U.S. Commerce Secretary Gina Raimondo stated on January 26th that the U.S. government will propose that American cloud computing companies determine whether foreign entities are accessing U.S. data centers to train artificial intelligence models.
According to a report from Reuters, Raimondo stated during her interview that, “We can’t have non-state actors or China or folks who we don’t want accessing our cloud to train their models.”
“We use export controls on chips,” she noted. “Those chips are in American cloud data centers so we also have to think about closing down that avenue for potential malicious activity.”
Raimondo further claimed that, the United States is “trying as hard as we can to deny China the compute power that they want to train their own (AI) models, but what good is that if they go around that to use our cloud to train their models?”
Since the U.S. government introduced chip export controls to China last year, NVIDIA initially designed downgraded AI chips A800 and H800 for Chinese companies. However, new regulations in October of 2023 by the U.S. Department of Commerce brought A800, H800, L40S, and other chips under control.
Raimondo stated that the Commerce Department would not permit NVIDIA to export its most advanced and powerful AI chips, which could facilitate China in developing cutting-edge models.
In addition to the limitations on NVIDIA’s AI chips, the U.S. government has also imposed further restrictions on specific equipment. For example, ASML, a leading provider of semiconductor advanced lithography equipment, announced on January 1st, 2024, that it was partially revoking export licenses for its DUV equipment in relation to the U.S. government.
After obtaining approval from Chinese regulatory authorities at the end of November, Broadcom, a leading IC design company, has officially completed the acquisition of VMware, a prominent player in cloud computing. This strategic move propels Broadcom into the competitive cloud market, with software becoming a substantial part of its revenue. This trend of IC design companies, including AMD, Qualcomm, and Nvidia, venturing into software acquisitions continues to reshape the industry landscape.
Broadcom announced the acquisition of VMware on May 26, 2022, through a cash and stock transaction valued at USD 61 billion. After obtaining approvals from global regulatory authorities, including the EU, UK, South Korea, and Japan, the final conditional clearance from Chinese authorities was secured. This clearance involved ensuring compatibility between VMware server software and Broadcom hardware competitors’ products. The official announcement of completion came on November 22, 2023, following approval from Chinese authority. The final total transaction value came to USD 69 billion.
VMware, known for its expertise in cloud computing and virtualization software, separated from Dell in late 2021. With a customer base exceeding 400,000, it competes with Nutanix and Cloud Software Group. VMware’s core service lies in multi-cloud management, streamlining the integration of cloud resources from various vendors. It enables customers to manage multiple public clouds on a unified platform. The VMware platform significantly reduces the time needed for data migration to different public clouds, from 45 months to approximately 2.5 months.
Broadcom’s Software Business Soars to 40-45% Share after Acquisition, Ventures into Cloud and AI Markets
In 2023, VMware is expected to dominate the server virtualization market with a market share exceeding 70%. VMware’s strategic plan involves increasing the sales share of subscription services and cloud services from 25% in 2021 to 40% by 2025. With Q2 2023 revenue of USD 3.41 billion, almost double the size of Broadcom’s software business, the merger positions Broadcom’s software business to account for 40-45% of the total revenue.
This May, Broadcom CEO Tan Hock Eeng publicity stated that his company is committed to an annual investment of USD 2 billion in VMware’s R&D. Following the acquisition, Broadcom’s software division will be rebranded as VMware, and a shift from perpetual software licenses to subscription and SaaS models is planned. Broadcom aims to increase VMware’s EBITDA from USD4.7 billion in the 2022 fiscal year to USD 8.5 billion within three years.
Besides Broadcom’s entry into the cloud market through VMware, TrendForce also highlights VMware’s significance as a key partner for NVIDIA. The expanded strategic partnership, announced in August 2023, resulted in the establishment of Private AI Foundation with NVIDIA. Built on the VMware Cloud Foundation, the Private AI Foundation is a platform that allows enterprises to customize models and deploy Generative AI applications. The acquisition positions Broadcom to tap into NVIDIA’s AI ecosystem, providing an opportunity to join the NVIDIA AI server supply chain and explore the immense potential brought by AI.
Tech Giants Embrace Ecosystem Competition as IC Design Firms Dive into the Software Industry
To enhance customer loyalty, major companies including Apple, Microsoft, Google, have progressively taken part in ecosystem competition in recent years. These companies have successfully established robust ecosystems. At the same time, IC design companies are gradually venturing into the software industry, shifting the focus from mergers within the IC design sector to mergers in the software industry. In addition to Broadcom acquiring VMware, notable instances in 2022 include AMD’s acquisition of data center platform provider Pensando, Qualcomm’s purchase of automotive software companies Veoneer and Arriver, and NVIDIA’s takeover of software-defined storage(SDS) company Excelero.
For Broadcom, strategic acquisitions have been a recurring theme since the failed attempt to acquire Qualcomm in 2018, after former U.S. President Donald Trump blocked it with national security concerns. Notable acquisitions include the USD18.9 billion purchase of mainframe service company CA Technologies in 2018, the USD 10.7 billion acquisition of the security division of Symantec in 2019, and the unsuccessful attempt to acquire statistical analysis software company SAS Institute for USD15-20 billion in 2021.
Buying software companies provides Broadcom with the advantage of leveraging cross-selling. This enables the promotion of its products, such as compute offload business, server storage connectivity, fiber optics, Jericho routers, and Tomahawk switches, to enterprise customers adopting solutions from these software companies.
According to TrendForce, the global quantum computing market was valued at US$470 million in 2021, an increase of 16.7% compared to 2020. This market is mainly led by China and the United States, driving global quantum computing and its technological progress, especially in upper-layer software. In terms of algorithmic speed, small-scale problems have been put to the test through experimentation. The market is expected to reach US$580 million in 2022, with an annual growth rate of approximately 18.8%, and current growth rate expanding every year until 2027.
