Back in May, the Trump administration tightened its blacklist restrictions on Huawei, denying the company access to the custom “Kirin” chips designed by its HiSilicon subsidiary, but fabricated by external suppliers. At the time, there were varying reports as to how well prepared Huawei was for the change, how many chips it had managed to stockpile, how long the company would have to shift from in-house designs to off-the-shelf alternatives, or find a design to fabrication process absent any American technology.
The consensus seemed to be that the company might only have enough to see of through the next 12-months, although there was no confirmation one way or another form Shenzhen. China was absolutely furious at the punishment meted out to its number-one technology champion—real fury, not its showboating over TikTok and ByteDance. Huawei openly admitted the scale of the issue, “impacting the expansion, maintenance, and continuous operations of networks worth hundreds of billions of dollars.”
Fast forward three-months and that impact seems to have come much faster than anticipated. This has been making headlines through the weekend, after Huawei’s fairly sovereign consumer boss, Ricard Yu, admitted that the imminent Mate 40 flagship would likely be the last to carry a Kirin chip. There’s actually little surprise here. Absent a U.S. change, the Mate 40 would always be the last flagship to carry an existing custom chip. After this, Huawei’s next flagship wouldn’t normally be due until next spring, 12-months post the new rules.
More worryingly for Huawei, though, Yu also seemed to suggest that there may not be enough chips to satisfy full demand for the Mate 40. Huawei’s suppliers refused new orders after May 15, those production runs end on or around September 15. If true that supplies have run this low this quickly, it would be new and unexpected. “This is a very big loss for us,” Yu told the 2020 Summit of the China Information Technology Conference on August 7.
The three months since May have been strange, even more so than Huawei’s usual rollercoaster ride as it fends off the might of Washington, paddling to prevent itself being sucked into the maelstrom of China-U.S. politics. In the second quarter, ending June 30, Huawei finally achieved its long-stated goal of overtaking Samsung to lead the world’s smartphone makers.
As well-celebrated as that was, it will likely be short-lived. Quite what happens post the Mate 40 remains to be seen. The latest twist is America’s Qualcomm lobbying the U.S. government for permission to supply Huawei. With its own chips mothballed for now, Huawei needs to turn to outsiders. Qualcomm’s argument is that this business should go to America inc., rather than anywhere else
This is all timely for another reason, of course. In this well-scripted drama we’re all watching, just as Yu was admitting the drastic impact of Trump new entity list restrictions, the world was digesting the likely impact similar sanctions will have on TikTok and WeChat. A wide range of interesting parallels here, including the latest twist that a shift from HiSilicon and TSMC toward a U.S. supplier (Qualcomm), if it were to happen, would signal a similar move to forcing a sale by China’s ByteDance to America’s Microsoft or Twitter or whoever.
The U.S. sanctions against Huawei are now well into their second year. But the next three to six months will likely be the most telling yet as regards the impact they will have. Until now, Huawei has maintained its share of the smartphone market by replacing international sales softened by its loss of Google, with soaring growth in China. Another Google-less flagship will soften exports further, while there is clear risk that a chip deficit might allow domestic rivals to reverse their decline at Huawei’s hands in recent months.
Meanwhile, the small matter of Huawei’s 5G business is also heavily impacted by the new sanctions—the U.K. used this as its reason to reverse a decision to allow Huawei into its new networks, claiming new security vulnerabilities might be introduced. Huawei knew this year would be tough—and that was before these new restrictions and the coronavirus backdrop hit markets worldwide. A hard few months now loom large, before the year is done.