Huawei's server "changes lanes" and the domestic server industry is still facing concerns about chip shortages

Jiwei.com reported that the domestic server market has been experiencing turmoil again in recent times.

On the one hand, on October 19, Alibaba's semiconductor company Pingtou Ge launched its first self-developed server chip, Yitian 710, which brought a new breakthrough for domestic server chips; on the other hand, on November 8, the much-rumored sale of Huawei's X86 server business was settled, which added a bit of worry to China's server industry.

Can the waves stirred up by the launch of Yitian 710 open up a new situation for domestic server chips? What kind of hidden worries about domestic server chips are hidden behind the sale of Huawei's X86 server business? What is the domestic server chip landscape behind the different trends of Alibaba and Huawei?

Huawei's server business has changed from dual-line operations to single-line operations

Before the sale, Huawei's server business was mainly divided into two parts: servers based on the X86 architecture and servers based on the ARM architecture. Among them, X86 servers account for the vast majority of Huawei's server shipments, and ARM servers are based on Huawei's own Kunpeng chips, mainly targeting customer groups such as party and government agencies, public institutions, large state-owned enterprises and state-owned banks. The Kunpeng 920 chip was first launched in early 2019 and is produced using a 7nm process. It can support 32, 48, and 64 cores. This was once regarded by the outside world as Huawei's "nuclear weapon" to open up the server market.

Benefiting from the technical advantages of Kunpeng 920 and the desire of domestic enterprises to get rid of their dependence on the United States, Kunpeng server chips have won some orders in the domestic and foreign server markets. In 2020, China Telecom purchased 56,314 servers, of which Huawei won 11,185, accounting for nearly 20%. All of these servers provided by Huawei use Kunpeng 920 chips. In July this year, it was reported that Huawei had received a large server order from Russia to provide server chips for a company in the country. The server chip was Kunpeng 920, which was developed by Huawei itself.

However, under the US sanctions, Huawei's server business, which was about to make its move, temporarily "changed lanes", and its development strategy will also change from a two-way battle of X86 and ARM architecture to a single-line battle of ARM.

In fact, the situation of Huawei's server business has reversed greatly this year compared with last year. In June this year, the results of China Mobile's computing server procurement were released. ZTE, Inspur, Tsinghua Unigroup, and FiberHome won the bid, and Huawei unexpectedly failed to make the list. Bloomberg data shows that under US sanctions, Huawei's server business has been declining since 2021.

In addition, according to the 2021 Q2 global server market report released by IDC, a world-renowned market research organization, Huawei's server revenue fell 45.9% year-on-year to only US$588 million, and its market share dropped from 4.5% in the same period last year to 2.5%, falling out of the top five list and being included in the rest of the market. This is partly due to the impact on the supply of X86 chips, and the production of Kunpeng 920 has also been affected.

It is understood that Huawei's X86 server business belongs to the enterprise business. The goal of Huawei's enterprise business is to be one of the three major businesses that can be on par with the consumer business and the carrier business, and Huawei has high hopes for it. Huawei's rotating chairman Xu Zhijun once said that he is confident that the carrier business and the enterprise business will achieve steady growth.

The precedent of US chip sanctions has made Huawei fearful of relying on a single large supplier. After all, only independent suppliers are the safest. Ren Zhengfei said at the 2020 Gold Medal Employee Representatives Symposium that Kunpeng will continue to work unswervingly and will continue to develop. Therefore, the sale of the X86 business seems helpless but is inevitable.

Now that the X86 business has been sold, it can be expected that Huawei will continue to focus on the high-value Kunpeng route in the future. However, Huawei still has to face challenges in how to solve production and manufacturing, how to build a complete Kunpeng ecosystem, and how to seize market opportunities.

Concerns about the shortage of domestic server chips

In fact, chip shortage is not just a concern for Huawei, it is a dilemma faced by the entire domestic server industry.

As early as July last year, the market had heard that Inspur, the world's third largest and China's largest server manufacturer, had been cut off from Intel's supply. Although it was finally clarified that it was not a "supply cut" in the absolute sense, but only a temporary "supply suspension", in today's volatile international environment, the future of domestic server manufacturers, including Inspur, especially in terms of supply chain, still faces some uncertainties, and they may face the crisis of being "choked" by the United States at any time.

