Nearly a year after President Trump’s trade blacklist, Huawei seems to be standing firm. By the end of 2019, Huawei’s market share is more than enough to outstrip Apple. In early 2020, even though Covid-19 caused heavy damage, Huawei’s decline was still significantly lower when compared to its biggest rival, Samsung.
But the joy of the Chinese giant cannot last. Nearly the one-year “anniversary” of putting Huawei on a commercial blacklist (causing it to lose the right to cooperate with Google, Intel and Qualcomm), President Trump took the next blow: a set of laws to control Export controls, in which companies across the globe must obtain permission from the US government before selling Huawei-based technology products to Huawei.
Huawei now no longer has the right to cooperate with TSMC, the world’s No. 1 chip processing power.
Almost immediately, Huawei was cornered. The goal of this law is none other than TSMC, the world’s No. 1 semiconductor outsourcing company based in Taiwan. After the new law is enacted, TSMC will be required to obtain US permission if it wants to sell to Huawei. Due to increasingly fierce US-China trade war, this “licensing” mechanism is no different than forcing TSMC to “face off” Huawei.
Theoretically, Huawei still has a way to live when it has lost the right to cooperate with TSMC. Many years ago, it stopped using designs from Snapdragon or standard ARM designs and acquired a chip design company called HiSilicon. TSMC only has a design production role put forward by HiSilicon – if a replacement is found, Huawei doesn’t need TSMC.
But in reality, finding a replacement for TSMC is not easy. The Taiwanese company is currently the world’s leading chip processing powerhouse, making an important contribution to the success of many customer companies – including Apple, AMD, Qualcomm and of course Huawei. Assuming that other outsourcing companies are allowed to replace TSMC to become manufacturers for Huawei, the production demand of the Chinese smartphone brand has exceeded 100 million units per year. The ability of a company to catch up with TSMC’s production capacity is almost 0%.
In fact, Huawei has now been cut off the entire chip supply chain outside of mainland China.
Not stopping here, nearly all of TSMC’s significant rivals are not allowed to shake hands with Huawei. Last month, after rumors that Huawei would “bypass” the ban by buying MediaTek chips, the SoC brand associated with this mid-range / low-cost segment quickly denied. People who believed the relationship between Huawei and MediaTek (or Samsung, Intel, etc.) did not realize that Mr. Trump’s new ban was aimed at “American-originated” technologies. Names from Taiwan (TSMC, MediaTek), Korea (Samsung, LG …) or the UK (ARM) are all under the influence of this ban.
In other words, any company that wants to replace TSMC to become a chip supplier for Huawei will have to come from mainland China. Again, that is an impossible task. The IC Insights report shows that by the end of 2019, the top five chip manufacturers in the world are Korean, Taiwanese, US and Japanese companies. Next, of the 5 pure outsourcing companies (not selling their own products like Samsung or Intel), only one company from mainland China: SMIC.
Unfortunately for Huawei, SMIC is still struggling with 14nm technology while TSMC has now moved on to 5nm research. Even, since 2018 TSMC has only used 12nm technology for chips … midrange. The ability for Chinese chip processors to catch up with TSMC is almost 0%, because the ban from President Trump includes all kinds of machinery used in chip design / manufacturing.
While Huawei is miserable, other Chinese manufacturers are still comfortable using the latest chips from the United States.
Even assuming that China could somehow catch up with the United States and its allies in chip production capacity, within the next 1-2 years, the chips will be manufactured on the backward cycle in Dai. Luc will make Huawei inferior to all of its rivals, including “compatriots” such as Xiaomi, OPPO and Vivo. Just days before Trump announced the new ban, Xiaomi teased Huawei when it unveiled the Redmi K30 5G Racing Edition using a Snapdragon 768G chip – a chip designed by an American company (Qualcomm) and almost certainly produced at TSMC’s factory.
In addition, Huawei has not only lost the right to buy SoC chips, but also the supply of OLED screens, ROM memory chips, RAM chips or CMOS sensors on the camera. Most frighteningly, China’s No. 1 technology company will lose the right to buy / rent processing chips used in the telecommunications sector. Even Chinese telecom chip makers are using components, machines or software from companies from the US. With just one strike, the United States closed Huawei’s remaining lingering hopes on a key business (smartphone), and slashed a deadly blow into the remaining business (5G devices).
The Chinese company also only has enough inventory left to produce by the end of the year. And by then, Huawei will be destroyed. Can not use international Android, can not buy chips for smartphones or network devices, can not find a partner to open a way of life, the world’s No. 2 smartphone power and No. 1 in telecommunications will face the die right this year.