The latest major customer is Byte? Another tech giant is looking to collaborate with Broadcom to develop AI chips

According to the financial news app Zhitong Finance, it is reported by media quoting informed sources that Chinese tech giant ByteDance is collaborating with one of the biggest winners in the global AI trend, Broadcom (AVGO.US), to develop an advanced customized AI chip, known in the industry as an "ASIC chip" focused on AI acceleration. Leveraging Broadcom's absolute technical leadership in high-speed data interconnection technology and chip-to-chip communication, this move may help the owner of TikTok ensure an adequate supply of high-end AI chips under the heavy pressure of US chip sanctions.

The informed sources added that this advanced 5nm process chip is an AI domain ASIC customized chip that complies with US chip export restrictions, and chip manufacturing will be outsourced to TSMC (TSM.US), Broadcom's most important chip foundry partner known as the "King of Chip Foundries".

It is understood that Broadcom has previously provided ByteDance's data centers with the previous generation 7nm AI processors. The existing business relationship between the two companies mainly revolves around servers and network equipment.

TSMC remains the core chip manufacturer for many fabless chip design companies such as Apple, Nvidia, AMD, and Broadcom, especially for data center server-side AI chips manufactured for Nvidia and AMD, which are considered crucial hardware infrastructure for driving large artificial intelligence training/inference systems behind tools like ChatGPT and Sora, and there is no substitute.

Since the US implemented export controls on advanced semiconductor products including semiconductor equipment, materials, and AI chips in 2022, there have been almost no public announcements of chip development cooperation involving 5nm or more advanced chip manufacturing technology between Chinese and American companies. Informed sources emphasize that ByteDance's cooperation with its existing chip business partner Broadcom will help reduce procurement costs and ensure a stable supply chain for high-end AI chips.

However, it is reported by media quoting informed sources that TSMC, which is running at nearly full capacity for 3nm and 5nm AI chip production, is not expected to start production of this new AI chip this year.

The sources stated that although the design work for the latest AI chip is progressing smoothly, the "tapeout" stage of the chip, which marks the end of the design phase and the beginning of mass production, has not yet begun. "Tapeout" usually refers to the end of the basic circuit architecture design phase, where a small-scale production is attempted for testing. If all tests pass successfully, foundries like TSMC can begin mass production.

ByteDance Expands its AI Layout

Like many global tech giants such as Microsoft, Google, and Amazon, ByteDance plays a significant role in driving the global generative artificial intelligence field, but the company and many Asian tech peers have to face the heavy pressure of advanced semiconductor sanctions initiated by the US government Under the sanctions imposed by the United States, high-performance AI GPUs developed by chip giants such as NVIDIA and AMD cannot flow into these regions.

It is understood that ByteDance and Broadcom have been very important business partners since at least 2022. Broadcom has publicly stated that this Chinese tech giant has purchased Broadcom's Tomahawk series 5nm high-performance switch chips and the Bailly switch chips for AI supercomputer clusters.

Ensuring an adequate supply of AI chips is crucial for ByteDance to enhance its algorithm capabilities. In addition to TikTok and the domestic short video app Douyin, ByteDance also operates a series of popular applications, including an AI chatbot service similar to ChatGPT called DouBao, which has up to 26 million users.

DouBao APP is an AI conversation assistant launched by ByteDance in June 2023. Currently available on the Apple APP Store and major Android app markets, DouBao APP ranks first in downloads among AIGC-type applications, with monthly active users exceeding 26 million and a total of 8 million intelligent entities created.

On May 15th, at the 2024 Spring Volcano Engine FORCE Conference, ByteDance officially launched the "DouBao Large Model". At the same time, ByteDance also announced the market pricing of the large model, with the main model of DouBao priced at 0.0008 yuan per thousand Tokens, which means 0.8 mils can process over 1500 Chinese characters, making it 99.3% cheaper than the industry average.

Insiders also revealed that to support its artificial intelligence business, ByteDance has reserved a sufficient supply of NVIDIA chips. Insiders stated that this includes the NVIDIA A100 and H100 AI GPUs that were already on the market before the first round of high-end semiconductor sanctions in the United States, as well as the A800 and H800 chips tailored for the Chinese market by NVIDIA, which were later restricted.