Due to the high technical threshold and difficulty in R&D of server chips, there are only a few players in the world who can enter this field. Currently, the server chip market is still dominated by Intel's X86 architecture, which occupies more than 90% of the market share, and Intel does not license it to others. Coupled with AMD chips, which are also based on the X86 architecture, the United States is the absolute overlord in the server chip market.

In the domestic server CPU market, the X86 architecture is also the absolute mainstream. The top five domestic server manufacturers, H3C, Inspur, Huawei, Lenovo, and Sugon, have achieved remarkable commercial results, but they are highly dependent on Intel, AMD, etc. for core components. The X86 CPUs installed on the servers are all purchased from Intel and AMD.

So what about the development of ARM architecture? ARM is mainly used in the mobile market, occupying 95% of the global mobile chip licensing market, while server chips based on ARM architecture have been trying to get a share of the pie, but have not been able to break through so far.

The latest development is Alibaba's Yitian 710, which was mentioned at the beginning of this article. This product is the first ARM server chip that uses the industry's most advanced 5nm process. Its performance exceeds the industry benchmark by 20%, and its energy efficiency ratio is improved by more than 50%. However, the market now predicts that Yitian 710 will only be used for internal use and not sold to the outside world, so it is basically impossible to promote it to the entire server market.

In addition to Huawei, according to news in June this year, another communications giant ZTE is also quietly deploying ARM server chips. Last year, ZTE stated that it was the second manufacturer in China with 7nm chip technology and was developing 5nm chips. However, there is no definite news on when this chip will be launched.

In addition, companies such as Feiteng, Loongson, Shenwei, Hygon, Macronix, and Zhaoxin have also made layouts in server chips.

Among them, like Huawei, Feiteng also uses ARM architecture. Feiteng launched ARM architecture server chips as early as 2016, and later entered the national centralized procurement list. At present, Feiteng is still continuing to iterate the high-performance server CPU Tengyun S series. On July 23 last year, Feiteng officially released a new generation of scalable multi-way server chips-Tengyun S2500 series, 16nm process, 64-core architecture, 8-way direct connection up to 512 cores.

Zhaoxin and Hygon developed their own server chips by obtaining X86 authorization. Zhaoxin obtained the X86 authorization through VIA, and Hygon is the product of the cooperation between Sugon and AMD. It is understood that Zhaoxin X86 CPU currently has two major series, KX (Kaixian) and KH (Kaisheng) product lines. KX is for the PC market, and KH is for the server market. In December 2019, Zhaoxin announced that it would develop the next generation of processors for the high-performance server market. This product is scheduled to be launched in 2021 and named Kaisheng KH-40000 series processors. But there is no latest news yet.

There is also Shenwei, which "takes an unconventional path" and adopts the alpha architecture. Currently, Shenwei is the only one in the world that uses the Alpha instruction set. Since the "Shenwei Taihu Light", Shenwei has used the self-developed "Shenwei-64 instruction set", getting rid of the patent control of the Alpha instruction set. However, Shenwei is a Chinese military chip manufacturer, and security is the first priority. The self-developed "Shenwei-64 instruction set" should not be used by other chips, which also brings a problem of difficulty in marketization.

There is also Loongson, a domestic representative of self-developed general-purpose processors. In July and September of this year, Loongson released new processor products one after another. On September 24, Loongson Zhongke released the processor Loongson 3C5000L based on the LoongArch independent instruction system. The performance of this processor is 8 times higher than that of the previous generation chip 3B4000, which is fully capable of reaching the level of mid-to-high-end processors in the current PC market. Loongson continues to achieve new leaps and bounds in the field of server chips, which means that with its own controllable chip architecture, China has already mastered a certain voice in the field of server chips. However, it is worth noting that the ecosystem of Loongson processors is not perfect, and it will take time to verify how broad the market can be in the future.

Ning Nanshan, a well-known figure in the industry, pointed out that the reason why server chips are difficult to develop is that there are many obstacles in both technology and ecology. Technically, general-purpose CPUs need to have comprehensive performance and can theoretically do everything that dedicated chips can do, so the research and development difficulty is very high.