Latest / Sharp China Podcast / A Memory-Maker Makes History; New Robot Rules; The Open Weights Debate Rages; End of July News and Notes

Transcript

A Memory-Maker Makes History; New Robot Rules; The Open Weights Debate Rages; End of July News and Notes · Sharp China Podcast

• 0:04
  SPEAKER_01: Hello and welcome to Sharp China.
• 0:06
  SPEAKER_01: I'm Andrew Sharp and you are listening to a free preview of today's episode.
• 0:12
  SPEAKER_02: Hello, and welcome back to another episode of Sharp China.
• 0:16
  SPEAKER_02: I'm Andrew Sharp, and on the other line, Bill Bishop.
• 0:20
  SPEAKER_02: Bill, how you doing?
• 0:22
  SPEAKER_02: Hello, I'm doing well.
• 0:24
  SPEAKER_02: Summer winding down here, you know, the Bay Dai Ha break right around the corner.
• 0:28
  SPEAKER_00: Yeah, so we will be on break for the next two weeks.
• 0:32
  SPEAKER_00: Indeed, yes.
• 0:33
  SPEAKER_00: Unless something big happens.
• 0:34
  SPEAKER_00: We won't be at Bay Dai Ha, but we will be...
• 0:38
  SPEAKER_00: Not this year.
• 0:39
  SPEAKER_00: Maybe next year.
• 0:41
  SPEAKER_00: Indeed.
• 0:42
  SPEAKER_02: As the party leadership takes their annual retreat, we will also be taking a retreat.
• 0:47
  SPEAKER_02: Will you be scouring YouTube for SheRumors over the next couple of weeks here?
• 0:52
  SPEAKER_02: I hope not.
• 0:54
  SPEAKER_02: For your sake, I hope not also.
• 0:56
  SPEAKER_00: Honestly, you'll hear them if they're big enough.
• 0:59
  SPEAKER_00: But so far, I mean,
• 1:00
  SPEAKER_00: we had multiple podcasts last summer,
• 1:02
  SPEAKER_00: episodes last summer where we were talking about the crazy rumors.
• 1:05
  SPEAKER_00: They're nothing this year.
• 1:06
  SPEAKER_00: It's kind of interesting.
• 1:07
  SPEAKER_00: It's very quiet.
• 1:08
  SPEAKER_02: Yeah.
• 1:09
  SPEAKER_02: Almost too quiet.
• 1:11
  SPEAKER_02: There was a four or five month churn of Xi rumors.
• 1:14
  SPEAKER_02: My favorite Bay Dai Ha rumor.
• 1:16
  SPEAKER_02: Yeah, exactly.
• 1:17
  SPEAKER_02: And it continued all summer long.
• 1:20
  SPEAKER_02: Remember a couple years ago when there was the Bay Dai Ha break and there was
• 1:25
  SPEAKER_02: a long article about how there was apparently some meeting of
• 1:29
  SPEAKER_02: the retired party leadership related to Xi and his power.
• 1:34
  SPEAKER_02: Do you recall any of that?
• 1:35
  SPEAKER_00: Yeah, I think it was in Nikkei, if I'm remembering correctly.
• 1:38
  SPEAKER_02: That's exactly right.
• 1:40
  SPEAKER_02: It was a Nikkei article.
• 1:42
  SPEAKER_02: It was a great read.
• 1:43
  SPEAKER_02: Indeed.
• 1:44
  SPEAKER_02: You know, that's all I'm hoping for.
• 1:46
  SPEAKER_02: Something colorful coming out of the next two or three weeks.
• 1:48
  SPEAKER_00: I don't think it was based in reality and certainly nothing seems to have come
• 1:52
  SPEAKER_00: of it, but it was still a great read.
• 1:54
  SPEAKER_02: Yeah, I'm in it for the color, if not the substance.
• 1:58
  SPEAKER_02: But for now, we will begin with some substance and new quality productive forces, Bill.
• 2:04
  SPEAKER_02: I got a read from the Wall Street Journal.
• 2:06
  SPEAKER_02: Memory chip maker CXMT soared in its stock The
• 2:14
  SPEAKER_02: company founded just
• 2:16
  SPEAKER_02: a decade ago sported a market capitalization equivalent to $484 billion
• 2:22
  SPEAKER_02: after its opening day of trading in Shanghai,
• 2:25
  SPEAKER_02: topping Industrial and Commercial Bank of China to become
• 2:28
  SPEAKER_02: the most valuable company listed in a mainland Chinese market.
