When a team of Huawei engineers arrived in Jiangyin in 2022, they had an urgent mission: turn little-known supplier SJ Semiconductor into a competitive player in chip packaging and stacking technologies.
Chip packaging is becoming almost as important as chip manufacturing itself in the race to build ever more powerful artificial intelligence semiconductors. Taiwan Semiconductor Manufacturing Company’s “CoWoS” packaging is the gold standard in the industry, used by Nvidia, Amazon, and all other top chip designers for their AI offerings.
But when US export controls cut off Huawei’s access to TSMC and other foreign suppliers, the company turned its attention to domestic solutions.
“Huawei’s HiSilicon sent an elite task force there to help them improve packaging technologies for use with its own AI processing chip performance,” one executive with knowledge of the matter told Nikkei Asia, referring to Huawei’s chip design unit.
Now, SJ Semiconductor is able to provide a viable alternative to TSMC’s technology, with a peak capacity roughly one-tenth that of what the Taiwanese giant is capable of, sources briefed on the matter said.
“In this area, it’s easier than in advanced chip manufacturing and they have achieved some progress,” another executive said. “They won’t sit still. Advanced packaging is what they need for AI computing. It’s one of the key lifelines to advanced chip technologies.”
This is just one example of how Huawei’s attempts to overcome a US blacklisting and maintain its technological edge are boosting China’s tech supply chain as a whole.
SiEn (QingDao) Integrated Circuits, a lesser-known chipmaker headquartered in Shandong province, has also received support from a special Huawei task force over the past two years. In that time, SiEn has constructed two additional plants and is conducting test production of 14-nanometer chips, well more advanced than its previous products. The company aims to advance into 7-nanometer node production, similar to what China’s top chipmaker, Semiconductor Manufacturing International Corporation (SMIC), is capable of though still short of the 3-nm made by TSMC.
SwaySure, a memory chipmaker based in Shenzhen, has developed technology similar to Taiwan’s Nanya Technology, the world’s fourth-largest DRAM chip provider. Sources told Nikkei Asia that Huawei’s strategic support has been instrumental in SwaySure’s rapid advancement. SwaySure is even exploring high-bandwidth memory (HBM) technologies, a critical component for AI computing whose production is dominated by SK Hynix and Samsung of South Korea, and Micron of the US, Nikkei Asia has learned.
SMIC, which helped Huawei produce a 7-nm mobile chip, SiEn, and SwaySure are all on Washington’s Entity List, with the latter two added to the blacklist in December 2024 as part of the latest US move to curb China’s tech advancement.
Huawei, which was added to the Entity List in 2019, has hired hundreds of engineers with experience working at TSMC, Intel, Applied Materials, and KLA in recent years, deploying them to support its production partners across China, multiple industry managers told Nikkei Asia.
Members of these Huawei task forces are present during Chinese chipmakers’ technical meetings and serve as technical consultants to help the companies overcome production and development bottlenecks, sources said.
“If you dig into some chipmakers or tech companies that are now doing more advanced technologies in China … very often you will find the shadow of Huawei,” one chip industry executive said. “I don’t want to exaggerate things, but Huawei still leads in many R&D efforts and leading technology developments in China.”
Huawei, SJ, SiEn, and SwaySure did not respond to Nikkei Asia’s requests for comments.
Prospering under pressure
More than five years have passed since the US placed Huawei on its trade blacklist. During that time, Washington has also imposed several waves of export controls targeting hundreds of Chinese chip developers, tool and material makers, and R&D centers.
Through it all, China’s determination to advance its tech industry has not wavered.
“If you dig into some chipmakers or tech companies that are now doing more advanced technologies in China … very often you will find the shadow of Huawei.” —A chip industry executive
US export controls have effectively thwarted China’s capability to produce the most advanced chips and cut its access to top international suppliers. Beyond the most cutting-edge segment, however, Washington’s efforts have actually accelerated China’s push to replace foreign tech supply chains with domestic alternatives, a Nikkei Asia analysis shows.
