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ByteDance Nears MediaTek AI Chip Deal Under a U.S. Export Ceiling

Aaron Harme

Barred from buying Nvidia’s most advanced AI chips, ByteDance is in advanced talks to buy custom data-center chips from Taiwan’s MediaTek, Bloomberg reported late Wednesday, citing people familiar with the matter. MediaTek would supply an unspecified number of application-specific integrated circuits, or ASICs, chips built to one customer’s design for its own workloads, to help run ByteDance’s data centers. If the deal goes through, TikTok’s owner would become MediaTek’s second major customer for those chips, after Google.

Chinese suppliers such as Huawei can’t meet all of the country’s demand, and current U.S. export rules let a Chinese company work with foreign chip designers as long as the computing power it’s buying stays under a set threshold, Bloomberg reported. ByteDance used the same opening in May, when it agreed to buy millions of Qualcomm’s custom chips and to have Qualcomm turn a chip ByteDance had already designed into one ready for production, a deal Bloomberg first reported and Reuters relayed.

ByteDance is weighing capital spending of as much as $70 billion this year, more than double last year’s, which could rise to $100 billion in 2027 if conditions allow, according to the same Bloomberg report. It lined up a roughly $30 billion bank loan in September to help pay for it.

MediaTek’s growth plan

MediaTek built its business on smartphone processors and is worth about $210 billion, which makes it Taiwan’s second most valuable company. Its first custom AI chip, for a U.S. cloud provider, is due to enter volume production this quarter, and the company expects more than $2 billion of data-center chip revenue this year, the Taipei Times reported from its July 31 investor call. For 2027 it is aiming for up to 20% of an $80 billion market for custom AI chips. That’s as much as $16 billion, about eight times this year’s figure.

At the end of August, Nvidia bought $3.5 billion of MediaTek’s convertible bonds, debt that can turn into shares, Nvidia’s announcement says. The partnership has MediaTek helping cloud companies design custom chips that connect into Nvidia’s server racks.

A customer that comes with a ceiling

Google can keep ordering MediaTek chips for as long as it wants them. ByteDance can order only chips that stay under a performance line Washington drew and can move with one rule change.

To hit that 2027 target, MediaTek needs volume from somebody besides Google, and the new customer in these talks is the one buying under that line. A lower threshold would cut into the orders meant to make up the difference.

Before U.S. curbs tightened, Nvidia held about 95% of China’s advanced chip market, Reuters reported. ByteDance’s budget is money Nvidia can’t capture with its best chips, and a MediaTek deal would send some of it to a company whose bonds Nvidia can convert into stock. If the contract lifts MediaTek’s shares, those bonds are worth more.

The export rule that keeps Nvidia’s best chips out of ByteDance’s data centers has left the company with an American designer and a Taiwanese one competing for its capped orders, which puts ByteDance in the stronger seat with both.

Sources

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