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(Oct 23): Huawei Technologies Co. spent months quietly running to store critical radio chips ahead of Trump administration sanctions, ensuring it can continue to supply Chinese carriers in its $ 170k 5G technology rollout million until at least 2021.
Partner Taiwan Semiconductor Manufacturing Co. began ramping up production in late 2019 of Huawei’s 7-nanometer Tiangang communications chips, the most crucial element in 5G base stations, people familiar with the matter said. The Taiwanese contract manufacturer eventually shipped more than 2 million units at Huawei’s urging before the sanctions cut last month, said one of the people, who asked not to be identified to discuss internal matters. The sheer magnitude of the orders at one point made TSMC executives wonder if they had underestimated global demand, the person said.
Huawei’s progress in sourcing essential supplies underscores the uneven success of a US campaign against China’s largest tech company since 2018. Citing national security concerns, the White House began by trying to restrict the sale of US software and circuits. Huawei before finally enacting sweeping restrictions against its suppliers, including TSMC. It’s that latest salvo, a ban on the sale of commercially available, ready-to-use semiconductors, that ultimately put a brake on Huawei’s smartphone business and forced it to cut back on device production, the people said. Representatives for Huawei and TSMC declined to comment.
But the Tiangang chip, designed in-house by the secretive HiSilicon division, has proven critical to keeping the 5G business afloat. Huawei had relied on TSMC in the months before Washington closed that loophole and can now continue to supply China Mobile Ltd., China Telecom Corp., and China Unicom, the trio of carriers that are now aggressively building a national 5G network than Beijing. considered essential for driving. the second largest economy in the world. A representative for China Mobile declined to comment for this story. A China Telecom spokesman said the company will communicate any impact of the restrictions on Huawei, but declined to comment on the discussions about the chip supply. Unicom representatives did not respond to requests for comment.
“The United States has shown an intense willingness to restrict Huawei’s ability to offer 5G technologies. The extraterritoriality claims of the US government have made it difficult for Huawei to maintain access to critical components, ”said Dan Wang, analyst at Gavekal Dragonomics. In 2012, only a third of Huawei’s revenue was generated in China, which was close to two-thirds last year. “Huawei is more dependent on domestic sales due to both pressure from the US and its strong grip on the rapidly growing Chinese market.”
Huawei told Chinese wireless carriers that its component inventory was fully capable of supporting base station construction in 2021 and beyond despite US sanctions, according to people familiar with the matter. The company has started shipping 5G base stations without US components since at least the end of last year.
It’s unclear how long those actions can last. Rotating Chairman Guo Ping said last month that the company has “sufficient” inventory for its communications equipment business. But it is looking for supplies for the smartphone unit, which on Thursday potentially unveiled its last main phone before component shortages force a rethink of the device line. “We are suffering from the prohibition of the third round of the United States government. This unfair ban, “said the head of consumer companies, Richard Yu, during a presentation broadcast live.
Even assuming Huawei has cached enough silicon for the purposes of Chinese carriers’ customers, it may have had to make sacrifices in performance due to a shortage of second-tier components. Turning to less sophisticated local alternatives can hamper areas such as the rate of energy consumption, the people said. To rectify that, Huawei promised to compensate operators for some of that additional electricity expense, they said. A typical 5G base station consumes about four times the power of a standard 4G model.
What Bloomberg Intelligence says
The gains made by China’s tech leaders may be higher than previous generations for smartphones, cell base stations, servers and chipsets, but less relevant amid the trade dispute. Huawei and its peers face similar circumstances if the US restricts its use of IP, but they can still grow in China through vertical integration. The nation’s technological trajectory could then deviate from global trends.
– Anand Srinivasan and Charles Shum, Analysts
While Washington is gaining ground in its efforts to pressure Australia’s allies to the UK to avoid Huawei equipment, the Chinese company’s main source of income remains its own home country. So far, Huawei has won more than half of the 5G orders from state-owned carriers this year, securing contracts worth billions of dollars, Bloomberg News previously reported.
Chinese operators have built 690,000 5G base stations since the technology was commercialized about a year ago, according to the Ministry of Industry and Information Technology. The nation’s operators have not yet announced plans to purchase base stations for 2021, but ministry officials said construction of the country’s network will continue for the next three years.
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