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The United States won the Huawei Prize: HiSilicon Jungle Chip

SHANGHAI (Reuters) – Recent US government action against China’s Huawei is directly aimed at splitting HiSilicon chips, a business that has become central to China’s semiconductor technology ambitions in a few years but will now lose access to centrally available tools. important for its success.

PHOTO: US flag and smartphone with Huawei and 5G network logo visible on PC motherboard in this illustration taken on January 29, 2020. REUTERS / Dado Ruvic / Illustration / Photo file

This could be the most damaging US attack to date on a Chinese company that US officials told reporters on Wednesday that it was acting as a “strategic influence tool”

; for the Chinese Communist Party. For its part, Huawei Technologies Co Ltd denied the allegations in the United States and called the new measures “arbitrary and disastrous.”

Founded in 2004, HiSilicon develops chips primarily for Huawei, and for most of its existence has been the result of a global chip business dominated by US, Korean and Japanese companies. Like most electronics companies, Huawei relies on others for the chips that power its equipment.

But major investment in research and development has helped HiSilicon make rapid progress, and in recent years, 7,000 employees have been central to Huawei’s rise as a dominant player in the global smartphone business and the emerging 5G telecommunications business.

HiSilicon’s Kirin smartphone processor is now considered equal to that created by Apple Inc (AAPL.O) and Qualcomm Inc (QCOM.O) – a rare example of an advanced Chinese semiconductor product that competes globally.

HiSilicon is also central to Huawei’s 5G leadership, failing when the United States denied access to some American chips last year.

In March, Huawei revealed that 8% of the 50,000 5G base stations it sold in 2019 were without US technology, using HiSilicon chipsets instead.

But the U.S. export control rule, first reported by Reuters last week, aims to block HiSilicon’s access to two main tools: chip design software from U.S. companies, including Cadence Design Systems Inc (CDNS.O) and Synopsys Inc (SNPS.O) and the magic of foundry production, led by Taiwan Semiconductor Manufacturing Co Ltd (2330.TW), which build chips for many of the world’s best semiconductor companies.

With the new restrictions, HiSilicon “will be in a situation where they can’t make chips at all, or if they do, they’re no longer a leading advantage,” said Stuart Randall, who tracks the Chinese chip industry in Shanghai-based consulting Intralink.

Without its own processors, Huawei will lose its advantage over domestic competitors of smartphones, analysts say. International sales have already been regulated by a ban on the use of key Google software.

Industry sources claim that Huawei has stocks of chips and the new US rule will not take effect for 120 days. U.S. officials also note that licenses may be granted for certain technologies. HiSilicon may also continue to use design software that it has already acquired.


However, analysts agree that HiSilicon is in a difficult place. Almost all chip factories worldwide – including China’s leading foundry, Semiconductor Manufacturing International Corp (0981.HK) – buy equipment from the same equipment manufacturers, led by the American companies Applied Materials Inc (AMAT.O), Lam Research Corp (LRCX.O) and KLA Corp (KLAC.O).

The new US rule requires licenses for companies that use American equipment to build chips designed by Huawei and delivered to the Chinese company. To be sure, the new rule will not capture items shipped to a third party, which allows HiSilicon manufacturers such as TSMC to send chips to HiSilicon device manufacturers who can send them directly to a customer.

Although there are alternatives to American machines – the Japanese company Tokyo Electron Ltd (8035.T) for example makes a gear that competes with applied materials – replacing American technology is not as simple as exchanging a machine.

“You almost have to think of it as a heart transplant,” said Dan Hutcheson, executive director of VLSI Research, noting that chip production lines are finely calibrated systems where everything has to work well together.

Doug Fuller of the Chinese University of Hong Kong said Huawei had several options. This can be maintained around this rule, with suppliers being sent directly to Huawei customers, although US officials have said they will be vigilant about such decisions.

PHOTO PHOTO: Kunpeng 920 chip, designed by Huawei’s Hisilicon subsidiary, bearing the internal name of Hi1620, was exhibited during a launch event at Huawei’s headquarters in Shenzhen, Guangdong Province, China, January 7, 2019. REUTERS / Sijia Jiang / File Photo

Huawei and the Chinese government could redouble their efforts to build production capabilities that do not require U.S. tools by investing in emerging Chinese competitors and buying from Japanese and Korean companies, even if it requires quality sacrifices.

Or Huawei may turn away from HiSilicon and return to buying from foreign suppliers – not from American ones. “We’re talking about Huawei just turning to Samsung’s processors,” Fuller said of his smartphone.

(This story is simplified to add a displaced word “in” in paragraph 1)

Report by Josh Horwitz in Shanghai; Additional reports by David Kirton in Shenzhen and Stephen Nellis in San Francisco; Edited by Jonathan Weber and Lisa Shoemaker

Our standards:The principles of trust of Thomson Reuters.

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