As artificial intelligence (AI) continues to disrupt industries worldwide, the semiconductor sector is capitalizing on disruptive technology by designing chips catering to AI software.
Nvidia Corp. has emerged as the biggest winner, surging more than 210% year to date and joining the highly coveted $1 trillion market cap club in May.
The rising demand for AI-powered chips has driven other chip manufacturers to step up their games to rival the industry giant. Venture capital firms are pouring money into promising startups with innovative capabilities as the race to develop chips for AI software heats up.
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British chipmaker Graphcore was touted as one of the most propitious startups in the space, valued at approximately $2.77 billion as of December 2020.
"We're thrilled with the results that we were able to deliver in terms of performance and cost-effectiveness compared to GPUs (graphics processing units), which set us up for commercial success in coming years," Graphcore spokesperson Iain Mackenzie said.
The picture changed soon after, as the startup questioned its ability to continue operating as a "going concern" amid skyrocketing operating costs and continued macroeconomic headwinds.
Graphcore was founded in 2016 by Nigel Toon and Simon Knowles, who sold their chip company Icera to Nvidia for $435 million in 2011.
The chip design firm achieved the status of one of the most valuable privately held technology companies based in the U.K. Graphcore attained unicorn status after being valued at $1.5 billion in 2018. The British chipmaker almost doubled its valuation to nearly $3 billion after its Series E funding round concluded in December 2020.
"We have created a technology that dramatically outperforms legacy processors such as GPUs, a powerful set of software tools that are tailored to the needs of AI developers and a global sales operation that is bringing our products to market," Graphcore Co-Founder Toon said.
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The company stated that it will use the investment to facilitate its worldwide growth and expedite the advancement of its Intelligence Processing Units (IPUs), which have been custom-engineered to enhance artificial intelligence software capabilities.
"As both AI generally and the commercial AI cloud-compute opportunity continues to grow apace, Graphcore is well-positioned to capitalize on this vast opportunity in coming years," the company stated in a press release.
Ability To Operate As A Going Concern
The major blow to Graphcore occurred when Microsoft Corp. MSFT, an initial investor and customer of the company's IPU chips, decided against integrating Graphcore's chips into its cloud computing platform.
Graphcore's revenue plummeted last year, resulting in widening loss margins and raising concerns regarding its potential to continue operating as a business. Graphcore stated that the company's current financial statements reflect a "material uncertainty" regarding its future operations unless it receives an influx of cash.
Graphcore's 2022 financial statements revealed a pretax loss increase of 11%, reaching $204.6 million, along with a 46% decrease in revenue to $2.7 million. This comes in the wake of a challenging macroeconomic backdrop and delayed purchases made by "key strategic customers."
In accordance with the filing, the chipmaker ceased operations in Norway, Japan and South Korea while reducing its activities in other countries. As a result, the company's workforce shrunk to 494 employees, marking a 21% decline from the previous year, as detailed in the filing.
With $157 million in cash and cash equivalents at the end of the fiscal year of 2022, Graphcore stated in a press release that there is "a need for further funding" before it reaches the break-even point.
Restructuring Business Operations And Additional Funding
The company is focusing on raising funds to meet its short- and medium-term obligations and operational expenses and is restructuring its operations to overcome the short-term challenges.
"We're now at the point where we're not really looking for venture investors in the business. We're more interested in companies that would be long-term investors and holders of the stock, perhaps in the public markets, if we ever reach that point," Toon said.
Driven by the accelerated transition away from companies maintaining their own data centers, the British chip maker is planning a strategic shift toward deploying its IPU chips in cloud computing environments.
"Graphcore has moved rapidly to position itself ahead of this emerging need and is seeing excellent traction that will drive future revenue," the company stated in a press release.
While Graphcore is in talks with a plethora of investors, the company hasn't reached a finalized agreement. Nvidia's strong presence in the AI chip market has deterred investment in startups seeking to directly challenge it.
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