other benefits” from U.S. venture-capital and private-equity investments and may discourage American companies doing business in China, notes The Wall Street Journal. The Chinese Ministry of Commerce said early Thursday that it has “serious concern” about the order and “reserves the right to take measures.”

Comment on Feed

Comment 1: Thanks Prof Ndubuisi Ekekwe for the seamless connection that you made between these companies as this now makes so much sense as to this whole sector of Graphics processing, ASIC manufacturing and FPGAs altogether. I have long studied these companies for a while watching Bloomberg and CNBC’s analysis on them but the points you made connected them better. Such an eye-opener!

It’s really quite sensational and amusing that a company that struggled to be born in 1993 rivalling companies like Intel to be worth $1Trillion now is just another level of crazy. This same company even struggled to find their way into the smartphone industry with its #TegraChip now used by Amazon for their warehouses and now somehow without them knowing the #CUDAKit coupled with #A100 and #TeslaP100 used to power #ChatGPT made the deal for them.

Thumbs up to #CEOHuang and his resilience. I really admire him so much alongside #ElonMusk cause these men have taken “Impossible dreams and made them a reality” much like I am working hard to do.

I had a good laugh reading Francis Oguaju’s comment: “We are struggling to resolve food, water and electricity supply”. Let’s just not go there because I don’t know how we will ever transition there but Godspeed!!!

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