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China tech

China's top AI chip unicorn to raise $368m in Shanghai debut

Beijing wants Cambricon to become homegrown rival to Intel and Nvidia

Founded in 2016, Cambricon is expected to make an initial public offering of shares this month in Shanghai.   © AP

TAIPEI -- China's flagship artificial intelligence chip startup Cambricon Technologies is set to raise 2.58 billion yuan ($368 million) in its initial public offering that Beijing hopes will accelerate its challenge to dominant U.S. rivals.

The IPO on Shanghai's STAR tech market would be the first by a Chinese homegrown AI chip startup and would underline Beijing's commitment to facilitating capital flow to strategic chip developers. It follows a plan by Semiconductor Manufacturing International Corp. -- China's biggest contract chipmaker -- to raise at least $6.55 billion in the biggest-ever offering on STAR, which China touts as its version of the U.S. Nasdaq market.

At the proposed price of 64.39 yuan a share, Cambricon's stock debut would value the four-year-old company at approximately 25.76 billion yuan, or $3.65 billion. The listing is expected to take place as early as this month.

However, the scale of Cambricon's fund-raising is slightly lower than its previous aim of 2.8 billion yuan.

Cambricon was founded in 2016 by Chen Tianshi, a researcher at the Chinese Academy of Sciences, the country's top research agency. Beijing hopes the startup can break the dominance of U.S. groups such as Intel, Nvidia and Xilinx in developing AI-capable chips.

"The scale of funds we raise this time is mainly affected by market factors," Chen, also Cambricon's CEO, told an online investors' conference on Tuesday without elaborating. "The funds we raise will still be able to support our future business development."

Chen added that there were big opportunities for AI chip companies like Cambricon to continue to develop thanks to strong government policy support and growing demand in the market. "However, we do see we are short of high-end talents in the sector [and that is] one of the key challenges ahead," Chen said.

Early investors in Cambricon include Alibaba Group Holding, Lenovo Group, iFlytek and several Beijing-backed funds.

Cambricon drew attention in 2017 when its AI intellectual property was used in tens of millions of handsets produced by Huawei Technologies, China's biggest smartphone maker, which introduced the world's first AI processor in its flagship Mate phones.

The startup also completed a Series A fundraising in 2017 that pushed its valuation past $1 billion, making it China's first AI chip unicorn.

Beijing hopes to nurture a $150 billion artificial intelligence industry by 2030, an aggressive goal that has raised alarm in Washington, as China vies with the U.S. for tech supremacy.

However, Cambricon faces stiff competition in a market where all global tech players are making big bets.

"Nvidia, Intel, Qualcomm, MediaTek, Arm and Huawei are all investing heavily in artificial intelligence computing and many of them launched acquisitions to enhance their AI capability," the company said in its IPO prospectus. "That could potentially squeeze our market and impact our business outlook."

Chen on Tuesday said that "there is still enough room in the market for independent AI chip companies to thrive."

For example, Huawei -- once Cambricon's biggest client -- has become a direct competitor after it decided to use AI chips designed by its own chip arm HiSilicon Technologies since 2018. "We could not immediately find other clients to make up for the losses ... our intellectual property licensing sales will continue to decline this year," the prospectus said.

Despite being an early backer of Cambricon, Alibaba Group Holding also introduced its own AI chips for data center servers and became a potential competitor.

Cambricon's other clients include Sugun, Lenovo Group and China's leading server maker Inspur, according to the company. However, Sugon was added to a trade blacklist by the U.S. Department of Commerce last year, citing security risks, while Inspur was flagged with connections to the Chinese military by the American Defense Department this June.

The startup's revenue has grown exponentially to 443.9 million yuan in 2019, from only 7.84 million yuan in 2017. But it has recorded losses since it was established due to heavy research and development investments, according to the company. In 2019, net loss was 1.17 billion yuan.

Key strategic investors include Lenovo Group, the world's largest personal computer maker, China's No. 2 smartphone maker Oppo, as well as Chinese home appliance maker Midea. The three will participate in Cambricon's IPO, Cambricon said in a stock exchange filing.

Jeff Pu, a tech analyst at GF Securities, said AI chip startups can be challenged if they do not find sustainable users of their technologies.

"For an AI chip developer to continue to thrive, it must find as many users and adopters of its technologies, from one generation to another," said Pu. "The competition Cambricon faces is enormous. All the world's most deep-pocket tech companies are betting big on AI."

Additional reporting by Nikkei staff writer Lauly Li in Taipei

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