Huawei won't abandon high-end smartphones despite US chipset ban

By Chen Qingqing in Dongguan and Ma Jingjing in Beijing Source: Global Times Published: 2020/9/14 21:38:42 Last Updated: 2020/9/15 10:02:10

Employees of Huawei arrive at the company's research and development base in Songshanhu of Dongguan, South China's Guangdong Province. Photo: Chen Qingqing/GT

While the deadline for cutting off crucial chipset supplies to Huawei is close, very few employees at the company's research and development (R&D) center in Dongguan, South China's Guangdong Province, spend much time talking about it. With no palpable anxiety at its offices, the crackdown by the US government on this Chinese private company taught many Huawei staff one important thing: be focused, make maximum efforts and get prepared for the worst. 

As September 15 (Tuesday) is the date set by the US government for curbing high-end chipset supplies to Huawei, the ban is going to deliver a heavy blow to the company's Kirin chips and further weigh on its high-end flagship smartphones. 

Given that revenues of Huawei's consumer business, which includes smartphone sales, accounted for more than half of the company's total revenues in 2019, as its latest annual financial report showed in March, the latest rules prohibiting suppliers from selling chips to Huawei is now forcing the company to restructure its business and adjust the long-term strategy, according to industry insiders and sources close to Huawei. 

Employees of Huawei arrive at the company's research and development base in Songshanhu of Dongguan, South China's Guangdong Province. Photo: Chen Qingqing/GT

Redirect its focus 

Richard Yu Chengdong, CEO of Huawei's consumer division, warned earlier in August that after September 15, the high-end Kirin chipset could not be produced anymore, and the overall shipments of smartphones would shrink to below 240 million units. 

The upcoming Huawei Mate 40, equipped with the Kirin 9000, could be the last generation of Huawei phones powered by its self-developed chipset. Some industry representatives speculated on whether Huawei would abandon its high-end smartphone business as the worst scenario under the US ban, but the Chinese tech giant has been actively diversifying its business from its core sector including telecom carrier business and smartphones to the Internet of Things, hoping to build up a new ecosystem supporting various smart devices such as tablets, watches, cars, earphones and laptops. 

It has been also investing heavily in other business sectors such as artificial intelligence and cloud computing, forming new ways to offset the impact from the US sanctions. 

"I don't think Huawei will completely abandon its high-end smartphones. The worst scenario would be to suspend sales," Huang Haifeng, an independent telecom industry insider, told the Global Times. 

"We are at a very difficult moment," some Huawei employees told the Global Times in recent days. They preferred not to be identified as they were not allowed to talk to the media. However, instead of complaining about the difficulties, such a crisis could also be turned into an opportunity, some said. "We'll survive, eventually."

Guo Ping, Huawei's rotating chairman recently said during an internal meeting that he is confident that Huawei can eventually find a solution, especially for high-end smartphones, amid the US' crackdown on its Kirin chipset. "It's very hard for a smartphone manufacturer to forge an ecosystem [referring to Huawei Mobile Services] but we've achieved results beyond our expectation," he said.

The tech giant is now finding more solutions than just diversifying business, including working on supply plans by finding other chipset suppliers, increasing inventory, working with universities to continue attracting talent and working closely with supply chains. Relying on the whole industry also means more possibilities to work it out and make breakthroughs in core technologies, according to industry insiders.

"Even if China reduces its purchases or buys no US-made new CPU chips over the next few years, if would not necessarily have an apparent impact on China's development of 'new infrastructure,'" Ni Guangnan, an academician with the Chinese Academy of Engineering in Beijing, told the Global Times.

He said that China should adopt an advanced system with coordination of hardware and software so as to reduce reliance on single chips. "With the special 'China system,' both domestically made CPUs with conventional processes, a large amount of old-fashioned Intel CPUs and even easily accessed CPU chips for common personal computers can be taken advantage of to ensure that the establishment and operation of key infrastructure sectors and general data centers won't be impacted."

Working till late night, Huawei staff enjoy late night snacks offered by the company for free around 10pm at the company's headquarters in Dongguan, South China's Guangdong Province. Photo: Chen Qingqing/GT

Industry chain impact

Looking beyond Huawei, the US restrictions on Huawei's acquisition of semiconductors manufactured using US technology and design software creates a greater impact in the whole industrial and supply chain.

Samsung Electronics and SK Hynix are discontinuing their supplies of memory semiconductors for Huawei amid intensified US restrictions, South Korean news outlet reported, citing industry sources.

SK Hynix told the Global Times on Monday that it cannot provide any comment on the Huawei issue, while Samsung said that it won't comment on reports about its clients.

A Beijing-based close follower of Huawei, who preferred to be anonymous, told the Global Times on Monday that its major suppliers like SK Hynix and Taiwan-based TSMC may see about a 10 percent loss in revenue if they're forced to totally cut supplies to Huawei.

In 2019, Huawei accounted for about 11.4 percent of SK Hynix's sales revenue and 3.2 percent of that of Samsung Electronics, reported. Meanwhile, Huawei is estimated to account for 13-15 percent of the world's largest contract chipmaker TSMC's revenue, industry website reported.

The Global Times learned that Huawei's major suppliers themselves still want to sell semiconductors and display panels to make more revenue.

In order to continue supplying Huawei, some chipmakers rushed to apply for a license from the US government. Taiwan-based semiconductor company MediaTek said in August in a company statement that it has submitted an application to the US based on regulatory rules for permission to sell chips to Huawei, the Taipei Times reported.

Meanwhile, Huawei's suppliers in the island of Taiwan have ratcheted up production for Huawei to make preparations for the worst scenario. According to financial results released by TSMC, it reported revenue of 122.88 billion new Taiwan dollars ($4.2 billion) in August, setting a record growth of 16 percent month-on-month. MediaTek saw sales growth of 22.6 percent month-on-month in August.

Industry insiders told the Global Times on Monday that Huawei recently chartered a cargo flight to get chip products made by suppliers such as TSMC and MediaTek.

Working till late night, Huawei staff enjoy late night snacks offered by the company for free around 10pm at the company's headquarters in Dongguan, South China's Guangdong Province. Photo: Chen Qingqing/GT


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