• 2:33
  SPEAKER_02: Shares in the IPO were sold at 866 yuan a share,
• 2:37
  SPEAKER_02: a conservative price that reflected industry uncertainty and a desire to ensure
• 2:42
  SPEAKER_02: a pop following the IPO, analysts said.
• 2:45
  SPEAKER_02: Those lucky enough to win a lottery to buy shares at
• 2:48
  SPEAKER_02: the IPO price saw their money more than quintuple,
• 2:51
  SPEAKER_02: increasing 466% on the first day of trading, with the stock closing at 49 yuan.
• 2:59
  SPEAKER_02: Beyond making conventional DRAM chips,
• 3:02
  SPEAKER_02: CXMT is also leading a state project to develop high bandwidth memory,
• 3:08
  SPEAKER_02: a pricey component used in AI chips and data centers.
• 3:12
  SPEAKER_02: So this was big news this week, Bill.
• 3:14
  SPEAKER_02: I mean, it's the largest IPO ever by a Chinese semiconductor company and
• 3:18
  SPEAKER_02: the largest ever listing on Shanghai Star Market.
• 3:22
  SPEAKER_02: There are policy questions on the American side in light of all this,
• 3:26
  SPEAKER_02: but any thoughts on the pop this week from CXMT?
• 3:30
  SPEAKER_00: No, I mean, it was a very successful IPO.
• 3:32
  SPEAKER_00: I think last week we talked a bit about the regulators' efforts to bring
• 3:38
  SPEAKER_00: the national team and stabilize the stock market,
• 3:41
  SPEAKER_00: which had been on a bit of a downward trend.
• 3:44
  SPEAKER_00: I think one of the reasons they did it last week was to make sure this IPO got off okay.
• 3:48
  SPEAKER_00: Also, this IPO sucked up a lot of liquidity because...
• 3:52
  SPEAKER_00: I read that, yeah.
• 3:53
  SPEAKER_00: And so it was a success.
• 3:55
  SPEAKER_00: It went down a little bit the second day,
• 3:57
  SPEAKER_00: which is a bit uncommon for big IPOs in China, but it was up again on Wednesday.
• 4:01
  SPEAKER_00: I think it's now close to its trading peak on Monday.
• 4:05
  SPEAKER_00: So no, it's a huge success.
• 4:07
  SPEAKER_00: They raise a ton of money.
• 4:09
  SPEAKER_00: It validates the,
• 4:10
  SPEAKER_00: you know,
• 4:10
  SPEAKER_00: there's what's called the Hefei model where Hefei, Anhui,
• 4:13
  SPEAKER_00: Hefei and Anhui province,
• 4:15
  SPEAKER_00: you know,
• 4:15
  SPEAKER_00: the local government through various vehicles invested in multiple companies,
• 4:19
  SPEAKER_00: including NIO,
• 4:20
  SPEAKER_00: the EV carmaker,
• 4:22
  SPEAKER_00: On this one, CXMT, their paper gains are somewhere a bit over a trillion renminbi.
• 4:28
  SPEAKER_00: Oh my God.
• 4:29
  SPEAKER_00: So huge success.
• 4:31
  SPEAKER_00: And the company is a state champion,
• 4:33
  SPEAKER_00: has a lot of money,
• 4:34
  SPEAKER_00: is still behind Micron and the Koreans,
• 4:38
  SPEAKER_00: but I think a very comfortable fourth and will,
• 4:41
  SPEAKER_00: I think,
• 4:41
  SPEAKER_00: probably surprise people both in terms of how it sort of technical advances over
• 4:46
  SPEAKER_00: the next few years, but also how much capacity it actually has.
• 4:50
  SPEAKER_00: Right, yeah.
• 4:50
  SPEAKER_00: There are some sort of off-the-books fabs that are under construction,
• 4:54
  SPEAKER_00: is my understanding, that weren't even listed in the prospectus.
• 4:57
  SPEAKER_00: Some were talked about in, I think, Bloomberg had a story a couple weeks ago.
• 5:01
  SPEAKER_00: I don't think they captured all of them.
