Industry Voices—Madden: Huawei gut-punched into survival mode

Huawei MWC19
The U.S. Department of Commerce has cut off shipments of semiconductors that use U.S.-based design tools and fabrication equipment. (FierceWireless)
Joe Madden

For the past year, the U.S. government has been clamping down on Huawei, taking its supply of key technology away one step at a time. Key RF chips, FPGAs, and the Google Android operating system have been denied to Huawei, forcing it to adapt.  

Huawei has adapted impressively. They have introduced their own ASICs, developed their own RF designs, and scaled back the complexity of their handsets. They poured money into developing their own operating system and applications. The cost was staggering, but the company stayed on track with shipments and revenue.

Last week, the company took a punch to the gut. The U.S. Department of Commerce has cut off shipments of semiconductors that use U.S.-based design tools and fabrication equipment. Like a boxer reeling from the last punch, Huawei is not in a position to defend itself this time.

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First of all, in mobile infrastructure Huawei relies on ASICs fabricated by TSMC in Taiwan. They are working to develop a similar capability with SMIC in Shanghai, but SMIC is behind by roughly three generations of technology. The current production at 14 nm at SMIC lags behind the 14 nm processes that were available in 2017. SMIC has introduced a new process called “N+1” which improves some characteristics, but which doesn’t improve speed enough for key 5G baseband integration. 

Secondly, high performance RF chips in a smartphone rely on GaAs material, which is dominated by American suppliers such as Qorvo, Skyworks, and Broadcom. Huawei has turned to WIN Semiconductors in Taiwan, as an alternative to manufacture their own RF designs. This is also in jeopardy, as WIN’s technology originated in the USA. 

Huawei’s R&D spending shot up 30% in the past year, as they scrambled to substitute new parts into almost everything they build. Their inventory has increased by 70%, as they stockpile some parts and others are orphaned. The company has shoveled money into OS and app development, with 1.4 million developers now working on an ecosystem to replace Android. Wow.

This is a critical time for Huawei. According to our research, they produced more than 50,000 5G base stations in April. Their competitors are coming to market with advanced 5G handsets. Huawei cannot drop back to 2017 levels of semiconductor performance without losing a huge number of customers.

When I recently asked Huawei about their chipsets, they acknowledged the difficulties involved and mentioned that they hoped to buy semiconductors from Korean and Chinese mainland suppliers. It’s possible that they will find a work-around, or that they will buy clandestine chips from another OEM such as ZTE. But it’s difficult to dodge or hide when you are an elephant.

Korean, Japanese, and European companies are rushing to take advantage of the opportunity, but there may be a problem for them. This U.S. action applies to the most advanced fabrication equipment and design tools, which are dominated by American companies. Applied Materials, KLA, LAM, Cadence, and Synopsys are some of the main companies that come to mind… all of them are based here in Silicon Valley. Can anybody show me a 5nm or 7nm chip that is produced without using these companies?

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If the American government can sustain this pressure, it’s a very painful blow to Huawei. Any normal fighter would be knocked out. Because Huawei is supported by the deep pockets of the government, they can achieve extraordinary things. But make no mistake: This is not something that a company can survive alone. Only a state-sponsored company can survive under this kind of pressure.  

Mr. Trump is applying maximum pressure, giving Huawei four months before the new restrictions kick in. In this high-stakes negotiation, Mr. Trump is looking for real concessions and he is timing his move so that maximum pressure starts two months before the American election. The art of the deal? It feels like a battle to the death between Mr. Trump and Huawei.

Joe Madden is principal analyst at Mobile Experts, a network of market and technology experts that analyze wireless markets. The team provides detailed research on small cell, base station, carrier Wi-Fi, and IoT markets. Madden currently focuses on trends in 5G, IoT, and enterprise markets for wireless infrastructure. Over 26 years in mobile communications, he accurately predicted the rise of digital predistortion, remote radio heads, small cells, and a mobile IT market. He validates his ideas with mobile and cable operators, as well as semiconductor suppliers, to find the match between business models and technology. Madden holds a physics degree from UCLA. Despite learning about economics at Stanford, he still obeys the laws of physics.

"Industry Voices" are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.

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