According to TrendForce, as stated in the Chinese government’s plan for software and information technology services, its quantum technology policy will be further implemented from a national level to departments including national defense, industry, and technology and more targeted policies will be released through tiered departmental levels such as for AI, quantum information technology, biotechnology, semiconductors, and autonomous systems. To this end, the Chinese government is establishing relevant laboratories in Beijing, Shanghai, and Hefei to promote the rapid development of quantum technology and quantum computing cloud platforms.
When China launched its “Five-Year Plan” in 2006 to promote economic and industrial development, it also focused on the development of quantum science and technological breakthroughs, as well as the deeply integrated development and application of quantum computing in emerging technologies such as AI, edge computing, big data, IoT, and cloud such as advanced space quantum communication technology and quantum computing combined with AI/ML, IoT, and cloud, providing assistance to the Chinese Academy of Sciences’ quantum satellites, the University of Science and Technology of China’s quantum computer, and other quantum processors to achieve breakthroughs in technology and functional characteristics. Therefore, the cumulative investment in China’s quantum field is estimated to reach US$15 billion in 2022.
Main applications of China’s quantum computing market
Considering the immense size, extremely harsh operating environment, and high price of quantum computers, quantum computing applications are rapidly developing towards cloud platforms. Therefore, research on quantum computers primarily focus on four types of applications: simulation, optimization, cryptography, and machine learning. “Simulation” is most used in processes that occur in nature such as weather forecasting, mid- and long-term climate deductions, and polar climate change. It is also widely used in fluid mechanics, drug discovery, battery design, and high-frequency trading, derivatives, and options pricing in the financial industry.
“Optimization” is the use of quantum algorithms to determine the best solution among a set of feasible options and is mostly used for risk management in traffic arteries, logistics, self-driving navigation systems, and financial investment portfolios. “Machine learning” is used to identify patterns in data and statistics, enhance the training of machine learning algorithms, accelerate AI development, and introduced to self-driving cars and financial systems to prevent fraud and money laundering.
As enumerated above, the scope of quantum computing applications is gradually expanding, covering fields including supply chain, finance, transportation, logistics, pharmaceuticals, chemicals, automobiles, aviation, energy, and meteorology. Sectors such as pharmaceuticals, chemicals, and new materials use quantum operations to analogize molecular properties, directly analyze and obtain large molecular properties through a computerized digital format, shorten the time for theoretical verification, and thereby accelerating drug research and development and the development of new materials.
In the automotive field, in order to accelerate the promotion of electrification strategies, major carmakers have applied quantum computing to chemical analogies and are committed to developing batteries with better performance. In the aerospace field, quantum computing is used to solve some of the most difficult challenges facing the aviation industry, from basic materials, product research and development, machine learning optimization, to complex system optimization, and are even changing the way aircraft are made and fly.
According to TrendForce research, the global high-performance computing market reached approximately US$36.8 billion in 2021, growing 7.1% compared to 2020. The United States is still the largest market for high-performance computing in the world with an approximate 48% share, followed by China and Europe, with a combined share of approximately 35%. Segregated into application markets, high-performance computing is most widely used in scientific research, national defense/government affairs, and commercial applications, with market shares of 15%, 25%, and 50%, respectively. In terms of product type, software (including services) and hardware account for 58% and 42% of the market, respectively.
Since high-performance computing can support data analysis, machine learning (ML), network security, scientific research, etc., it plays a key role in military fields such as nuclear warhead design and missile explosion simulations. Therefore, there are relatively few players occupying key positions in the value chain. Primary suppliers are Fujitsu, HPE, Lenovo, and IBM. These four manufacturers account for a market share of approximately 73.5% globally.
In addition, the continuous development of smart cities, smart transportation, self-driving cars, the metaverse, and space exploration and travel programs launched by Space X, Blue Origin, and Virgin Galactic will increase the demand for high-performance computing focused on R&D and testing along the two major axes of simulation and big data processing and analysis. The global high-performance computing market is expected to reach US$39.7 billion in 2022, with a growth rate of 7.3%. The CAGR (Compound Annual Growth Rate) of the global high-performance computing market from 2022 to 2027 will be 7.4%.
In view of this, the global high-performance computing market is growing steadily but not by much. The reason is that many of the aforementioned commercial application terminals are still in the growth stage, so high-performance computing technologies and solutions adopted by cloud service providers are limited to local deployment This enables HPC servers to scale on-premises or in the cloud and provides dedicated storage systems and software to drive innovation, thereby accelerating the development of hybrid HPC solutions.
In terms of end-use, the high-performance computing market is segmented into BFSI (Banking, Financial Services and Insurance), manufacturing, healthcare, retail, transportation, gaming, entertainment media, education & research, and government & defense. High-performance computing’s highest revenue share was derived from the government and defense market in 2021, primarily due to related agencies actively adopting cutting-edge and advanced IT solutions to improve computing efficiency. At present, government agencies in the United States, China, Japan, South Korea, as well as European countries have successively adopted high-performance computing systems to support digitization projects and contribute to economic development. Therefore, in 2021, the global scale of the on-premise high-performance computing server market was US$14.8 billion, of which Supercomputer, Divisional, Departmental, and Workgroup accounted for 46.6%, 18.9%, 25%, and 9.5% of the market, respectively. The global on-premise high-performance computing server market in 2022 is expected to reach US$16.7 billion with Supercomputer and Divisional growing by 11.5% and 15.2% compared with 2021.