Big Blow for Huawei as Japanese, Korean, British Firms Reconsider or Suspend Cooperation as Well
Now that's a game-changer...but there may be a way still
Huaweis’s suppliers in Japan, South Korea, Taiwan (ROC), and Britain are examining if they can continue to make business with Huawei, while some have already declared a suspension in cooperation.
The issue is that these non-American companies nonetheless use some American components of technology, and if they proceed they will be sanctioned by the US themselves.
It is the same reason why Russia’s Sukhoi did not in the end sell its SSJ-100 airliners to Iran — East Asian tech companies can hardly be expected to be more gung-ho on defying the US than Russia’s leading defense plant.
Most Asian suppliers, including TSMC, Foxconn, Japan Display and Toshiba Memory, are carefully reviewing whether they could be running afoul of American regulations by using such American technologies as software, intellectual property, tools and materials.
The company did not expect the restrictions to also cover all foreign suppliers that indirectly use a certain amount of U.S. technologies to build products for it. This caught the Chinese company off-guard, people familiar with the matter said.
This is a big deal. Having to replace all the components that are bought from US firms would be a big undertaking, but having to do everything in China is probably impossible. I mean it’s possible, but the product wouldn’t be viable on the market.
The efficiency of free trade and free markets are in that they allow and encourage specialization and division of labor. Not just Huawei, but its rivals, as well as its suppliers rely on a highly complex and expansive multi-national supply chain. It gives them access to highly specialized existing expertise and economies of scale, but also the flexibility to switch to whomever is currently at the top of their game. To be removed from all of that overnight and remain competitive on the market is downright impossible. It would be like the only shoemaker in town who has to double up as expert tanner and profitable rancher.
Probably the most painful loss is that of the British ARM chip designer. Huawei has begun to make its own smartphone processors but they’re based on ARM architecture its next chips may no longer be allowed to use.
To make matters worse ARM is just a designer, and thus no American parts are actually transferred in its business with Huawei, merely some “intellectual property” as ARM designs incorporate some US patents.
If you haven’t soured on so-called “intellectual property” yet, now may be the time. It’s bad enough when a company that patents a procedure/pattern can shake down all the others who follow at a later date. But it’s even more egregious when a government which had nothing to do with invention of that novelty, is then able to bar companies of other nations from manufacturing the same thing.
Moreover even if Huawei is able to quickly design new processors where would these be made? Apparently only Taiwan’s TSMC which has been Huawei’s partner so far, has the spare capacity:
HiSilicon designs core processor chips for Huawei mobile and networking equipment and also designs Huawei 5G modems. Huawei’s investment in chip design dates back a decade, and the company is far more self-reliant than smaller peer ZTE, which was forced to temporarily halt operations when American technology exports to it were blocked last year. But Huawei needs TSMC’s advanced chip plants to turn its designs into reality. Currently, only Samsung Electronics, Intel and TSMC have such advanced fabs to produce chips that Huawei and Apple need for their latest smartphones. But Samsung and Intel build chips largely for themselves, not others.
The good thing for Huawei is that its suppliers are themselves hugely reliant on Huawei and China as a whole, primarily as a customer and market, but many of them also for supplies and labor. China is not Iran. It is an economic powerhouse every bit as important as the US.
Perhaps this along with appropriate pressure by China, such as in presenting a unified front and using market access as leverage, can spur its non-US partners to come up with as many solutions without the use of American parts and patents which can then be therefore freely sold to Huawei. If so Trump will have hurt the US tech companies doubly, and it will be Americans who will be left on the outside looking in.
To understand the complexity of the supply chain for a single Huawei smartphone, here is what goes into its newest models (interesting to note that Samsung is not just a rival of Huawei but also one of its major suppliers):
Instruction set architecture: HiSilicon purchased the CPU and GPU architectural license from ARM in Cambridge, UK. With the license, HiSilicon can use the ARM instruction set (armv8) and develop their own 64-bit CPU architecture. And the bus standard such as AMBA is also licensed from ARM.
CPU, GPU: HiSilicon employs several hundred people in Shenzhen, China to design their custom CPU cores, accelerators, and IP components. In order to design their own CPU, they need to use Electronic design automation (EDA) tools from Synopsis, Cadence, and Xilinx. These EDA companies are all American companies in California, USA. HiSilicon needs to pay them license fees to use their tools to design and simulate their own CPUs.
