Huawei’s 5G smartphone comeback, with advanced chip wrapped in secrecy, releases chokehold of US sanctions on China tech
When asked by the South China Morning Post in March about Huawei Technologies‘ plans to release new 5G smartphones, deputy chairman Eric Xu Zhijun firmly dismissed such a notion to hundreds of journalists, analysts and clients who attended the US-blacklisted company’s annual conference in Shenzhen.
“If you’re expecting to buy a 5G smartphone made by Huawei, [all of us] need to wait for approval from the US Department of Commerce,” Xu said. “We can produce 5G smartphones when they license 5G chips to us.”
Meng Wanzhou, daughter of Huawei founder Ren Zhengfei and chief financial officer at the privately-held firm, just smiled beside Xu at the podium when he replied to that query. At the time, the Mate 40 series, released in October 2020, was the last 5G smartphone line produced by Huawei.
Fast-forward to late August, and Huawei surprised the smartphone industry when it launched a low-key presales campaign for its new Mate 60 Pro 5G handset. That was followed around a week later by another quietly executed online presales for its top-of-the-line Mate 60 Pro+ smartphone.
Shoppers are seen trying out Huawei Technologies’ Mate 60 Pro and Mate 60 Pro+ smartphone models during the company’s latest product launch event at a Huawei store in Beijing on September 25, 2023. Photo: AP
The timing of the Mate 60 Pro’s presales campaign coincided with US Commerce Secretary Gina Raimondo’s trip to China, which yielded the establishment of working groups to facilitate further bilateral communication, as Washington’s export controls remained in place.
But it was the company’s launch of new 5G handsets powered by a new central processing unit (CPU) – first identified by Chinese benchmarking website AnTuTu as the Kirin 9000s, developed by Huawei chip design unit HiSilicon – which resulted in intense speculation about where and how the chip was made under strict US trade sanctions.
A third-party teardown of the Mate 60 Pro earlier this month indicated that another US-sanctioned firm, mainland China’s top contract chip maker Semiconductor Manufacturing International Corp (SMIC), was behind the advanced processor, which prompted US National Security Adviser Jake Sullivan to seek more information about the 5G CPU in light of existing tech access restrictions.
Both Huawei and SMIC have continued to stay mum about the mainland-produced system-on-a-chip (SoC) used on the new Mate 60 Pro series. But that has not stopped a strong outpouring of patriotic fervour on Chinese social media, where netizens have hailed the new 5G smartphones and their advanced CPU as symbolic of China’s victory in defying tough US sanctions.
A Kirin 9000s central processing unit fabricated in China is taken from a Mate 60 Pro smartphone from Huawei Technologies in Ottawa, capital of Canada, on September 3, 2023. Photo: Bloomberg
“Huawei is the one company that survives and thrives under US sanctions! It makes the world believe in China’s tech power,” an online influencer called Dafengpingdian wrote in a popular post on Chinese microblogging site Weibo, where it has received more than 2,700 likes.
During Huawei’s latest launch of new products on Monday, some netizens said the event made them tear up. One of the most upvoted comments on Weibo pointed out that it was “so hard for China to nurture a world-class technology company [like Huawei]”.
Huawei’s return to the 5G smartphone market and the controversy over its advanced, made-in-China processor reflect the lengths taken by the company to build up its operations, following years of struggles on account of US trade sanctions.
Its 5G comeback also marks another major public relations win for the Shenzhen-based company, two years after Meng returned to a hero’s welcome in China. She had been under house arrest for nearly three years in Canada, where she fought extradition to the US over a bank fraud case. Meng’s release was hailed on the mainland as a victory against US hegemony.
People are seen lining up outside a Huawei store in Beijing on September 25, 2023. Photo: EPA-EFE
“Huawei’s launch of its Mate 60 Pro – based on a made-in-China, 7-nanometre SoC – has created huge Chinese consumer interest in the product, and it has likely sold more than 2 million units since August 31,” Jefferies equity analyst Edison Lee wrote in a research note on Monday.
Lee said Huawei’s newly launched foldable model, the Mate X5, that is based on the same SoC as the Mate 60 Pro series, has also sold out.
Huawei has already raised its smartphone shipment target by 20 per cent for the second half of the year, buoyed by the popularity of its Mate 60 Pro series, according to a report by Beijing-based business newspaper Securities Daily.
“Huawei’s return to the 5G smartphone market may not be a total surprise to investors, but the market excitement about it likely is,” Lee said. He indicated, however, that investors “are keen to know why China could make this SoC, what the capacity is and will be, and which supply chain players are used by Huawei for its Mate 60 Pro series”.