• 5:02
  SPEAKER_00: And so it's one of those things that I think,
• 5:04
  SPEAKER_00: at least in terms of capacity, will likely surprise on the upside.
• 5:07
  SPEAKER_02: Well, and they're closing the gap with the industry leaders.
• 5:10
  SPEAKER_02: And it's unbelievable when you look at when SK Hinex was founded, 1983.
• 5:15
  SPEAKER_02: Micron founded in 1978.
• 5:18
  SPEAKER_02: Samsung, obviously a much more diverse company, but they go back to 1938.
• 5:23
  SPEAKER_02: CXMT founded in 2016 and is a meaningful player at this point and at least
• 5:30
  SPEAKER_02: a meaningful concern to the industry leading incumbents.
• 5:34
  SPEAKER_00: But one thing that SemiAnalysis wrote,
• 5:36
  SPEAKER_00: I think in June,
• 5:37
  SPEAKER_00: they had a long piece on CXMT and I think the title was China's CXMT is set
• 5:42
  SPEAKER_00: to challenge DRAM incumbents.
• 5:44
  SPEAKER_00: They point out that the company really was built on the top of a whole bunch
• 5:48
  SPEAKER_00: of patents from a dead German company.
• 5:50
  SPEAKER_02: Oh, interesting.
• 6:05
  SPEAKER_00: Wow.
• 6:05
  SPEAKER_00: Wow.
• 6:27
  SPEAKER_02: That is fascinating.
• 6:29
  SPEAKER_02: I had no idea about any of that backstory.
• 6:32
  SPEAKER_02: Well, and the other side of this is the American side, which is the New York Post.
• 6:39
  SPEAKER_02: They wrote on Tuesday,
• 6:40
  SPEAKER_02: Beijing's historic windfall,
• 6:42
  SPEAKER_02: which sent shares of US chipmakers tumbling on competition fears on Monday,
• 6:48
  SPEAKER_02: is setting off alarm bells in Washington with a bipartisan group of at least
• 6:52
  SPEAKER_02: a half dozen members of Congress saying,
• 6:54
  SPEAKER_02: Expected to send letters to the Trump administration in the coming days,
• 6:58
  SPEAKER_02: sources close to the situation told The Post.
• 7:02
  SPEAKER_02: One senior U.S.
• 7:03
  SPEAKER_02: official told The Post there is, quote,
• 7:05
  SPEAKER_02: a real suspicion that a Chinese Communist Party intervention played a role
• 7:09
  SPEAKER_02: in this so-called IPO just six weeks after the Pentagon designated the firm as
• 7:15
  SPEAKER_02: a Chinese military company.
• 7:17
  SPEAKER_02: So any thoughts on where this might go in Washington over the next couple of months?
• 7:22
  SPEAKER_00: So, I mean, I thought it was funny that the Chinese government played a role.
• 7:25
  SPEAKER_00: I mean, of course they did, right?
• 7:28
  SPEAKER_00: But beyond that,
• 7:29
  SPEAKER_00: I think the backdrop really is that – And the Wall Street Journal has reported this.
• 7:33
  SPEAKER_00: I think some other outlets have reported it.
• 7:35
  SPEAKER_00: There's a real battle between Micron and Apple.
• 7:37
  SPEAKER_00: Apple really wants the U.S.
• 7:39
  SPEAKER_00: government to allow it to use memory from both CXMT and then also from YMTC.
• 7:47
  SPEAKER_00: Which is, I believe, entity listed.
• 7:49
  SPEAKER_00: CXMT is not.
• 7:51
  SPEAKER_00: But Apple is looking for the Trump administration.
• 7:54
  SPEAKER_00: They're lobbying for the Trump administration to say it's okay to use these products
• 7:57
  SPEAKER_00: from CXMT,
• 7:58
  SPEAKER_00: at least in, I think as Apple said, at least in products they sell inside China.
• 8:03
  SPEAKER_00: And they're lobbying furiously.
• 8:05
  SPEAKER_00: Micron is lobbying on the other side.
• 8:07
  SPEAKER_00: And it's very clear that they're very concerned that given the Chinese model
• 8:10
  SPEAKER_00: in other industries, that the It will eat
• 8:13
  SPEAKER_02: into their global competitiveness.
