SoftBank Takes a Step Back in Chip Manufacturing Ambitions, Competition with Nvidia Still Distant

SoftBank's AI Chip Talks with Intel Collapse Amid Production Challenges. SoftBank had engaged in negotiations with Intel to produce AI chips aimed at competing with Nvidia. However, the plan failed after the American chipmaker struggled to meet the Japanese conglomerate’s demands.

The talks with Intel were expected to boost SoftBank’s efforts to combine the chip designs of its crown jewel, Arm, with the manufacturing expertise of its latest acquisition, Graphcore. SoftBank CEO Masayoshi Son has plans to invest billions of dollars to position his conglomerate at the heart of the AI boom. The ambitious plan includes chip production, software development, and powering data centers that will house the company's processors.

However, negotiations with Intel fell apart in recent months, just before the American chipmaker announced aggressive cost-cutting plans in early August. SoftBank is now focusing on discussions with Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chip manufacturer. Utilizing Intel’s U.S. foundries to produce AI chips was previously seen as a way for SoftBank to tap into funding under President Joe Biden’s CHIPS Act.

Intel CEO Pat Gelsinger is striving to regain the company’s leadership in global chip manufacturing. After the U.S. government in March approved CHIPS Act funding totaling nearly $20 billion, Intel has made significant investments to catch up with rivals like TSMC and Samsung in chip production. Several new customers have been secured.

Commenting on the failed negotiations, SoftBank stated that the chipmaker was unable to meet the required volume and speed. The number of chip manufacturers capable of producing advanced AI processors remains limited.

Son Unfazed by Production Uncertainty, Pitches Tech Giants for Support. Undeterred by uncertainties surrounding his production plans, Masayoshi Son has pitched his latest project to some of the world's largest tech companies, including Google and Meta, as he seeks support and funding. Son claimed that SoftBank could help counter Nvidia's market dominance.

Critics of Son's plan have raised concerns about whether transitioning Arm into chip manufacturing could damage the company’s relationship with Nvidia. In response, SoftBank believes the risk is worth it if the company can reap the rewards.

Son is now determined to design and manufacture AI chips, with an ambitious estimate suggesting a prototype could be ready in a few months. However, chip manufacturing capacity remains a significant hurdle. The SoftBank chief has been in talks with TSMC but has yet to reach an agreement, as the Taiwan-based chipmaker is also struggling to meet demand from its current customers, including Nvidia. Some experts believe that if Son secures a deal with TSMC, he will need another partner with expertise in chip design.

The cost of Son's latest project could run into tens of billions of dollars, but some close to SoftBank caution that estimating the total required investment at this stage is unrealistic. They note that the CEO has sounded out investors from Saudi Arabia and the United Arab Emirates about the plan, but no agreements have been reached.

Intel, a key investor in Arm's IPO last September, revealed that it sold its entire stake in the British chip designer in the second quarter of this year. The company recently paused its dividend payments to conserve cash.

In April, Intel disclosed a $7 billion loss in its manufacturing business. In its latest earnings report earlier this month, the company announced plans to cut about 15% of its workforce amid declining revenues. The company's stock lost a quarter of its value in a single day.

Previously, SoftBank committed to investing nearly $9 billion annually in artificial intelligence, even as it scaled back spending on major deals. Founder Masayoshi Son has expressed his belief in AI and the necessity of reshaping the conglomerate in pursuit of deals that could support Arm, which went public last year.

SoftBank CFO Yoshimitsu Goto told the Financial Times: "In principle, we will maintain our investment pace. Going forward, we want to strengthen our investments in AI companies. The reason we keep our balance sheet safe is that we always want to be ready and flexible."

Speaking to The Wall Street Journal, SoftBank Group CEO Masayoshi Son said his desire to invest in technology was rekindled by a several-hour conversation with ChatGPT, during which the chatbot acknowledged his ideas as “brilliant.”

Source: The New York Times, WSJ