Chinese crypto and artificial intelligence mogul Zhan Ketuan is facing a crisis.
US custom officials in recent months have impounded some shipments of Bitcoin mining rigs made by his company Bitmain. The pressure on the 45-year-old billionaire ramped up further this month, after Washington sanctioned his other companies that design and source artificial intelligence processors.
It is not the first time that Zhan’s ambitions to build China’s answer to Nvidia have jeopardised his business empire. Bitmain was nearly undone five years ago by his heavy spending to develop AI chips, sparking a civil war with his co-founder for control of the company.
While Bitmain continues to focus on crypto mining, Zhan subsequently shifted those AI chip efforts into Xiamen Sophgo Technologies, which along with 15 affiliates, was added to the US commerce department entity list this month.
The company’s troubles began when an AI processor made by the world’s premier chip fabricator, Taiwan Semiconductor Manufacturing Company, was found in a Huawei AI card, allegedly circumventing sanctions. TSMC began investigating if it was purchased by Sophgo.
The US said that Sophgo posed a risk of diversion to Huawei and alleged it was “acting at the behest of Beijing” to build up China’s indigenous chip production.
Sophgo, Bitmain and Zhan did not respond to requests for comment. Sophgo has previously denied working with Huawei and Bitmain said it was not involved in the matter.
TSMC declined to comment on customer relationships but said that, as a law-abiding company, it was committed to complying with all applicable rules and regulations including export controls.
Zhan’s latest challenges show the hurdles Chinese entrepreneurs face, particularly for those keen to make a mark in semiconductors, where the whiplash of US-China geopolitics has set back many of the country’s most ambitious tech companies.
People with knowledge of Sophgo’s operations describe a number of semiconductor related business lines. They include designing in-house AI processors and central processing units for supercomputers, as well as sourcing cutting edge Nvidia graphics processing units for Chinese data centres.
The US blacklisting formally cuts Sophgo off from TSMC, and could potentially pose challenges for its partner Bitmain, which also relies on the Taiwanese chipmaker to manufacture its chips.
People close to Bitmain said access to TSMC helped it become the world’s dominant maker of Bitcoin mining rigs with an estimated 80 per cent of the market. For years Bitmain spent hundreds of millions of dollars pre-purchasing TSMC capacity, forcing rival miner makers to turn to other less capable chip foundries, the people said.
“The energy-efficient chip is the heart of a mining machine,” said Nishant Sharma, founder of crypto mining advisory BlocksBridge Consulting.
Zhan was designing chips for TV sets when Bitcoin started to gain traction. In 2013, he turned his technical prowess towards designing specialised processors known as ASICs to more efficiently execute the hashing algorithms that unlock new Bitcoins. By 2017, Bitmain’s sales had jumped to $2.5bn, according to an IPO prospectus.
Zhan’s vision for the company expanded towards AI. In the US, Google had just unveiled ASICs for running deep-learning algorithms, which it called TPUs.
“We are a company focused on high-performance processors,” Zhan told a gathering in Beijing in 2017. “We started with cryptocurrency processors and now we’re entering artificial intelligence, it’s a new area of application but not a complete pivot.”
Bitmain’s first AI chip, the BM1680, was made by TSMC and shipped in 2017. But then the price of bitcoin started to fall, and along with it demand for crypto mining rigs. Hopes for a blockbuster Bitmain IPO in Hong Kong vanished.
The start-up laid off hundreds of employees and Zhan’s co-founder Wu Jihan ousted him and reined in spending on AI. Zhan fought back by taking control of a Bitmain AI chip unit registered in his hometown of Fujian and sued Wu. The company, Fujian Sophon, told a court that Zhan’s ousting had the potential to change the direction of “our country’s chip and blockchain development”. Eventually Wu left.
In 2022, Zhan moved Bitmain’s AI chip efforts to Sophgo, which he owned almost entirely when it was set up. The lines between the two companies remain blurry. Bitmain’s and Sophgo’s affiliated entities share some executives, addresses and phone numbers in official Chinese business records. Last year, they jointly sought to recruit new graduates at Harbin Institute of Technology, according to an advert.
One customer for their AI chips, Haitu Technology, described Sophgo as Bitmain’s “recommended distributor” in a filing to Chinese securities regulators in late 2022. Bitmain itself does not sell its AI processors to small and medium-sized companies, Haitu said.
Sophgo has sent its AI processors to public security bureaus and smart city projects in Fujian, Anhui and Beijing, according to a company presentation seen by the Financial Times. Its AI accelerators have also been used to build an AI computing cluster in Shandong.
Nick Brown, a researcher at the University of Edinburgh, said the company’s latest CPU, the SG2042, represented a leap forward for the open source RISC-V architecture it was built on, and was comparable with Intel and AMD processors for some supercomputing tasks.
“For workloads that need lots of computation, lots of processing, lots of calculations, it performs really well,” Brown said, after testing the chips on the university’s supercomputing hardware.
“It’s the first RISC-V CPU that you could say is a serious proposition for high performance workloads,” said Brown.
Public records show some Chinese supercomputing centres, which are cut off from American chips, have begun to use Sophgo’s processors.
“Once Chinese companies gain a foothold, western companies basically stand no chance,” Zhan told a conference in 2019. Now Sophgo will have to figure out how to get its processors made in China.
Additional reporting by Eleanor Olcott and Nian Liu in Beijing
