Benzinga | Dec 28, 2021 10:50AM EST

China Presses Alibaba To Design Chips

China's ruling Communist Party is pushing Alibaba Group Holding Ltd (NYSE:BABA) to take on the tricky, expensive business of designing its processor chips to help make China a self-reliant "technology superpower," Gadgets 360 reports.

* In October, Alibaba's 3-year-old chip unit, T-Head, showcased its third processor, the Yitian 710, for Alibaba's cloud computing business.

* Alibaba says, for now, it has no plans to sell the chip to outsiders.

* Other rookie chip developers, including Tencent Holdings Ltd (OTC: TCEHY), Xiaomi Corp (OTC: XIACY) (OTC: XIACF), pledged billions of dollars in line with official plans to create computing, clean energy, and other technology that can build China's wealth and global influence.

* China accounts for 23% of global chip production capacity but only 7.6% of sales.

* Beijing's campaign adds to the tension with Washington and Europe, which see China as a strategic competitor and complain it steals technology.

* China's factories assemble the world's smartphones and tablet computers but need components from the U.S., Europe, Japan, Taiwan, and South Korea.

* Huawei Technologies Ltd and some Chinese rivals are close to matching Intel Corp (NASDAQ:INTC), Qualcomm Inc (NASDAQ:QCOM), South Korea's Samsung Electronics Co Ltd (OTC:SSNLF), and Britain's Arm at being able to design "bleeding edge" logic chips for smartphones, according to industry analysts.

* However, China foundries like state-owned SMIC are up to a decade behind industry leaders, including Taiwan Semiconductor Manufacturing Co Ltd (NYSE:TSM), which produces chips for Apple Inc (NASDAQ:AAPL) and other global brands.

* Even companies like Alibaba require Taiwanese or other foreign foundries to make chips.

* China's SMIC is about one-third as precise at 14-nm. TSM looks to increase its precision to 2-nm. SMIC wants to upgrade by purchasing ASML Holding NV's (NASDAQ: ASML) latest machine.

* Price Action: BABA shares traded lower by 1.31% at $115.06 in the market session on the last check Tuesday.