Many questions have also been asked about how Huawei’s return to the high-end segment would impact sales of Apple‘s new iPhone 15 series and the other flagship Android models, and whether the Mate 60 Pro would bring life to a depressed smartphone industry, Lee added.
Huawei, formerly China’s biggest smartphone vendor, has scrambled to adapt its production of handsets and telecommunications network equipment amid tightened trade restrictions imposed by Washington in 2020, covering access to semiconductors developed or produced using US technology, from anywhere.
Earlier this year, founder and chief executive Ren said Huawei replaced more than 13,000 components in its range of products with local substitutes and redesigned over 4,000 circuit boards in the past three years as a response to US trade sanctions.
In its recent teardown of a Mate 60 Pro handset, Canadian semiconductor research firm TechInsights identified SMIC as the maker of the Kirin 9000s CPU, which fuelled speculation that the chip maker was helping Huawei overcome stifling US tech sanctions in a clandestine way.
“The difficulty of this achievement shows the resilience of the country’s chip technological ability,” said Dan Hutcheson, vice-chairman at TechInsights.
If confirmed, production of that 7-nm chip would be a major violation of the US sanctions rolled out last October, which capped China’s logic chip-making at 14-nm.
In an email interview, the chief executive at Tokyo-based electronics research firm Fomalhaut Techno Solutions, Minatake Mitchell Kashio, told the Post that he believes the Kirin 9000s CPU was made via SMIC’s 14-nm process based on their own handset teardown. He indicated that some special techniques were added to push the chip’s performance closer to a 7-nm grade processor.
By contrast, Jefferies’ Lee earlier this month suggested that SMIC had no direct part in producing the HiSilicon-designed Kirin 9000s.
“While the Kirin 9000s may have a similar build structure as other chips made by SMIC, it could have actually been built by Huawei,” Lee said. “We believe it is highly likely that Huawei bought SMIC technology and equipment to develop the Kirin 9000s.”
An industry expert from Naura Technology Group, who declined to be named owing to the sensitivity of the matter, said many experts in the semiconductor industry view SMIC as lacking the ability to scale production for 7-nm chips.
The trade sanctions that have made it difficult for mainland foundries like SMIC to obtain advanced chip-manufacturing equipment from the US and its allies have also “massively incentivised” innovation in China’s toolmaking sector, according to Paul Triolo, senior vice-president for China and technology policy lead at Albright Stonebridge Group.
“As the Huawei Mate 60 Pro shows, US controls have forced companies like SMIC to push their existing tool capabilities beyond what they were designed for, and Huawei has also been able to use a systems engineering approach to compensate to some degree for the lack of access to cutting-edge manufacturing technologies,” Triolo said.
“Huawei’s future ability to use advanced semiconductors in its products depends to a significant degree on SMIC,” he said. “The ability of SMIC to produce semiconductors using features at 7-nm is very significant, and has been driven by Huawei’s need to be able to field competitive products, particularly for 5G.”
While controversy over the Mate 60 Pro series’ advanced CPU has spurred discussion in Washington about imposing further controls on both Huawei and SMIC, Triolo believes that the Biden administration would be reluctant to impose new restrictions amid ongoing efforts to improve US-China relations.
“It will also be very difficult to prove that SMIC violated extraterritorial US export controls,” he said. “Any new restrictions would damage US suppliers of both companies, and would be opposed by US industry.”
Huawei’s ability to sustain this positive momentum in its 5G smartphone sales may boil down to how it can ensure a stable supply of key components, and how this can be done in a cost-effective way.
The company still has not achieved self-sufficiency in certain semiconductor components, as it depends on external suppliers including Japanese filter provider Murata, US-based GlobalFoundries and Taiwanese foundry Win Semi, according to a recent research note by Kuo Ming-chi, analyst at TF International Securities. South Korean chip maker SK Hynix supplied the memory and flash storage built inside the Mate 60 Pro series.
Competing in China, the world’s largest smartphone market, against fellow Chinese Android handset vendors and Apple also means that Huawei must overcome the challenge of US restrictions that affect its supply chain partnerships, according to IDC analyst Will Wong.
“Another potential challenge is how Huawei can bring back former users who switched to other smartphone brands over the past few years,” Wong said. He indicated that this is a particularly complex challenge because the other brands run ecosystems that create “stickiness” in their relationship with consumers.
Apple’s products and services ecosystem, for example, has enabled it to attract a growing number of switchers from China’s Android handset market segment.
On developing Huawei’s own hardware and software ecosystem, Ren has said the company will continue to “invest tens of thousands of manpower and billions of capital each year” in developing mobile operating system HarmonyOS and its Linux-based operating program for enterprise servers, EulerOS.