Huawei's secret launch of the Mate 60 Pro 5G smartphone has put many in the US chip industry on high alert. The fact that Huawei chose to schedule the launch during US Secretary of Commerce Gina Raimondo's visit to China is seen as Huawei making a statement on its self-sufficiency. In response, the US could be issuing even stricter export sanctions, according to DIGITIMES Research senior analyst Luke Lin
Lin pointed out that while the efforts Huawei made to develop a 5G smartphone with all domestically produced components cannot be overlooked, the US is not without blame as, according to Lin, "issued the sanctions too late and made them too lenient."
When the US issued its ban on Huawei, US semiconductor firms like Qualcomm and Intel, represented by the Washington-based Semiconductor Industry Association (SIA), lobbied for the US government to relax the ban as they wanted to avoid losing orders from a customer as big as Huawei.
SIA managed to convince the US government to make some concessions. Since the fourth quarter of 2020, the US government has been granting various permissions for shipping semiconductor components to Huawei, and the strictest ban has been applied to only chips related to 5G and high-performance computing (HPC).
SMIC already purchased the immersive DUV equipment capable of processes under 14nm between 2018 and 2020. While the US issued a ban on SMIC regarding sub-10nm process equipment in 2020, it was already a bit too late. Since 2020, China continues to be able to import more immersive DUV equipment, and this equipment is one of the key reasons why Huawei was able to produce 5G chips with the 7nm process. In other words, US semiconductor firms have indirectly helped the creation of an even more troublesome opponent with their lobbying.
Huawei's return to the smartphone business presents a serious issue to US chip firms because it can now start to take back its market share in the smartphone sector. After Huawei was hit with US sanctions, its market share was divided mainly among domestic competitors like Oppo, Vivo, Xiaomi, and Honor. These companies do not have their own processors and thus are customers of US companies like Qualcomm. Them losing market shares will hurt the business of US chip companies.
Furthermore, if Huawei's chips can achieve a good enough yield rate to be exported overseas, it will further hurt US companies' businesses.
Lin believes that the SIA and its members are realizing that their previous leniency on Huawei has led to the current situation. Therefore, they are changing their previous lenient attitude and will be trying to address this issue by lobbying for even stricter sanctions.
To support this, he pointed to a previous report by Bloomberg on a warning issued by the SIA. It pointed out that Huawei is reportedly getting US$30 billion in state funding to build a secret network of wafer fabs across China. In the report, SIA suggested that if Huawei is constructing facilities under the names of other companies, then it might be able to skirt US sanctions and indirectly purchase chip-making equipment.
Lin pointed out that SIA making this information public is its way of pressuring the US government to take action and follow up with stricter sanctions. In fact, the US Department of Commerce's Bureau of Industry and Security (BIS) has already responded, stating that it is monitoring the situation and is ready to act if necessary.
If the US truly wants to restrict Huawei, Lin stated that its next step is to prevent Huawei from scaling up its production of 5G chips for smartphones. It doesn't matter if it's 14nm processes or 7nm processes; as long as it has 5G capabilities, Huawei's smartphones will be competitive in the Chinese domestic market.
To prevent a production scale-up, the US sanctions will need to target chip-making equipment and consumable materials. Furthermore, for the sanction to be truly effective, it should prohibit equipment from entering China at all, not just restrict sales to Huawei.
About the analyst
Luke Lin graduated from National Taiwan University with an MBA and BSc degree in Electrical Engineering. He is the senior smartphone analyst at DIGITIMES Research, covering the smartphone supply chain and applications. His research interests also include the geopolitical influence on the ICT supply chain, the re-globalization of electronics supply chains, and the strategic positioning of technology firms amid US-China competition.