Chinese authorities, led by the State-owned Assets Supervision and Administration Commission (SASAC), are conducting a survey to assess the extent to which state-backed data centers utilize Broadcom's networking switches. This review is part of a national campaign to promote the adoption of domestic semiconductors and AI products within the public sector, aligning with China's goal of technological self-sufficiency amid ongoing rivalry with the US.
Initial findings suggest that Broadcom's penetration rate in state-owned data centers could be as high as 90%. The survey also investigates whether Broadcom's practice of bundling products or requiring large purchases, sometimes up to tens of thousands of units, has limited market access for Chinese competitors like H3C Technologies and Ruijie Networks. While not a formal ban, this review could lead to informal guidance encouraging a reduction in the use of foreign hardware, similar to previous restrictions on Nvidia products in state-backed infrastructure.
The demand for AI training infrastructure in China presents a significant market opportunity, potentially worth billions of dollars, for local switch suppliers. Companies such as H3C and Ruijie, which are already listed as preferred vendors in government procurement guidance, stand to benefit from a shift away from foreign suppliers. Huawei, another major domestic player, also sells high-end switches, though its products are noted to be less energy efficient than Broadcom's.
This move is primarily driven by concerns over supply-chain resilience and geopolitical risks, rather than cost. The goal is to mitigate the risk of future US export controls impacting essential networking components crucial for China's sovereign AI ambitions. The potential restrictions are not expected to apply to privately operated data centers, such as those run by ByteDance and Alibaba, and existing equipment is unlikely to be removed, indicating a gradual shift towards nationalizing the supply chain. Broadcom's networking division, vital for its AI growth strategy, could see its total addressable market in China narrowed by these developments.
