No one can predict the trade tension could be escalated to the severe level in a short period. It was just in the middle of January; the United States and China signed the phase-one trade agreement which eased the world uncertainties for years. However, a storm of pandemic brings the tension back on the table. This time, the Trump administration directly starts a Tech-war —to restrict semiconductor technologies used on Huawei products.
Why is this so serious?
HiSilicon, Huawei’s fabless IC design subsidiary, designs the high-performance SoCs processor for Huawei’s consumer devices. The restriction order will simply curb HiSilicon’s operation from using Eletronic design automation (EDA) software. In global EDA market, US companies like Synopsys and Cadence, account for over a half market share. Furthermore, Taiwan Semiconductor Manufacturing Company (TSMC) will be banned from producing HiSilicon’s chips, because some parts of high-end equipment are from US.
In Huawei’s 2019 annual report, the company reached 858.8 billion RMB in revenue which was a 19% YoY growth. The sales of consumer business accounted for 54%. And what even worse is that the revenue growth from this sector contributed 34%, whilst the telecom carrier business sector merely grew 3%. No to mention the controversial and uncertain 5G equipment which may be banned by Western countries in the future.
This year is regarded as the first year of 5G. At the early stage of an advanced technology, 5G is always packed firstly on the flagship smartphone devices as a selling point. That is why HiSilicon has announced 2 types of 5G chips this year, i.e., Kirin 820 and Kirin 985. And now, HiSilicon must expedite the chip shipments before the deadline of technology restriction, within 120 days grace period.
In addition, Huawei also announced their future business direction which are the developments of AI, cloud computing, and digital platform. None of can be developed without the high-end semiconductor process. The situation is simply bad to Huawei, just like putting a sabre on his throat.
What does this really mean?
The Trump administration is trying to attack China’s Achilles hell, i.e., the semiconductor. China’s 10-year scheme, “Made in China 2025”, aims to upgrade from “world factory” to a higher-value manufacturer, like AI, aerospace equipment and semiconductors. In semiconductor sector, China has planned to increase its domestic content rate from 45% to 75% by 2025. The table below shows the industry sectors included in “Made in China 2025”.
China is only on their halfway toward to their goal. For example, China’s largest contract chipmaker, Semiconductor Manufacturing International Corporation (SMIC) has made a big leap for manufacturing 14 nm chips in the end of 2019. However, TSMC is able to mass produce 5 nm chips in 2020. That why, to Huawei, TSMC is the unchangeable pillar. Once the restriction starts, neither SMIC nor TSMC can manufacture chips for Huawei. That is why the negotiation with US government is so crucial now.
Just right after the restriction announcement, the photo below is posted on Huawei’s Weibo account with a sentence— Apart from victory, we have nowhere to go. This is a best statement for Huawei’s management to response the glooming future ahead the company. Several days later, Chinese Foreign Ministry Spokeperson Hua Chunying posted the same picture on her Twitter and said “That what does not kill you can only make you stronger.” It implies that Huawei and Chinese government are sticking together to confront this impasse.
But there is no any sign showing the sabre is going to be moved.