Meanwhile, HiSilicon can also integrate existing softcore designed by ARM, such as powerful core Cortex A76 and power efficient core Cortex A55. Both are in the same chip. The big core is designed in Austin, Texas, USA and the small core is designed in Cambridge, UK. Some of the low-end CPU cores are also purchased from MediaTek in Taiwan. Meanwhile, HiSilicon can also purchase other intellectual properties from ARM including the Mali T830 GPU and the interconnect subsystems. Mali GPU is designed in the ARM headquarters in Cambridge, UK.
Memory: HiSilicon designed their own logic in the memory controller and SRAM systems. SRAM and DRAM cells are licensed from Samsung, Korea. The future 7nm 3D stacked RAM would also be designed from Samsung but manufactured in Dalian, China.
DSP & Camera: HiSilicon purchased the Camera lens design IP and control system from Leica Camera from Germany, where most of the system was designed in Wetzlar, Germany. And the actual lens is manufactured by Largan Precision in Taiwan and Sunny Optical Technology in mainland China. The electrical motors for driving camera to change focus is manufactured by Mitsumi in Tsurumaki, Japan. To translate light into signals, the photosensitive film is designed by O-film in Shenzhen, China (also supplier for iPhone X). HiSilicon purchased the hardware solutions for auto-focus and image stabilization from ON Semiconductors in Phoenix, Arizona, USA. The HD video processing chip is licensed from Sony, Japan. And HiSilicon designed their own image processing hardware accelerators (ISP), purchased many DSP IP patents from CEVA in California, USA and AI chips from Cambricon Technologies from Beijing, China.
Baseband: HiSilicon purchased IP license to use WIFI, GPS and Bluetooth IP from Broadcom from San Jose, California. For the 3G support, HiSilicon has to pay a royalty fee to patents held by Qualcomm from San Diego, California. For later 4G LTE and 5G, HiSilicon has its own patents and baseband processor called Balong, which was designed by several hundred people across China. HiSilicon has also purchased the Beidou Navigation system from Chinese Academy of Sciences. Note that some of the chip verification tasks are performed by Indian Engineers in Hyderabad, India.
Radio Frequency: To multiplex between various communication signals and amplify analog signals to different wireless frequencies, they need radio frequency integrated circuits (RFICs). Most of the patents in RFIC was held by RF Micro Devices from North Carolina, USA and now became Qorvo after merging with TriQuint. In the RFIC chips, you need a few power amplifiers, high-end capacitors manufactured by Murata Manufacturing in Kyoto, Japan. You also need surface acoustic wave (SAW) sensors designed and manufactured by TST Taiwan and Microgate in Shenzhen. You also need a few silicon-on-insulator switches designed by Skyworks Solutions in the USA and manufactured by Skyworks in China. For the antennas components, they are designed and manufactured by Sunway Co. in Shenzhen and Rosenberger (USA) factories based in Shanghai, China. In the age of 5G, Huawei analog devices have to use these devices from the USA, Japan, and China as well.
NFC & Touch: NXP Semiconductors in the Netherland provide NFC solutions for Huawei. And the chip is developed by Infineon in Simens, Germany. Goodix Co in Shenzhen provides the fingerprint sensor. USB Type-C solutions are provided by Shenzhen Everwin Precision.
Fabrication: After HiSilicon integrating all the soft IP and package into one SOC, the design is sent to Taiwan Semiconductor Manufacturing Company (TSMC) in Taiwan for physical layout and fabrication. The fabrication process of the SOC chip is a very complex task. For the most important steps, TSMC needs to import mask alignment systems (MAS) designed by ASML from the Netherlands. They also need to use a lot of wafer chemicals from Shin-Etsu in Japan, Siltronic AG from Germany and SUMCO Corporation from Minato in Japan.
Material: However, most of the chemical products and semi-products are imported from China. The most representative one is the rare earth metals in China. For other materials including glasses and steel, BYD in Shenzhen is responsible for manufacturing mobile phone gradient frames and high-density glasses. Shengyi Electronics produces all the PCB board for the phone.
Screen: Huawei P30 used Samsung OLED rigid screen but P30 Pro used the OLED soft screen designed by BOE Technology in China. Some screens are also manufactured by LG, Korea and manufactured in Guangzhou, China. Now both Korean and Chinese companies are dominating in the screen market.
