(Bloomberg) -- ByteDance Ltd. is close to an agreement to buy MediaTek Inc. data center semiconductors, a deal that would secure vital components for TikTok's owner while helping the Taiwanese chipmaker compete with Qualcomm Inc.
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The Chinese social media company is in advanced talks with MediaTek over the supply of bespoke chips that will help run ByteDance data centers, people familiar with the matter said. The Taiwanese firm will provide an unspecified amount of Application Specific Integrated Circuits, or chips customized to work with a clients' platform, the people said, asking to remain anonymous to talk about a private arrangement. If the deal goes through, ByteDance may become MediaTek's second major customer for such ASICs, after Alphabet Inc.'s Google.
ByteDance is ramping up hardware spending to fuel a bet on AI as its next growth engine. But like Chinese rivals Alibaba Group Holding Ltd. and Tencent Holdings Ltd., it's barred from the most cutting-edge AI chips from the likes of Nvidia Corp. Local players such as Huawei Technologies Co. can't meet all demand.
China's biggest private firm is thus exploring alternatives including partnerships with chip designers — something that's allowed under current US export curbs so long as the AI computing power a Chinese firm is seeking doesn't exceed a certain threshold. ByteDance struck a similar deal with Qualcomm earlier this year to procure millions of AI chips, Bloomberg News reported.
For MediaTek, a large-scale contract win would boost its efforts to diversify away from mobile phones and compete with Qualcomm and Broadcom Inc. in data centers, an arena it's less familiar with. The Taiwanese firm expects its AI chip sales to reach about $2 billion this year and is targeting 15% of the $80 billion market next year. Nvidia announced a deal to invest $3.5 billion in the Hsinchu-based chipmaker in September, propelling those ambitions.
ByteDance didn't have immediate comment, while MediaTek representatives declined to comment.
MediaTek has emerged as a key beneficiary of a push by technology companies to design custom semiconductors for AI applications, using its expertise in mobile processors to participate in the data center infrastructure rush. With a market value of around $210 billion, it's Taiwan's biggest firm after Taiwan Semiconductor Manufacturing Co.
ByteDance represents an opportunity for MediaTek: a high-volume customer that should galvanize the Taiwanese firm's foray into one of the fastest-growing segments of the semiconductor industry. Like the largest US firms, ByteDance and its Chinese rivals plan to ramp up spending on the infrastructure required to train and run AI services — in anticipation of widespread consumer adoption as the technology evolves.
The Beijing-based company is considering boosting capital spending to as much as $70 billion this year — more than double last year's total — to build out its data centers and other AI infrastructure. That may rise to $100 billion in 2027 next year, if economic and business conditions are favorable. It secured a $30 billion loan in September to fund its outlay.
ByteDance's spending marks a new, much more aggressive push to cement an early lead in key segments like chatbots and video, and expand its influence overseas. The company is pinning its AI business around flagship models like Seedance, which faces stiff competition from the likes of Alibaba's Happy Horse, Kuaishou Technology's Kling AI and Google.
--With assistance from Debby Wu and Zheping Huang.
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