China has developed competitive domestic solutions in a wide range of segments, including certain chips, chip substrates, printed circuit boards, displays, batteries, camera lenses, metal casings, and final assembly. Not only have geopolitical tensions prompted China’s tech industry to prioritize the adoption of domestic components once a local solution is available, many Chinese suppliers have emerged as leading global players, edging out former market leaders from the US, Europe, Japan, South Korea, and Taiwan.
While many governments do not view these components as strategically important, they are still essential for the production of electronic equipment and devices. The emerging parallel Chinese supply ecosystem, moreover, has increased competition and sparked concerns of oversupply amid a slow recovery in global electronics demand.
And while China’s supply chain grows, so too does its brands’ global influence. Chinese smartphone makers command nearly 60% of the global market, according to research firm Omdia, while Chinese TV makers have captured 42% of the global market, thanks largely to its dominant share in the display industry, TrendForce data showed.
Down but far from out
Export controls dealt a major blow to Huawei’s smartphone business, bringing a halt to its aggressive global expansion. It went from number one in the world, overtaking Samsung and Apple, to being squeezed out of the top five. But it has bounced back, at least in its home market, introducing triple-fold smartphones, new satellite communication technologies, and generative AI features targeting premium users. It also says its Harmony operating system—its answer to Google’s Android OS—is now free of US “interference,” and can be applied to all its platforms, from handsets and cars to industrial computers.
“The most exciting news for us is Huawei’s comeback in smartphones,” a component supplier executive said. “It is always the first in the industry to use the latest tech we have.”
China already hosts the world’s most comprehensive ecosystem for mobile device production, said Zaker Li, principal analyst of mobile devices at Omdia. “Even companies like Apple and Samsung rely on Chinese suppliers for the most cost-effective solutions,” he said.
“Among all players, Huawei remains a leader in many fundamental research and development areas, such as optics, cameras, materials science, and thermal dissipation,” Li added, also noting Huawei does face hurdles in producing enough advanced mobile chip processors.
Richard Yu, Huawei’s consumer electronics chairman, said his company now can source all the components and chips needed for its latest Mate 70 series domestically.
Meanwhile, Huawei’s telecom equipment business, which accounted for over half of its revenue in 2023, remains intact, despite the US urging allies to exclude it. It remains the global leader, with a market share exceeding 30% last year and in the first half of this year, according to Dell’Oro Group. Huawei this year has deployed networks for its 5.5G connectivity technology, an upgraded version of its 5G offerings, in cities at home and abroad, including in the UAE, according to the company.
In AI computing, a segment the US is particularly targeting with its clampdown, Huawei’s Ascend chip platform is China’s second most popular choice, although a distant one, after Nvidia’s products.
Huawei introduced the Ascend lineup in 2018, and today government and state-backed enterprises are encouraging Chinese companies to prioritize it over foreign options, according to several industry executives. Many local tech companies blacklisted by the US, including iFlytek and SenseTime, have become some of Huawei’s most loyal supporters. Its market share for AI computing in China is set to reach 25% this year, according to an estimate by Haitong Securities, while Nvidia controls about 70%.
“We will see more packaging innovations. We will see new types of cooling tech that are not constrained by export controls.” —Antonia Hmaidi, senior analyst at Mercator Institute for China Studies
Antonia Hmaidi, senior analyst at Berlin-based Mercator Institute for China Studies, told Nikkei Asia that China would likely explore workaround approaches to improve computing performance even without access to the most powerful chips.
“For many applications, if you are willing to spend more electricity—and China is an electricity-abundant country—you can make it work with larger and less advanced chips. We will see more packaging innovations. We will see new types of cooling tech [that are not constrained by export controls],” Hmaidi said.
“It’s not economical, and we won’t say it’s great or those solutions can match the most cutting-edge chip performance out there. But for China’s case now, it’s fine,” she said.
