Alibaba (BABA -1.57%) is commonly known as the largest e-commerce and cloud platform player in China. But last September, the tech giant formally entered the chipmaking market with a new subsidiary called Pintouge.
That move came a few months after Alibaba acquired Chinese chipmaker Hangzhou C-SKY Microsystems. Pintouge merged C-SKY with Alibaba's own R&D arm, DAMO Academy, and has launched two chips so far. The first one was XuanTie 910, a chip designed for the 5G, AI, and Internet of Things (IoT) markets.
The second chip, Huaguang 800, is an AI inference chip that accelerates machine learning tasks. The chip is already being used to power Alibaba's e-commerce marketplaces, and it plans to offer it to Alibaba Cloud customers in the near future.
The development of these chips gives Alibaba tighter control over its own data centers, cuts long-term costs, and reduces its dependence on American tech as the trade war between the US and China expands into a tech war. It could bolster the strength of the organization's own AI and IoT efforts (like smart retail and connected cars) in its ongoing ecosystem war against Tencent and Baidu, and become a fresh revenue stream if it sells the chips to other companies.
Those moves could all turn Alibaba into a more sophisticated tech giant, but could they also cause serious long-term headaches for Intel (INTC 1.35%)?
Alibaba isn't Intel's rival...yet
Intel's x86 CPUs power most of the world's PCs and servers. Its only meaningful rival in the x86 market is AMD (AMD -2.97%).
Chinese chipmakers briefly gained a foothold in the x86 market via joint ventures with AMD last year, but US regulators forced AMD to scrap those plans amid escalating trade tensions. For Chinese companies, the setback reinforced the notion that they needed to reduce their dependence on foreign chips.
Alibaba's XuanTie 910 is an RISC-V chip. This nine-year-old architecture is an open-source design any company can modify. However, performance issues are still locking RISC-V chips out of the high-end PC and data center markets.
Alibaba's 16-core XuanTie 910 is reportedly the fastest open-source CPU ever made, but it still trails behind top-tier x86 designs. That's why it's mainly targeting the chip at lower-end markets -- like 5G and IoT -- instead of high-end markets like data centers. This makes the XuanTie 910 more of a competitor for Softbank's ARM Holdings than Intel or AMD.
Alibaba's Huaguang 800 is an impressive AI inference chip. In a demo, Alibaba claimed that the chip could categorize a billion product images on its Taobao e-commerce platform in just five minutes -- versus an hour with its current technology. An AI inference chip isn't a CPU -- it's an "accelerator" that works alongside the CPU to handle AI tasks.
These accelerators include GPUs, FPGAs (field-programmable gate arrays), ASICs (application-specific integrated circuits), and other types of custom chips. Therefore, the Huaguang 800 can be considered a potential rival to Intel's Altera FPGAs in the AI accelerator market, but it isn't a threat to the chipmaker's CPUs.
But Intel should watch its back
China wants to produce 40% of its own semiconductors by 2020 and 70% by 2025. That's a lofty goal, but Alibaba's new chips, IBM's decision to make its Power PC designs open source, and other recent milestones (like China's development of its first domestic DRAM and NAND chips) indicate that the country is dead set on hitting those targets.
Therefore, Alibaba and other Chinese chipmakers could launch much more powerful chips in the next few years, and they could eventually catch up to Intel's x86 CPUs. If that happens, Intel investors should brace for impact, since 27% of its revenues came from the People's Republic last year.