• 8:15
  SPEAKER_00: It'll just destroy the global market and undercut everybody.
• 8:19
  SPEAKER_00: And I think that this letter is likely to make Apple's case more difficult.
• 8:25
  SPEAKER_00: I also hear that there may be more things coming on this story
• 8:28
  SPEAKER_00: that will make Apple's lobbying even more difficult, but remains to be seen.
• 8:31
  SPEAKER_00: Apple was close a few years ago to working with a YMTC.
• 8:37
  SPEAKER_00: And the Financial Times wrote a good, decent story about it a few years ago.
• 8:40
  SPEAKER_00: I think Apple sent a whole bunch of engineers like they do to sort of make sure that
• 8:44
  SPEAKER_00: the technology was up to snuff for Apple devices.
• 8:48
  SPEAKER_00: And the U.S.
• 8:48
  SPEAKER_00: government got wind of it and made it clear to Apple that they weren't going to do
• 8:51
  SPEAKER_00: that.
• 8:53
  SPEAKER_00: But Apple really helped YNTC advance its capabilities.
• 8:57
  SPEAKER_00: Right.
• 8:58
  SPEAKER_02: I mean, that's part of what's interesting here,
• 9:00
  SPEAKER_02: because obviously the context is
• 9:02
  SPEAKER_02: a global memory shortage that's affecting people all over the world,
• 9:06
  SPEAKER_02: particularly U.S. companies.
• 9:07
  SPEAKER_02: But obviously there's insatiable demand in China for memory as well.
• 9:12
  SPEAKER_02: And they want HBM and they want CXMT and YMTC to move up the chain.
• 9:17
  SPEAKER_00: I mean, it's a huge problem for the low cost Chinese mobile phone makers.
• 9:21
  SPEAKER_02: Mm hmm.
• 9:22
  SPEAKER_00: Because they're too expensive.
• 9:24
  SPEAKER_02: On the tech side in America,
• 9:25
  SPEAKER_02: this is all pretty amusing because Apple for years was putting the screws to Micron
• 9:31
  SPEAKER_02: and now Micron has the leverage and has been conservative
• 9:36
  SPEAKER_02: in building out new facilities.
• 9:37
  SPEAKER_02: I'm sorry, I'm sorry.
• 9:55
  SPEAKER_02: Is that US tech companies like Apple would help them scale and move up the chain
• 10:01
  SPEAKER_02: to more advanced memory production and build up domestic capacity,
• 10:06
  SPEAKER_02: which then not only removes a valuable choke point,
• 10:09
  SPEAKER_02: but also threatens the long term viability and competitiveness of Micron, Samsung.
• 10:15
  SPEAKER_00: I think that's certainly the argument that Micron is making.
• 10:18
  SPEAKER_02: Indeed.
• 10:19
  SPEAKER_00: And being pretty public about it and doing things like committing,
• 10:22
  SPEAKER_00: I think the CEO committed,
• 10:24
  SPEAKER_00: or Micron committed like $250 million to the Trump accounts.
• 10:27
  SPEAKER_00: Oh, I didn't realize that.
• 10:28
  SPEAKER_00: Okay.
• 10:29
  SPEAKER_00: Yeah, I was smarter than giving him like a solid gold memory chip wafer, sort of like-
• 10:39
  SPEAKER_00: A gold base or something with a crystal.
• 10:42
  SPEAKER_00: I don't know.
• 10:43
  SPEAKER_00: Right.
• 10:43
  SPEAKER_00: It's all it's all part and parcel.
• 10:45
  SPEAKER_02: Many different inroads into the Trump administration are available to CEOs of the world.
• 10:51
  SPEAKER_02: But it looks to me like it's old.
• 10:54
  SPEAKER_02: It's ultimately a choice between long-term national and industrial security and
• 10:59
  SPEAKER_02: then short-term lower prices for consumers,
• 11:02
  SPEAKER_02: which it's a choice that America has faced.
• 11:05
  SPEAKER_00: Or lower margins for the very high margin Apple, but then the stock goes down.
• 11:09
  SPEAKER_02: I know.
• 11:10
  SPEAKER_02: Well, and Apple clearly raising prices.
• 11:12
  SPEAKER_02: So the margins, any hit to the margins is unacceptable.
