Huawei chip unit orders up more domestic production as U.S. restrictions loom
Huawei Technologies Co Ltd is gradually shifting production
of chips designed in-house away from Taiwan Semiconductor Manufacturing Co Ltd
(TSMC) and towards a mainland Chinese firm in preparation for more U.S.
restrictions, sources familiar with the matter said.
The move towards Shanghai-based Semiconductor Manufacturing
International Corp (SMIC) comes as Washington readies new rules which would
require foreign companies using U.S. chipmaking equipment to obtain a license
before supplying chips to Huawei - rules that would directly affect TSMC.
It also highlights how U.S. restrictions against Huawei can
act as an impetus for Chinese companies to accelerate the development of
homegrown technology.
The U.S. government alleges Huawei, the world’s biggest
maker of telecom network equipment and a major smartphone manufacturer, is a
national security risk as its equipment could be used by Beijing to spy, and
has barred U.S. firms from selling to the Chinese firm without a licence.
Huawei has repeatedly denied its products pose a security threat.
Huawei’s chip unit, HiSilicon, began to direct some of its
engineers towards designing for SMIC rather than TSMC in late 2019, said one of
the sources, who was not authorised to speak to the media and declined to be
identified.
“Before, Huawei wanted to work with top notch manufacturers,
and SMIC was just second-tier,” the person said. “We are now moving resources
to SMIC to speed up our help to them.”
A Huawei spokesman called the shift “common industry
practice” in a statement to Reuters. “Huawei considers carefully issues such as
capacity, technology and delivery when choosing semiconductor fabrication
plants,” it said.
TSMC, the world’s top contract manufacturer of
semiconductors, said it does not comment on individual customers. SMIC declined
to comment.
It was not immediately clear how much more production is
being outsourced to SMIC. Huawei has also said it would look at South Korean
firms, other Taiwanese and mainland Chinese firms as alternative sources for
chips.
KNOW-HOW GAP
While SMIC is seen as the strongest mainland China
alternative to TSMC, it remains well behind TSMC in its technological expertise
and U.S. authorities have already taken measures to prevent it from acquiring
the most advanced chip-making equipment.
TSMC does not reveal how much revenue each customer provides
but analysts estimate that by late 2019 Huawei accounted for 13% to 15% of
TSMC’s sales. Chip production that could be shifted to SMIC likely only
accounts for 1 to 3 percentage points of that, they said.
“Right now, there’s a still sizeable gap between TSMC and
SMIC in terms of skills, stability, and reliability,” said Gu Wenjun, senior
analyst at Shanghai-based consultancy ICWise.
TSMC, for example, is currently perfecting its 5 nanometre
process node technology. SMIC recently introduced 14nm technology in late 2019,
which TSMC rolled out officially years earlier.
Experts say HiSilicon’s latest Kirin processors, used
exclusively in Huawei mobile phones, can only be made by TSMC at the moment,
although they add that earlier Kirin processors could be outsourced to SMIC.
Other chips produced by HiSilicon, such as those for
so-called IOT devices, power management, or set-top boxes, could be sent to
SMIC, they said.
Gaining more business from Huawei would also help SMIC
improve its processes as Huawei would be able to pass on valuable knowledge
gained in working with TSMC, the analysts added.
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