A joint venture established by a US chip giant and the government of one of China’s poorest provinces and that was expected to provide a boost to the country’s server chip sector will shut down by the end of April, according to The Information.

The joint venture, Huaxintong Semiconductor Technologies (HXT), was founded in 2016 by Qualcomm and the government of the southwestern Chinese province of Guizhou to design and produce chips typically destined for use data-center servers in China.

The joint venture has research and development centers in Beijing and Shanghai and is 55% owned by the Guizhou government and 45% by Qualcomm.

The two parties planned to invest a total amount of RMB 4.4 billion (around $655 million) in the venture. As of August 2018, Qualcomm and Guizhou government had invested a combined RMB 3.8 billion in HXT, according to Chinese corporate database Tianyancha.

Executives at HXT said in internal meetings last week that the collaboration would cease by April 30, according to The Information, citing HXT employees.

HXT hasn’t officially confirmed the report yet. The company’s official website does not list any contact information and nobody replied to an inquiry from TechNode sent to HXT’s contact email address listed on Tianyancha.

Stewart Randall, head of electronics and embedded software of Shanghai-based consultancy Intralink, told TechNode that a scheduled meeting between him and HXT in May had been canceled—something he attributed to the closure.

Lack of faith

Backed to 2016 when it was established, HXT was highly valued by the Guizhou province—the province’s Communist Party chief and government head both attended the company’s foundation ceremony.

Guizhou, which was considered as a rural and impoverished province, is now trying to achieve faster economic growth by investing in a series of hi-tech industries such as big data and artificial intelligence. HXT was expected to be the first batch of Chinese companies to have the ability to develop and produce server chips used in data centers.

“The cooperation with Qualcomm is a bonanza for Guizhou to develop its integrated circuit industry,” Qin Rupei, acting vice governor of the province, said during the foundation ceremony.

The company released its first generation of commercially available processor for servers, the StarDragon 4800, and announced its mass production in November 2018. The StarDragon 4800 is based on the ARM, an architecture adopted by Qualcomm to build server chips.

In December, Qualcomm laid off 269 employees at its offices in the US, mostly in its data center unit. That round of layoffs, plus other similar redundancies in 2018 in its data center business unit, reduced the number of employees working for that company unit to about 50 from nearly 1,000 one year before, indicating that Qualcomm was planning to retreat from the server chip sector.

The data center business unit of Qualcomm was established to develop processors for data-center servers, and HXT relies on that technology to develop server chips in China.

Qualcomm said in subsequent a statement that it planned to continue supporting the HXT server joint venture. However, Qualcomm’s decision to pull out of ARM server chip market last year wasn’t a good sign for HXT, considering it is a joint venture with Qualcomm and Guizhou government, said Stewart of Intralink. He added that this probably made the Guizhou government less confident in their investment.

With both sides of the joint venture lacking faith in the server chip sector, HXT appears to have been faced with the prospect of a funds crunch as the global market for ARM servers remains lukewarm.

Intel holds more than 95% of the market with its server chips that are run on the so-called x86 architectures, a family of instruction set architectures based on the Intel microprocessors.

A bid to challenge Intel

The booming mobile network and cloud computing are run by data centers all over the world, making for strong server chip demand.

Qualcomm, which specializes in mobile chips, has spent hundreds of millions of dollars developing substitutions for Intel server chips based on the ARM architectures.

Qualcomm began selling a server chip, the Centriq 2400 based on ARM, from 2017. At launch in November 2017, the chip line had drawn interests from potential customers such as Microsoft, whose Azure is the world’s second-largest cloud service provider.

But since then Qualcomm has been silent about the Centriq chip’s progress.

The HXT joint venture was also part of Qualcomm’s bid to challenge Intel’s server chip market dominance. The partnership with the provincial government would potentially have given the company easier access to the Chinese data center market, as Guizhou wants to become a big data hub in China.

“Designing and manufacturing such a large complicated chip means spending lots and lots of money and time,” said Stewart. “It seems that HXT couldn’t stick it out.”

Writing about semiconductors and telecommunications.

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