• 11:16
  SPEAKER_00: The raising prices didn't hurt,
• 11:18
  SPEAKER_02: right?
• 11:19
  SPEAKER_02: Not so far.
• 11:20
  SPEAKER_02: That's correct.
• 11:21
  SPEAKER_02: I think Apple is, as we record this, the most valuable company on earth.
• 11:26
  SPEAKER_02: Yeah.
• 11:27
  SPEAKER_02: But what's interesting to me is that America has faced that choice
• 11:31
  SPEAKER_02: between long term security interest and short term prices for like 25 years
• 11:36
  SPEAKER_02: in various areas.
• 11:38
  SPEAKER_02: And we've almost always chosen low prices.
• 11:41
  SPEAKER_02: But the consequence.
• 11:42
  SPEAKER_02: I agree with that.
• 11:42
  SPEAKER_02: I think that there's a broader recognition that de-risking,
• 11:44
  SPEAKER_02: decoupling, building, rebuilding industrial base is not free.
• 12:02
  SPEAKER_02: Right.
• 12:02
  SPEAKER_02: And the risk of YMTC and CXMT building out their capabilities and capacity on
• 12:09
  SPEAKER_02: the strength of American companies is a meaningful concern to the U.S. government.
• 12:17
  SPEAKER_00: But at the same time, the U.S. government on CXMT, they have an entity listed it.
• 12:20
  SPEAKER_00: I mean,
• 12:21
  SPEAKER_00: they could do a lot more around controls related to chip manufacturing equipment
• 12:27
  SPEAKER_00: and servicing of that equipment.
• 12:29
  SPEAKER_00: But they're not,
• 12:30
  SPEAKER_00: and they probably won't because the Chinese have fought to a standstill because of
• 12:33
  SPEAKER_00: the rarest dominance.
• 12:34
  SPEAKER_02: It all comes back to Rare Earths.
• 12:36
  SPEAKER_02: Every segment of every podcast, we are in a deep freeze on any sort of combative actions.
• 12:43
  SPEAKER_00: Tweak things on the margins.
• 12:44
  SPEAKER_02: Well, and not relaxing some of the restrictions that are in place in order to do Apple a favor.
• 12:50
  SPEAKER_00: Or actually enforcing some of the restrictions.
• 12:54
  SPEAKER_02: Let's not get crazy.
• 12:55
  SPEAKER_02: That would require a
• 12:58
  SPEAKER_00: functioning BIS, but that isn't happening anytime soon.
• 13:01
  SPEAKER_02: Yeah, we shall see.
• 13:03
  SPEAKER_02: For now, hats off to CXMT.
• 13:05
  SPEAKER_02: I did not know anything about the German patent backstory, but that's fascinating.
• 13:09
  SPEAKER_00: And we'll put the semi-analysis piece, we'll put a link to it in the show notes.
• 13:12
  SPEAKER_00: And congrats to everybody who got an allocation of the IPO because you quintupled your money.
• 13:17
  SPEAKER_02: Yeah.
• 13:17
  SPEAKER_02: I mean, apparently it was pretty scarce.
• 13:20
  SPEAKER_02: And so some of the pop that we saw this week was pretty deliberately engineered.
• 13:25
  SPEAKER_00: It's a low float.
• 13:26
  SPEAKER_00: I know.
• 13:26
  SPEAKER_00: It was a big pop.
• 13:28
  SPEAKER_00: But I mean,
• 13:30
  SPEAKER_00: especially for retail investors,
• 13:31
  SPEAKER_00: there was a lot of orders were put in many, many, many, many times oversubscribed.
• 13:35
  SPEAKER_00: And so getting even like 500 shares was a big deal.
• 13:38
  SPEAKER_02: Yeah.
• 13:39
  SPEAKER_02: But hats off to those people.
• 13:41
  SPEAKER_00: They had a good week.
• 13:43
  SPEAKER_00: 5X is 5X.
• 13:44
  SPEAKER_00: Whether it's 5X and 4,000 renminbi or 4 million, it's still 5X.
• 13:49
  SPEAKER_01: All right.
• 13:49
  SPEAKER_01: And that is the end of the free preview.
• 13:52
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• 13:55
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• 13:58
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• 14:01
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• 14:04
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• 14:08
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• 14:10
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• 14:14
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• 14:15
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• 14:18
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• 14:20
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