Google’s China shift and the battle over AI models

金融时报（科技），金融时报科技版块 - 来自金融时报的最新科技新闻与分析。关注

Hi everyone! This is Lauly, your #techAsia host this week, sending warm greetings from humid and rainy Taipei.

I was chatting with an executive working for an Apple supplier last night about the dynamics in his industry. He told me he recognised Taiwan Semiconductor Manufacturing Co’s importance to the global tech industry as early as the 2000s and that he even publicly argued with a well-known media figure who didn’t appreciate the contract chipmaker’s value.

In a fit of pique, he said, he bought 20mn New Taiwan dollars ($627,274) worth of TSMC shares at an average price of NT$55 each and hasn’t sold a single share since. With TSMC’s stock price currently above NT$2,300, the value of his holdings has ballooned to around NT$840mn.

“All the fine dining and good wine I’ve had are thanks to Morris, Mark and CC,” the executive said, referring to TSMC’s former and current chairmen.

That reminded me of an executive with a TSMC chip equipment supplier who shared with me his plan to take his entire family to Europe for a week for their summer vacation. They would be flying business class and staying in a luxury suite at a five-star hotel that costs $6,300 a night, a rate he described as “reasonable.”

All I can say is that my imagination has been limited by my poverty.

Jokes aside, demand for artificial intelligence infrastructure remains strong, according to my recent interviews with executives from different sectors and earnings calls by server suppliers like Foxconn, Pegatron, Quanta and Compal.

Quanta, for example, increased its capital expenditure this year to NT$40bn from a previous plan of NT$30bn in order to expand capacity in California, Thailand and Taiwan. By the end of this year, Quanta expects its global AI server capacity to be double what it was last year, while its orders are “already full until 2028.”

Lite-On Technology, a leading provider of AI server power supply solutions, and Unimicron, the world’s largest chip substrate supplier, also hiked their capital expenditure to record levels, while Foxconn expects its spending to increase 30 per cent from last year’s record of NT$173.8bn.

Such massive capacity expansions, however, have resulted in production equipment becoming a bottleneck, industry people say. Lead times for tools such as testing equipment for power supplies and weaving machines for high-end glass cloth have reached as long as 30 to 50 weeks. China’s export controls on certain raw materials and rare earths, plus increasing prices for already expensive metals, have also complicated the delivery of production equipment.

On top of that is uncertainty over US-China relations.

A friend of mine told me that his company is worried that escalating political tensions could jeopardise its supply chain continuity. Company executives, he says, have been caught in a debate over whether to switch all of the Chinese vendors supplying tools for its consumer electronics hardware to non-Chinese ones.

“I couldn’t help but wonder: Do we really need to decouple China down to this level? Is it really necessary?” my friend asked.

I’ve been thinking about such questions too.

Pixel shift

Google has told suppliers that it plans to end production in China of all its Pixel hardware next year amid ongoing US-China tensions, according to this exclusive story by Nikkei Asia’s Lauly Li.

The decision covers smartphones, smartwatches and wireless earbuds and comes after the US tech giant’s attempt to develop and mass-produce its higher-end Pixel smartphones in Vietnam proved successful, sources familiar with the matter said.

This move, once it materialises, will make Google the second smartphone company after Samsung Electronics to shift production outside China. The South Korean tech company has built a mature smartphone supply-chain ecosystem in Vietnam.

Google also told suppliers it aims to raise Pixel phone shipments by 8 per cent to 10 per cent this year as the company hopes to aggressively expand its market share despite the skyrocketing prices of memory chips amid a supply crunch.

Bit by bit

Small batches of Nvidia’s H200 chips have been allowed to enter mainland China, as Beijing tries to aid its leading AI companies in the race to catch up with US rivals, writes the FT’s Zijing Wu.

ByteDance and Tencent have each received about 10,000 H200 processors in recent weeks, while a few other Chinese tech groups could soon obtain approval for shipments of similar size, according to two people with knowledge of the matter.

The H200 is at least two generations behind Nvidia’s most powerful chips, which Chinese customers are not allowed to buy due to US export controls.

While the Chinese groups have been cleared by the US to buy up to 100,000 H200s apiece, Beijing wants them to keep most of these chips outside the mainland to support domestic chipmakers, one of the people said.

In addition to the small number of H200 chips permitted to enter the mainland, Chinese regulators have told companies that they can ship such processors to Hong Kong, which operates as a territory outside its customs border, and use them there.

The US licences permit shipments of Nvidia’s H200 chips to mainland China and Hong Kong.

Allowing the chips into Hong Kong still presents a challenge to Chinese tech groups as the former British colony lacks enough data centres to house them. That situation is unlikely to change soon, as Hong Kong doesn’t have sufficient capacity due to power supply issues.

Open rivalry

Open-weight AI has become the latest front in the ongoing US-China tech war, with heated debate in Washington over whether and how to restrict Chinese models despite Silicon Valley’s pushback, Nikkei Asia’s Yifan Yu and Cissy Zhou report.

The debate was kicked into high gear when China’s DeepSeek released its V4 Pro open-weight artificial intelligence model.

Open-weight models are freely available to download, and anyone can run, fine-tune and build products on top of them. They do not, however, allow access to the training data behind the model, which is the key difference between them and open source models.

Critics have raised concerns over the possibility of potential bias in Chinese open-weight models or “backdoors” that could give the Chinese government covert access. Many US tech companies, however, have voiced strong opposition to a ban on Chinese open-weight models.

Material concerns

Beijing is restricting or delaying exports of key aerospace and optical materials to Taiwan, causing supply chain bottlenecks for several industries at the key Asian tech economy, according to this scoop by Nikkei Asia’s Cheng Ting-Fang and Lauly Li.

Several optical technology manufacturers and chip equipment suppliers have encountered hurdles and delays in securing materials from suppliers in China due to prolonged customs checks without clear reasons, according to multiple sources.

As a result, suppliers have experienced being forced to cancel orders or having production lead times extended without a clear timeframe, the people said.

The affected materials include germanium- and quartz-based materials, which both are critical for lenses used in a wide range of industries like aerospace, defence and semiconductor manufacturing. China is a key global supplier of such materials and it has been weaponising export controls for these materials amid geopolitical uncertainties.