After being forced to halt production of its in-house designed Kirin chipset under US sanctions, Huawei is likely to face an uphill battle in the high-end segment of the global smartphone market if it is denied access to chipset produced by US tech giant Qualcomm, industry experts told Sputnik
MOSCOW (Pakistan Point News / Sputnik - 14th August, 2020) After being forced to halt production of its in-house designed Kirin chipset under US sanctions, Huawei is likely to face an uphill battle in the high-end segment of the global smartphone market if it is denied access to chipset produced by US tech giant Qualcomm, industry experts told Sputnik.
In May, the US Department of Commerce introduced a second round of sanctions which prohibited Huawei and its affiliates from accessing products that utilized US software and technology without a license. Under the new sanctions, the Taiwan Semiconductor Manufacturing Company (TSMC) would no longer be able to manufacture the Huawei-designed Kirin chipset by September 15.
During the 2020 Summit of China Information Technology Association, Richard Yu, CEO of Huawei's consumer business unit, acknowledged that the upcoming Mate 40 smartphone will be the last device to be able to feature the latest Kirin 9000 chipset.
"Unfortunately, our chipset production could only complete the orders placed before May 15. The production will be forced to halt by Sep 15. This year, it could be the last generation of our high-end Kirin chipset, which is the most advanced in the world," Yu said.
Yu admitted that Huawei regrettably only focused on designing a high-end mobile chipset without developing its own manufacturing capacity.
In the global semiconductor industry, companies specializing in designing and sales of chipsets are known as fabless designers, while companies specialized in integrated circuit (IC) production are known as foundries.
Although top fabless IC designing companies such as Qualcomm, Huawei and Taiwan's MediaTek are famous for their advanced chipsets, they have to outsource the IC production to foundries like the TSMC.
Companies like Intel and Samsung who are capable of both designing and manufacturing of the ICs are known as Integrated Device Manufacturers.
Before the US sanctions seriously damaged Huawei's competitiveness, its Kirin chipset was a major selling point for its high-end smartphones and allowed it to compete directly with Qualcomm's Snapdragon series, Samsung's Exynos Series and Apple's A Series chipset.
As Huawei will be unable to restock the Kirin chipsets once it exhausts its existing inventory, the Chinese smartphone maker has been looking for suitable replacements from other fabless designers such as Qualcomm and MediaTek.
Qualcomm has begun to appeal to the Trump administration to ease the restrictions and allow it to continue to supply mobile chipsets to Huawei, the Wall Street Journal reported. Qualcomm argued that prohibiting it from selling mobile chipsets to Huawei would only benefit its competitors and wouldn't stop Huawei from using US technology through those competitors, the report said.
Nevertheless, industry experts suggested that losing access to Qualcomm's mobile chipset would hurt Huawei's competitiveness in the high-end segment of the global smartphone market, as offerings from competitors like MediaTek continued to lag behind.
"It's pretty challenging. In terms of consumer sentiment both in China and outside of China, the consumers usually see Qualcomm as a better chipset in the high-end segment. Also in terms of gaming experiences. If they [Huawei] are using MediaTek for the high-end [segment], this will be hard for them to create a competitive advantage or to attract high-end users, especially other Chinese vendors will continue be able to use Qualcomm," Will Wong, a Singapore-based research manager with market intelligence firm International Data Corporation (IDC), told Sputnik.
The analyst noted that the first round of US sanctions against Huawei had already hurt its competitiveness in the global markets, as its smartphones were no longer allowed to offer Google Mobile Services (GMS).
As a major rival to Huawei, Samsung would also be unlikely to extend a hand to Huawei and allow it to use its Exynos chipset, Wong noted.
"Based on what happened last year, when Huawei first encountered the US ban and could no longer use GMS. What we saw was that Samsung was trying to take this opportunity to gain the [market] share from Huawei. Before Huawei encountered the ban on GMS and the chipsets, they were very strong in the high-end segment globally. Huawei was a very strong competitor to Samsung. If Huawei is facing a second round of ban, it's unlikely that Samsung will help them to regain the advantage in the high-end segment," he said.
According to the latest data from IDC, Huawei overtook Samsung for the first time to become the world's largest smartphone vendor in the second quarter of this year. Despite a 5 percent year-on-year drop in shipment volume due to the COVID-19 pandemic, Huawei's strong performance in the second quarter was driven by almost 10 percent year-on-year growth in China that helped offset declines in other regions.
Although Huawei could try to improve its customer service and its app galaxy offerings, the loss of both GMS and its top Kirin chipset would make it very difficult for it to compete in the high-end segment in the global markets where it does not enjoy the same brand loyalty as it does in China, the analyst added.
Bilateral tensions between China and the United States reached new heights in recent months, as the Trump administration tried to divert the blame to Beijing over the COVID-19 pandemic. Huawei has always been a primary target for the United States amid bilateral geopolitical disputes.
It would be unlikely for the Trump administration to offer concessions and allow Qualcomm to continue supply chipsets to Huawei amid such bilateral tensions, US semiconductor industry experts suggested.
"I understand Qualcomm's position, but I don't know what they may think they can actually achieve. The US political spectrum is now united against concessions to China, and the heavy-handed moves in Hong Kong now will solidify that even further. So I don't think that even with a change in administration there will be much relief � unless Huawei can separate itself from the CCP policy," George Calhoun, a veteran in the semiconductor industry who currently serves as the Executive Director of the Hanlon Financial Systems Research Center at the Stevens Institute of Technology in New Jersey, told Sputnik.
The expert added that the US government could even pressure foreign companies like Samsung and TSMC to avoid offering assistance to Huawei, as both South Korea and Taiwan are US allies.
In the worst-case scenario where Huawei lose access to all foreign chipsets, it may be forced to turn to the domestic foundry Semiconductor Manufacturing International Corporation (SMIC) for chipset manufacturing.
But turning to SMIC could set back Huawei even further, the US expert argued.
"I think SMIC is still under-developed to play a big role in this industry. It will take a long time and a great deal of money if they want to become a major player, in my opinion. I think TSMC, Samsung and Intel have huge advantages and SMIC is likely to be a niche foundry at best," he said.
While the global mobile chipset industry prepares to move from the 7nm manufacturing process toward the 5nm, the SMIC only began mass production of the 14 nm process in the fourth quarter of 2019 and would only be capable of the 7nm process production by 2021.
During the company's second quarter earnings teleconference last week, SMIC CEO Liang Mengsong declined to comment on the possibility of supplying chips to Huawei, but stressed that the company would "absolutely adhere to international regulations."