Assemble: Huawei then orders all the components from each service provider and ship the components to Foxconn in Zhengzhou, China. Workers in Foxconn assemble all the components together into one complete phone.
Taiwan Semiconductor Manufacturing Company that produces the Kirin Chip has announced that it will continue producing it as its legal advice is that their product does not exceed the 25% rule. It is not Hauwei who is a licensee of ARM designs.
Earlier in May it signed large contracts for the chips that will be used for 5G.
I suggest further threats against Taiwan will push it closer to China, whose policy seems to be to integrate the province into the economic growth of China by leveraging its existing manufacturing specialties.
Politically, despite recent US efforts to influence elections, the pro-unification sentiment appears to be growing, and China’s approach has orientated Taiwan away from American dependence.
In the longer term it would be better for ARM a UK company to rid itself of its US assets and then replace the patterned parts of his chip design, which appears to be what Taiwan Semiconductor Manufacturing Company has already stared to do in their wafer designs. Because with %g and the whole of the non-western world as China’s market ARM would make far much more by this than through other channels.
Makes you think that maybe Intel’s days are numbered rather than Huawei’s.
Huawei uses their technology to spy for the Chinese Government. You are all blind fools. China is the real bully on the world stage.
You got that very wrong. The Us hacked in Huawei’s servers a while back in order to get evidence of this and found none. However the US has legislation that MS, Apple and Google must have back ports that can be used by their intelligence community.
These back-ports have led to the recent wave of computer crime, the keys have been found. The US has been openly spying on all communications, including Government phones of its allies Angela Merkel’s phone etc.
Asian telecommunications are spied on through Pin Gap Australia, and African via North West Cape in Australia. The reason the US want to stop Huawei’s 5G is that they will be locked out of their spying the so called five-eyes.
Since the fall of the USSR, the CIA and other US assets like Australia’s ASIO and UKs MI networks, have been giving commercial advantage to US firms — This has been policy since Reagan.
The US maintains a vast empire, has over 700 bases around the world, interferes in elections, stages coups etc continuously — it needs its networks intact, China does not.
It is not in China’s interest to do mass spying, when market trust and good products are their future. There are no backdoors, that make the user vulnerable not just to spying but criminal extortion fo t5he simple reason it makes the product bad.
The US is on its last legs and simply echoing its lies is not a display of wisedom.
Countries are either US subjects or are gutless, most likely both. Time for China’s President to show some nuts and stand up to the US, previous decisions by him were overruled by his Party.
Time to play the rare earths card.
Chill. Huawei has a permanent ARM license.
They saw this coming even before Xi warned the nation in 2015.
This Black Listing and competition halting is 100% against EU principles and values on free movement of products and people. That’s why they recently fined Google billions for suppressing competition. Lets see how they run with this. If they follow the USA they are total hypocrites.
So China will just go more nuclear, faster. The quicker the better, the drunk at the other wheel is not interested in stopping.
Dump the Dollar and stop buying US Treasury Bills.
Every US T-bill that China buys is ultimately financially subsidizing the American enemy.
If America wants to play hardball, give it back to them even harder.
That is the only language America understands.
Death to iphone, death to google play.
Thanks for this in-depth analysis, it is most important.
The ARM Patents issue is outrageous reach around by the US. The compliance of US allies against their own national interests is the tension point, ARM may be susceptible to ‘migrate’ towards the future as China aims its new tech to the non-western world.
The use of intellectual property as trade war, also releases China from respecting the patents ; it can now freely copy, improve and re-engineer anything that falls within the orbit of these participating countries, which is significant threat that is best made in the doing, and then see how happy these companies are to break contract.
I believe that not only has China the expertise amongst its own nationals, but also that of experts from around the world either working in China or have their work used by China.
China will make this a national effort, and while decisive elements will initially be copied and refined, they will be re-engineered and that will open up new possibilities. The short term hurt will become a long term favour.
Taiwan may have even better reasons for closer ties to China, this trade war threatens a lot of commerce between the two beyond specific technologies.
Lastly, their is another technical revolution brewing within the industry, there are many elements of hardware and software that if allowed to break away from the current component plan could take everything to a higher level.
Backward compatibility in software is the major issue, the past has to be secure, but below that the rest is far more malleable than it was just ten years ago. Re-conceptualization at the OS end makes a big difference in preserving old functionality ontop of new hardware. Neural networks and RISC cores together have this possibility without rewriting old app code.