“Team China”
Much like the US hopes to persuade Japan, the Netherlands, and other allies to join its efforts to block China’s chip advances, Beijing is attempting to woo international allies, particularly from countries participating in its Belt and Road Initiative for infrastructure building.
As a representative of team China, Huawei is pressing its advantage in regions like Southeast Asia, the Middle East, Africa, and parts of Europe, where US influence is less pronounced. Focusing on these markets, Huawei hopes, will enable it to continue expanding its global presence.
China was the leading foreign investor in several Southeast Asian countries in 2023, far surpassing America’s activity in the region. It is also ramping up investment in the Middle East, where Western nations used to be the dominant investors.
On December 12, Huawei chose Dubai for its first global smartphone launch event outside of China in more than two years. Dubai is also one of the first overseas markets to adopt Huawei’s 5.5G connectivity technology for its critical networking infrastructure.
“Huawei’s intent and direction … is to build Huawei’s own ecosystem, which is not necessarily straightforward and will take some time,” said Anil Khurana, executive director of Georgetown University’s Baratta Center for Global Business. “But Huawei’s advantage would be to leverage China’s influence with the Global South. This is where the government perspective comes in, and gives the Chinese Communist Party and the government an angle to spread the influence as well.”
The size of Huawei’s total addressable market in telecoms is shrinking due to Western countries banning the company. “Still, Huawei is also proactive and aggressive in the markets where it is allowed to play, such as the Middle East, Africa, Latin America, and parts of Asia, which helps to offset share losses in Europe,” said Stefan Pongratz, vice president of Dell’Oro. Huawei still offers cost-effective products and remains a technology leader in the space, he added.
Huawei Cloud, a data center infrastructure provider, has also become a key area of focus for Huawei in recent years. Its business grew nearly 22% in 2023. The company is working with governments and telecom operators in Malaysia, Thailand, Indonesia, and the Maldives to provide digital infrastructure and cloud services, and is helping build the biggest data center in central Asia for the government of Uzbekistan.
“Huawei’s intent and direction … is to build Huawei’s own ecosystem.” —Anil Khurana, executive director at Baratta Center for Global Business
“Huawei is active in developing countries,” said Baron Fung, senior research director at Dell’Oro, where it mainly serves Chinese companies’ expansions overseas. “Not only are they building data center infrastructure, but they are building telecom infrastructure. … It’s like the whole package.”
Georgetown’s Khurana also pointed to Huawei’s ambition to move beyond its domestic market. “For some countries like Malaysia or Nigeria or Chile, they want to build data centers and cloud services, they would like a solution that is not only high-performance but also cheap enough,” he said.
A matter of timing
For US officials and policymakers, export controls have become a primary tool to curtail China’s tech advancement and military ambitions. They believe Beijing’s ultimate aim is to become self-sufficient on both fronts, regardless of export controls.
“Export controls are quite effective,” Martijn Rasser, managing director of Datenna, told Nikkei Asia. “Huawei is clearly struggling. When you peel back a few layers of the onion, in terms of the yield of the chips, it is not economical. You can get small quantities of chips that have the performance characteristics that you would want to have, but it’s not a sustainable approach to that type of semiconductor fabrication.”
But restrictions are more effective the sooner they are imposed, Rasser added. “Washington recognized that they had the leverage now,” he said. “If you wait, that leverage decreases over time.”
On December 2, the Biden administration launched its most sweeping round of export restrictions, targeting local chip equipment makers, materials and gas providers, and multiple chipmakers linked to Huawei. The move also blocked China’s access to high-bandwidth memory chips, a vital component for AI computing.
But the Chinese semiconductor sector took this announcement with relative calm compared to 2022, when the US first targeted exports of chip production tools to the country. At that time, many US chip production equipment makers had to suddenly cut support to their Chinese customers for fear of violating the new rules. This time, some Chinese equipment makers have even released statements saying they had already replaced American components in their systems.
