Huawei – 5G debate

Still no hard evidence of 5G.

• Huawei is now more of a political pawn than ever as its claimed accomplishments are more about demonstrating that China can work around the US technology embargo than they are about actually selling devices and making money.
• Following the launch of the Huawei Mate 60 Pro, a furious debate has erupted over whether or not the device supports 5G.
• There are also claims (see here) that Huawei has incorporated generative AI into the device presumably to support an onboard digital assistant of some description.
• In my opinion, this device makes no commercial sense both inside China and overseas as it has to compete with smartphones from its Chinese rivals who still have access to superior Qualcomm and MediaTek chipsets.
• Consequently, I do not expect this device to be a commercial success, but it increasingly looks like this device has far more to do with geopolitics than business.
• Huawei has long been the political pawn in the ongoing struggle between the USA and China (see here) where the US sees it as a symbol of Chinese technological prowess and China sees it as a national champion.
• After a spirited fight, Huawei was finally crushed by restrictions being placed on TSMC’s ability to ship leading-edge wafers to Huawei and it has been in steady decline ever since.
• Hence, a 5G smartphone using leading-edge semiconductors launched by Huawei is being seen as a symbol of Chinese technological capability and an ability to succeed despite the best efforts of the US Department of Commerce.
• The only evidence I have seen that this device supports 5G is that 5G-like speeds have been demonstrated (see here) on the device.
• The problem with this is that it is possible to achieve pretty much any speed on a 4G device if one uses enough wireless spectrum.
• 5G has never been about speed but always about latency and spectral efficiency at high frequencies and so I do not see this as concrete evidence that the device supports 5G.
• Furthermore, if the device had 5G, there would be no reason for Huawei representatives to be evasive and I am pretty sure that they would have splashed the logo all over the box.
• Teardowns have been inconclusive as to whether it does support 5G, but there is some evidence that the Kirin 9000s system on chip has been manufactured on an SMIC 7nm process (see here).
• Without access to EUV, SMIC will have had to achieve this feat using conventional equipment which will now become even more difficult given the new restrictions that came into force on October 7^th 2022.
• 7nm without EUV is possible but it is extremely difficult to make chips with the kinds of yields and volumes that would make them a commercial success.
• It was Intel’s decision to try and do 7nm without EUV that was the beginning of all of the problems that Pat Gelsinger is now spending billions of dollars to fix.
• Hence, while SMIC may be able to produce some chips on 7nm, I would question whether or not it can do so profitably and if it is not profitable, then it will not be sustainable.
• Given the level of restrictions, I suspect that SMIC’s ability to conduct a commercial enterprise will remain at the 20nm and above nodes where there is still plenty of business to be done.
• Even with a 7nm processor, Huawei is going out against its rivals who are using 5nm and beyond systems that will give them an edge when it comes to cost, performance and power.
• This is why I think that this device is yet another gambit in the ongoing ideological struggle between the USA and China that is being played out in the technology sector.
• In short, the Huawei Mate 60 Pro is being used as evidence that China does not need US technology and that it can develop parallel technologies that are just as good as its American competitors.
• While there is evidence that the Chinese can do this in AI, Quantum Computing, Autonomous Driving and The Metaverse, all the evidence in semiconductors indicates that China is in a very difficult position.
• Hence, I expect that the US will continue to use the edge it has in semiconductor manufacturing to try and keep a lid on Chinese technology development in general as semiconductors are the building blocks for all of the technologies where the Chinese compete effectively.
• This is why the US is increasing restrictions on the export of AI chips to China.
• There is no sign of this letting up and RFM Research and Alavan Independent continue to expect global technology standards to bifurcate with the Chinese going one way and everyone else going another.
• In the long-term, this is bad news for everyone as the most value is generated by large compatible networks (like 4G) rather than two smaller incompatible ones.
• This means lower long-term growth for everyone as well as lower returns on investment over the next 10 to 20 years.