Huawei’s chip breakthrough poses new threat to Apple in China

on Sep19
by | Comments Off on Huawei’s chip breakthrough poses new threat to Apple in China |

A man check his phone near an Apple logo outside its store in Shanghai, China September 13, 2023. 

Aly Song | Reuters

Apple is facing a number of issues in China, with geopolitical risks mounting and the economy still not firing as many would have hoped.

But the biggest challenge of all, according to analysts, could be a resurgent Huawei after a purported major semiconductor breakthrough that flew in the face of U.S. sanctions.

The latest chip, made by China’s biggest semiconductor manufacturer SMIC, has sparked concern in Washington and raised questions about how it was possible, without the company being able to access critical technologies.

But there is also scrutiny on whether the process being used to make these new chips is efficient enough on a large scale to sustain a Huawei comeback.

What has happened to Huawei so far?

What’s the big deal about Huawei’s new chip?

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The Taiwanese chipmaker is the most advanced semiconductor manufacturer in the world. There is no Chinese company that can do what TSMC does. That’s why shockwaves were sent through the political and tech world when Huawei quietly released the Mate 60 Pro in China this month, with analysis showing a chip inside made by SMIC.

Along with Huawei, SMIC is on a U.S. trade blacklist called the Entity List. Companies on this list are restricted from buying American technology. Meanwhile, SMIC’s technology is seen as generations behinds the likes of TSMC.

So how could this have been done with the huge amount of sanctions on both Huawei and SMIC?

What we know about Huawei’s chip

Chipmaking nations such as the U.S. are teaming up against China

Many thought this would hold back SMIC’s ability to make advanced chips. But it seems to have made it happen without these tools.

In a blogpost this month, Dan Hutcheson, vice chair of TechInsights, said the 7nm chip “demonstrates the technical progress China’s semiconductor industry has been able to make without EUV lithography tools.”

Huawei was not immediately available for comment regarding this story when contacted by CNBC.

Is this a big deal or just posturing?

From a technology perspective, it is significant that SMIC has manufactured chips using a 7nm process without ASML’s EUV machines.

Pranay Kotasthane, deputy director of the Takshashila Institution, told CNBC that it is likely that equipment used for older manufacturing processes are being “repurposed” for these more advanced chips. But he believes the process is likely being undertaken with “lower efficiency” than if SMIC were to use cutting-edge equipment.

And that’s a key point. While SMIC is able to create 7nm chips, it’s unclear how efficient, profitable and sustainable that is on a bigger scale. A closely watched metric is “yield” — the number of chips made out of a specific wafer.

If a chip manufacturer’s yield is low, then the process is not seen as efficient and can be costly. While the yield of SMIC’s 7nm process for Huawei chips is not known, it is “probably low,” Kotasthane said.

It is a waiting game to see if SMIC can produce the number of chips that Huawei requires at a profitable scale.

What will the U.S. do next?

Apple’s China headwinds grow with Huawei chip

A Huawei 7nm chip will likely impact Apple's sales in China, says Cowen's Krish Sankar

“It’s expected that Huawei will pose a bigger challenge to Apple in China than the geopolitical issue,” Will Wong, a senior research manager at IDC, told CNBC.

“This is because Huawei not only has the same premium brand image as Apple but also is a national pride in China.”

Apple is seen as a high-end smartphone maker and Huawei had directly competed with the U.S. firm in China for years. But Huawei’s sales fell off a cliff when it couldn’t equip its smartphones with 5G technology and the latest chips.

Any kind of resurgence in this area, as appears to be the case with the Mate 60 Pro, could make Huawei’s new phones an attractive option again for Chinese buyers.

“The biggest threat from Huawei is its continuous development in technology, not only in chips but also in new form factors like foldables,” Wong added.

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