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Huawei turns to mobile chip rivals to beat US pressure

Chinese tech giant’s position in global smartphone market at risk.

Huawei Technologies is seeking help from rival mobile chipmakers to withstand a US clampdown aimed at crippling the Chinese tech company, sources familiar with the matter told Nikkei Asian Review.

Huawei is in talks with MediaTek, the world’s second-largest mobile chip developer after Qualcomm of the US, and UNISOC, China’s second-largest mobile chip designer after Huawei’s own chip unit Hisilicon Technologies, to buy more chips as alternatives to keep its consumer electronics business afloat, the sources said.

Developing its own cutting-edge chips has been a key strategy for Huawei, helping China’s biggest tech company and the world’s second-largest smartphone maker stand out in the global market for smartphones and other devices. Adopting rivals’ chip offerings, analysts and industry executives say, could hamper Huawei’s competitiveness.

Taiwan’s MediaTek, a key mobile chip supplier to Samsung and Chinese smartphone makers Oppo, Vivo, and Xiaomi, already supplies Huawei’s mid-to-low end 4G-capable smartphones. Huawei now also hopes to secure contracts to buy MediaTek’s mid-to-high-end 5G mobile chips, two people familiar with the talks said. Huawei previously used only its own in-house chips for its high-end mobile phones.

“Huawei has foreseen this day coming. It has started to allocate more mid-to-low end mobile chips projects to MediaTek last year amid its de-Americanization efforts,” one of the sources said. “Huawei has also become one of the key clients for the Taiwanese mobile chip developer’s mid-end 5G mobile chip for this year.”

MediaTek is still evaluating whether it has sufficient human resources to fully support Huawei’s aggressive bid, as the Chinese company is asking for a volume that is 300% of its usual procurement compared with the last few years, another source familiar with the talks said.

Meanwhile, Huawei is also seeking to deepen its collaboration with UNISOC, a Beijing-backed mobile chip developer that relies mostly on smaller device makers as customers and mainly supports entry-level products and devices for emerging markets. Previously, Huawei only used very few UNISOC’s chips for its low-end smartphone and tablet offerings, sources said.

“The new procurement deals would be a great boost to help UNISOC further upgrade its chip design capability,” said a chip industry executive. “In the past, UNISOC was struggling quite a bit, because it could not really secure big contracts with global leading smartphone makers as these top smartphone makers could find better offerings elsewhere. This time could be an opportunity that it could really seek to match the international standard.”

UNISOC last year accelerated its 5G chip development to catch up with Qualcomm and MediaTek, Nikkei reported earlier. More recently the Chinese mobile chip developer recently received RMB 4.5 billion (USD 630 million) from China’s national integrated circuit fund, the so-called Big Fund, and is preparing to list on the Shanghai STAR tech board, the Chinese version of Nasdaq, later this year. US-based Qualcomm has had to have a license from the Department of Commerce to supply Huawei since May 16 last year.

Washington last Friday announced new export control rules designed to block Huawei’s own chip development efforts via its in-house unit HiSilicon and its partnership with Taiwan Semiconductor Manufacturing Co., the world’s biggest contract chip manufacturer and sole supplier of iPhone processors. Under the tighter restrictions, non-US companies must apply for a license to use American technology or software to produce Huawei-designed chips.

The new restrictions hit at the heart of Huawei’s strategy for competing with Apple and Samsung: developing custom, cutting-edge chips in-house and having the world’s top contract chipmakers produce them. Huawei built up its chip design prowess through unit HiSilicon, which employs some 10,000 engineers, over the course of more than a decade. TSMC, for its part, produces all of HiSilicon’s high-end mobile processors — dubbed the Kirin series — for Huawei’s flagship smartphones, as well as its networking processors for 5G base stations, artificial intelligence chips, and server chips.

Manufacturing partnerships with TSMC and other Asian contract chip builders — including Win Semiconductors, Advanced Wireless Semiconductor, and Semiconductor Manufacturing International Co. — have helped Huawei increasingly use its own chips in place of those from American suppliers, such as mobile chips from Qualcomm, and radio-frequency chips from Qorvo, Skyworks, and Broadcom. Huawei’s use of in-house designed mobile processors for its smartphone business, which shipped 240 million units in 2019, has grown to 75%, from 69%, in 2018, and 45% in 2016, according to GF Securities.

This has helped Huawei withstand US pressure after Washington added the company to its trade blacklist last year. But the manufacturing partnerships that have made that possible are now at risk. TSMC has halted new orders from Huawei in compliance with the US latest ban, the Nikkei Asian Review reported. SMIC, in response to questions from Nikkei, referred to co-CEO Zhao Haijun’s remarks that the chipmaker remains fully committed to abiding by US regulations, as it has done for its more than 20 years of operation.

Developing its own cutting-edge chips has been a key strategy for Huawei. Photo by KrAsia.

MediaTek and UNISOC declined to comment.

These Asian chip developers may also be wary of becoming caught between the US-China tensions, particularly after US State Department official Christopher Ashley Ford signaled on Thursday that the government will monitor to see if the export rules need to be changed further.

Kevin Wolf, a Washington-based trade law lawyer with Akin Gump, told Nikkei that he is not yet aware of efforts ” to impose controls over exports by foreign companies of foreign-origin items that are not subject to current US export controls even if destined to Huawei.” However, Washington may look for ways to impose such controls if such activity were to harm the U.S. government’s ability to impose controls on trade with Huawei, Wolf said.

Shares of MediaTek were down nearly 4% as of noon Taipei time following the news that the US could further change its export control rules.

Huawei also declined to comment.

Huawei’s rotating Chairman Eric Xu said in late March that his company could still buy chips from MediaTek and UNISOC if the US blocked its contract chipmaking partners from using American equipment, materials, and software to build Huawei-designed products.

But being forced to use the same “off-the-shelf” chips that smaller rivals like Oppo and Xiaomi use, rather than its own customized ones, could weaken Huawei’s product portfolio of consumer electronics, analysts said.

“According to our checks, Huawei has enough inventories of mobile application processors to last till the end of this year. So the real impact could happen from the last quarter of the year if the vital chip supply issues are not solved,” Jeff Pu, a tech analyst with GF Securities, told Nikkei. “If the supply of Huawei’s own HiSilicon-designed chips runs out next year, it would be devastating especially for its two most important flagship M and P series of phones, which sell for more than RMB 4000 yuan (USD 560) and target the premium market.”

Even if Huawei could secure chip supply from MediaTek and UNISOC, “it would be challenging for the company to roll out such high-end products as it has in the past in the competitive smartphone market,” Pu added.

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.