Huawei’s smartphone company is in jeopardy after US cut access to advanced chips

“This is a huge loss for us,” Yu said on Friday, according to the Associated Press and several local media reports. Huawei declined to comment on the reports.

Huawei’s chipmaking subsidiary HiSilicon designs the Kirin chips, and then contracts with Taiwan Semiconductor Manufacturing Company (TSMC) to make them. But earlier this year, the Trump administration banned any semiconductor manufacturer using U.S. technology from supplying Huawei without first obtaining a license. That restriction applies to TSMC. The company did not immediately respond to a request for comment on whether it had applied for a license to sell products to Huawei. In a call for earnings last month, TSMC chairman Mark Liu said the company is complying with U.S. regulations, and plans to stop shipping chips to Huawei after Sept. 14.

Apart from a selling point

Huawei should have enough Kirin chipsets to get through this year, said Nicole Peng, an analyst at market research firm Canalys. Following this, the company will likely turn to MediaTek, another Taiwanese chipmaker. Will Wong, an analyst with IDC, said Huawei could still buy the company’s off-the-shelf ‘chipsets.

But using MediaTek’s standard chipsets will overtake Huawei’s competitive advantages when it comes to hardware, said the analysts. Loss of Kirin chipsets “will certainly affect the unique selling point” of Huawei smartphones, Peng said.

Kirin chips are specifically designed to power Huawei’s expensive devices. They are faster and more advanced than MediaTek chipsets, and have better artificial intelligence, imaging and 5G capabilities, according to Peng. That’s why Huawei uses them in flagship phones such as its Mate and P models.

If “Kirin chips can not produce, will create a great deal of uncertainty for [Huawei], especially for their high-end phones, “said Wong. However, Huawei still has a strong national market image in China, which is a great driver “for the company.

Home advantage

Those rapid sales in mainland China, along with Samsung’s downturn competitor, also helped Huawei take over the South Korean company to become the world’s smartphone sales.

Stores in China opened earlier than other countries still struggling with the Covid-19 pandemic, and helped boost Huawei sales. However, analysts say that Huawei is likely to fall behind again as stores reopen and sales in other global markets resume.

With the company forced to rely on less powerful chips that many of its domestic competitors also use, it will likely lose its home advantage.

“These suppliers will continue to expand aggressively, while Huawei will be weakened in China next year,” Peng said.