Insiders also mentioned that ByteDance allocated approximately $2 billion last year to purchase NVIDIA chips. According to insiders, ByteDance also purchased Huawei's Ascend 910B chip last year.

Some information on ByteDance's website shows that the company currently has hundreds of semiconductor-related job vacancies, including 15 positions for ASIC chip designers.

Broadcom - Now and in the future, one of the biggest beneficiaries of the AI boom

One of the biggest winners in the global AI boom, Broadcom, released its second-quarter financial report for the 2024 fiscal year ending on May 5th on June 13th Beijing time. Broadcom is an important chip supplier for Apple Inc. (AAPL.US) and other large tech companies, as well as a core supply force for global large AI data center Ethernet switch chips and ASIC customized chips Driven by the strong demand for chip products and software products related to AI business, the company's latest financial report data and annual forecast data have far exceeded Wall Street analysts' expectations, leading to a surge in stock prices to historic highs thereafter. Broadcom's latest financial report data shows that excluding some special items, Broadcom's second quarter Non-GAAP earnings per share reached a high of $10.96, compared to analysts' average expectation of $10.80, and $10.32 in the same period last year. Broadcom's total revenue in the second quarter has also significantly increased to $12.5 billion, higher than the analysts' average expectation of $12.1 billion, and a staggering 43% increase compared to the same period last year.

Broadcom CEO Hock Tan predicts that the total revenue related to artificial intelligence for the full fiscal year 2024 will exceed $11 billion. The stagnant non-AI chip business revenue of Broadcom in recent years also saw a bottoming out rebound in the second quarter. He mentioned during a conference call with analysts that the second half of the fiscal year 2024 may show a moderate recovery trend.

Broadcom is a leader in RF chips for smartphones like Apple and in the wired and wireless communication fields. In terms of AI underlying hardware, the demand for Broadcom's Ethernet switch chips and AI ASIC chips based on Broadcom's data interconnect technology is extremely strong. It is rumored that tech companies like Google (GOOGL.US) and Microsoft (MSFT.US) often specifically request to purchase Broadcom's Ethernet technology-related hardware products.

More importantly, with its absolute technical leadership position in high-speed data interconnect technology and chip-to-chip communication field, Broadcom has become the most important player in the field of AI ASIC customized chips in recent years, such as Google's self-developed high-performance AI chip for data center servers - the TPU AI accelerator chip, where Broadcom is a core participant alongside the Google team in the development of the TPU AI accelerator chip. In addition to chip design, Broadcom also provides Google with crucial chip-to-chip interconnect communication intellectual property, and is responsible for manufacturing, testing, and packaging new chips, while leveraging its strong chip supply chain network to support Google in expanding new AI data centers.

The strong demand for Ethernet switch chips and ASIC customized chips closely related to AI in Broadcom's fiscal year 2023 and fiscal year 2024 so far can be clearly seen in the continuously better-than-expected strong revenue data. Especially, ASIC customized chips in the AI field have become an increasingly important source of revenue for Broadcom, market reports indicate that tech giants like Microsoft and Meta, the parent company of Facebook, have chosen Broadcom as the core partner for their self-developed AI chips Meta previously collaborated with Broadcom to design the first and second generation AI training accelerator processors for Meta. Analysts widely expect Broadcom to accelerate the development of Meta's next-generation AI chip, MTIA 3, in the second half of 2024 and 2025.

According to the renowned research firm IDC, the total global investment in AI IT systems covering software, hardware, and other related services centered around artificial intelligence (AI) was only about $132.49 billion in 2022. However, it is expected to grow to $512.42 billion by 2027, with a high compound annual growth rate (CAGR) of 31.1%, focusing extensively on generative AI fields similar to ChatGPT.

IDC's latest survey indicates that by 2027, 45% of enterprises are expected to master and use generative AI tools to jointly develop digital products and services, aiming to double their revenue scale compared to competitors. IDC also predicts that the global generative AI market could achieve a CAGR of 85.7%, with the global market size approaching $150 billion by 2027. All these indicate that Broadcom, a leader in Ethernet switch chipsets, one of the core infrastructures of AI, and in the field of customized ASIC chips for AI, is poised to continue benefiting from this unprecedented AI boom in the coming years.**