Washington has also increasingly turned its attention to less advanced chips. Its first review of the segment, released in December, found that only 17% of the US companies surveyed could affirm their products contained no chips produced by Chinese makers.
The report acknowledges that American companies lack visibility over the sourcing of chips in their products and suggests many are “unaware of the risks, from global shocks to cyber threats, created by potential overreliance on PRC manufacturers.”
Some US lawmakers are now considering expanding restrictions to other electronic components like display panels to further curtail China’s tech capabilities. But such moves would likely come too late, as China’s primary bottlenecks are in cutting-edge chip production and related equipment and materials. In many other areas, it has already achieved self-sufficiency and might even be facing oversupply issues due to aggressive expansion in recent years.
For example, China controls more than 70% of the liquid crystal display market, according to Washington-based Information Technology and Innovation Foundation (ITIF), as well as around 50% of the market for premium OLED displays, forcing rivals like Samsung, LG, and Sharp to exit or shrink their operations. Chinese players have also largely displaced US and Japanese providers of radio frequency chips, a key communication component, in the domestic market.
China has several viable makers of chip substrates and printed circuit boards, too, meaning they no longer present a potential supply bottleneck that could hinder its tech development. In areas like Bluetooth and Wi-Fi connectivity chips, some Chinese vendors can offer prices as low as RMB 1 (USD 0.14) per chip, cheaper than any foreign chip developers could hope to match. The price of vapor chambers, a thermal component in premium smartphones and notebooks, plunged from USD 12 to USD 2 apiece in one year, industry executives told Nikkei Asia.
Hmaidi of the Mercator Institute for China Studies said it is challenging to compete with rivals that do not care about profits.
“One big thing about Chinese semiconductor and tech companies is that they don’t need to be profitable,” she said. “Going forward, there is a risk that China is the only one producing some kinds of legacy chips.”
Slower but still steady
Huawei continues to be China’s most prominent tech company, employing 207,000 worldwide, compared to Google’s 182,000 employees, Intel’s 125,000, and Apple’s 164,000. More than 50% of its employees work in R&D, and the company spent over 23% of its annual revenue, or around RMB 164.7 billion (USD 22.7 billion), on R&D in 2023, putting it in the top ten among global companies.
Huawei also remains the most important driver in China’s semiconductor and AI computing space, according to industry insiders and observers. In Shanghai, it is building a sprawling R&D center for chip design and semiconductor equipment development, while Huawei-supported chip production and packaging plants are spreading across China—with strong government support.
“When the US blacklists one company, very often you can find it will pop up later with a new name,” one chip industry executive said. “Also, this type of circumvention effort is increasingly coming not only from Chinese players but from many of China’s allies.”
Indeed, in October 2024, TSMC halted shipments to at least two chip design customers over suspicions they were attempting to circumvent US export control rules on Huawei.
Huawei used to be one of the top clients for almost all of the world’s top electronics components suppliers, from TSMC and Qualcomm to Samsung, SK Hynix and Sony, and it always used the most advanced solutions the suppliers had. It was sometimes even more aggressive than Apple in its deployment of newest technologies, industry people say. An irony of the US crackdown is that it has compelled Huawei to take that experience and turn it inward, helping it improve the overall quantity and cost-effectiveness of production in China.
Now that even second-tier suppliers like SJ Semiconductor and SiEn (Qingdao) have the chance to benefit from Huawei’s experience and hone their technologies, the country has jumped ahead by years in overall supply chain development.
“The Americans and Europeans are underestimating China, but people should never underestimate China,” a former TSMC executive said. “It has a population of over a billion, very good engineering education and a great sense of mission and incentive to develop its own chip and tech industry. With Huawei shifting from TSMC to chipmakers like SMIC, it actually helps the Chinese chipmakers to accelerate their experience curve, which is very valuable to China.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.