Why China is betting big on chiplets

But this approach to chipmaking poses a greater challenge to another sector of the semiconductor industry: packaging, which is the process that assembles multiple components of a chip and tests the performance of the finished device. Ensuring that multiple chipsets can work together requires more sophisticated packaging techniques than those involved in a traditional single-block chip. The technology used in this process is called advanced packaging.

It's an easier lift for China. Today, Chinese companies are already responsible for 38% of chip packaging worldwide. Companies in Taiwan and Singapore still control the most advanced technologies, but it's less difficult to catch up on this front.

“The packaging is less standardized, a little less automated. It relies much more on skilled technicians,” says Harish Krishnaswamy, a professor at Columbia University who studies telecommunications and chip design. And since labor costs are still significantly cheaper in China than in the West, “I don't think it will take decades [for China to catch up],” he says.

Money is flowing into the chipset industry

Like anything else in the semiconductor industry, developing chipsets costs money. But driven by a sense of urgency to rapidly develop the domestic chip industry, the Chinese government and other investors have already begun investing in chip researchers and startups.

In July 2023, the National Nature Science Foundation of China, the main state fund for basic research, announced his plan to fund 17-30 chipset research projects involving design, manufacturing, packaging, etc. The organization plans to award between $4 million and $6.5 million in research funding over the next four years, depending on the organization, and the goal is to increase chip performance by “one to two magnitudes”.

This fund is more focused on academic research, but some local authorities are also willing to invest in industrial opportunities in the field of chiplets. Wuxi, a mid-sized city in eastern China, is positioning itself to become the hub of chiplet production, a “Chiplet Valley.” Last year, Wuxi government officials proposed creating a $14 million fund to bring chip manufacturing companies to the city, and that fund has already attracted a handful of domestic companies.

At the same time, a large number of Chinese startups that have positioned themselves to work in the chipset field have received venture capital support.

Polar Bear Tech, a Chinese startup developing universal and specialized chipsets, received more than $14 million in investment in 2023. It launched its first chiplet-based AI chip, the “Qiming 930,” in February 2023. Several other startups, such as Chiplego, Calculet, and Kiwimoore, have also received millions of dollars to manufacture specialized chipsets for cars or multimodal models with artificial intelligence.

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