Huawei turns to mobile chip rivals to beat US pressure
The latest U.S. government action against China’s Huawei
takes direct aim the company’s HiSilicon chip division—a business that in a few
short years has become central to China’s ambitions in semiconductor technology
but will now lose access to tools that are central to its success.
That could make it the most damaging U.S. attack yet against
a Chinese company that U.S. officials told reporters Wednesday functioned as a
“tool of strategic influence” for the Chinese Communist Party. Huawei
Technologies Co Ltd for its part denounced the U.S. allegations and called the
new measures “arbitrary and pernicious.”
Established in 2004, HiSilicon develops chips mostly for
Huawei, and for most of its existence has been an afterthought in a global chip
business dominated by U.S., Korean and Japanese companies. Like most
electronics firms, Huawei relied on others for the chips that powered its
equipment.
But heavy investment in research and development helped
drive rapid progress at HiSilicon, and in recent years the 7,000-employee unit
has been central to Huawei’s rise as a dominant player in the global smartphone
business and the emerging 5G telecom networking business.
HiSilicon’s Kirin smartphone processor is now considered to
be on par with those created by Apple Inc (AAPL.O) and Qualcomm Inc (QCOM.O) —a
rare example of an advanced Chinese semiconductor product that competes
globally.
HiSilicon is also central to Huawei’s leadership in 5G,
stepping into the breach when the United States cut off access to some U.S.
chips last year.
In March, Huawei revealed that 8% of the 50,000 5G base
stations it sold in 2019 came with no U.S. technology, using HiSilicon chipsets
instead.
But the U.S. export control rule, first reported by Reuters
last week, aims to block HiSilicon’s access to two crucial tools: chip design
software from U.S. firms including Cadence Design Systems Inc (CDNS.O) and Synopsys
Inc (SNPS.O), and the manufacturing prowess of “foundries,” led by Taiwan
Semiconductor Manufacturing Co Ltd (2330.TW), that build chips for many of the
world’s top semiconductor firms.
With the new restrictions,HiSilicon “will be in a situation
where they’re not able to manufacture chips at all, or if they do, then they’re
not leading edge anymore,” says Stewart Randall, who tracks China’s chip
industry at Shanghai-based consultancy Intralink.
Without its own processors, Huawei will lose its edge over
domestic smartphone rivals, analysts said. International sales had already been
gutted by a ban on the use of key Google software.
Industry sources say Huawei has stockpiled chips, and the
new U.S. rule will not go into full force for 120 days. U.S. officials also
note that licenses could be granted for some technologies. HiSilicon can also
keep using design software it has already acquired.
HILSILICON IN TOUGH SPOT
Still, analysts agree HiSilicon is in a tough spot. Nearly
all chip factories globally — including China’s leading foundry, Semiconductor
Manufacturing International Corp (0981.HK) — buy gear from the same equipment
makers, led by U.S. firms Applied Materials Inc (AMAT.O), Lam Research Corp
(LRCX.O) and KLA Corp (KLAC.O).
The new U.S. rule requires licenses for companies using U.S.
machinery to build Huawei-designed chips and delivered to the Chinese firm. To
be sure, the new rule will not catch items shipped to a third party, allowing
HiSilicon’s fabricators like TSMC the ability to ship chips to HiSilicon’s
device manufacturers who can send them directly to a customer.
While there are alternatives to American machines - Japan’s
Tokyo Electron Ltd (8035.T), for example, makes gear that competes with Applied
Materials - replacing U.S. technology is not as simple as swapping out a
machine.
“You almost have to think about it like a heart transplant,”
said VLSI Research Chief Executive Dan Hutcheson, noting that chip production
lines are finely calibrated systems where everything has to work well together.
Doug Fuller of the Chinese University of Hong Kong said
Huawei had a few options. It could slip around the rule by having suppliers
ship directly to Huawei customers, though the U.S. officials said they would be
vigilant about such workarounds.
Huawei and the Chinese government could re-double efforts to
build production capabilities that did not require U.S. tools, by investing in
nascent Chinese competitors and buying from Japanese and Korean firms, even if
that required quality sacrifices.
Or Huawei could turn away from HiSilicon and revert to
buying from overseas suppliers—just not American ones. “There’s talk of Huawei
just turning to Samsung processors,” for its smartphone, said Fuller.
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