Huawei – Window dressing pt. II

No way back.

• The repercussions of the latest US restrictions (see here) are likely to go both far and wide through the Chinese technology industry slowing its development and putting Huawei even more at a disadvantage than it already was.
• Huawei’s fate in cellular networks and equipment was pretty much sealed a couple of years ago when the USA implemented the Foreign Direct Product rule against Huawei meaning that suppliers like TSMC had to stop selling wafers to Huawei.
• This meant that when the rules changed all Huawei could rely on was the chips that it had already accumulated in its inventory which were exhausted after a relatively short period.
• Huawei has been working on trying to get around this block and while it did an excellent job in the first year or so, its business is now really suffering and I am not expecting any recovery.
• One of these workarounds was to have 3^rd parties not on the entity list manufacture cases for its handsets that had 5G modems in them in order to allow the handsets to run on 5G networks.
• However, this has not got down particularly well creating a larger handset with no real integration between the 4G and 5G modems making for a lower-quality user experience.
• It also adds to the cost as the user needs to buy the case as well as the Huawei phone and there have already been complaints about the price of Huawei smartphones as they do not support 5G unlike all of its rivals.
• The result is that even at home, Huawei is now very uncompetitive which has led to a significant decline in market share.
• Another is to build its own factories to manufacture the 5G chips that it needs and while this was always going to be a long shot, I suspect that the latest measures from the USA will leave this ambition dead on arrival.
• The new company seems to be called Pingxinwei IC Manufacturing Co. and in the best instance, it is expected to produce chips on a 28nm process in 2025.
• The problem here is that Huawei would be using a cellular modem in its phones that has much less performance than its rivals using Qualcomm or MediaTek 5nm chips or Apple using TSMC 4nm process.
• These chips would very likely also take up more space within the handset as well as consume more power making these devices unattractive to users.
• Furthermore, being restricted to 28nm would make integration to create a system-on-chip much more complicated further exacerbating the size, performance and power consumption issues.
• The net result is that Huawei’s attempts to circumvent the restrictions and return to being a major manufacturer of smartphones are very unlikely to succeed.
• Hence, its fortunes are likely to continue to decline in 2022 and I suspect that when the upturn comes, Huawei will not be able to participate due to its inability to produce competitive products.
• Huawei’s future was already bleak but looks certain to get worse from here.