Huawei – Getting closer to Self-Sufficiency
Huawei (pvt) has been the target of anti-China sentiment in the US government going back to 2012 when government agencies were banned from using Huawei’s telecom equipment. Things escalated further in 2019 when then President Trump added the company to the US Entities list, extending the ban to US commercial telecom networks, and eventually tightening the rules to force both US and foreign companies from supplying advanced semiconductor technology and components to the company. As is well documented this caused Huawei, once the 2nd largest smartphone vendor behind Samsung (005930.KS)[1], to fall to a share 85% below its peak, while its global telecom business also declined significantly.
Huawei’s founder vowed that the company would survive the loss of US components and technology by building local sourcing with the help of the Chinese government. Over the past few years Huawei itself, and many Chinese government sponsored programs and subsidy enticements have helped to build the infrastructure that Huawei, and other banned Chinese companies need to survive, but it is hard to gauge how much dependency Huawei still has on foreign components given the Chinese government’s positively biased propaganda extoling the virtues of locally produced components. A recent teardown of Huawei’s Mate 50 Pro, the company’s most popular smartphone (released in September of 2022) gives some indication as to the progress Huawei has made toward local sourcing.
According to the most recent teardown, ~90% of the components in the Huawei Mate 50 Pro smartphone are sourced from Chinese companies. The display, which tends to be the most costly single component, is sourced from BOE (200725.CH) and Visionox (002387.CH), which is not surprising,, with the lens cover supplied by Lens Technology (300433.CH), with a long list of Chinese companies supplying everything from structural parts, analog chips, batteries, PCBs, and touch and fingerprint ID components, but there were still a variety of components produced outside of China, some of which are key components.
In particular Qualcomm (QCOM) provides the 4G processor, a number of power management chips, an audio codec, RF transceiver, Wi-Fi, and power amplifier, many of which operate under it’s Snapdragon 8+ Gen 1 processor that runs the phone. SK Hynix (000660.KS), Samsung (00930.KS) , and Micron (MU) provide memory, along with HiSilicon (pvt), which is owned by Huawei. Qorvo (QRVO) provides RF front-end silicon, ST Micro (STM) supplies encryption protection, NXP (NXPI) NFC, audio power amp, and battery charging management, while Maxim (ADI), IDT (IDT), Skyworks (SWKS) and Broadcom (AVGO) all supply various sensors and other silicon.
While Huawei has developed its own OS (Harmony 3.0) the company must still rely on outside companies for its main processor, the Qualcomm Snap 8+ which is produced using a 4nm process as China’s silicon fabs have been unable to develop the necessary technology to duplicate much silicon at these node levels. Even more stringent limitations on EUV and potentially DUV tools from ASML (ASML) have made things even harder, forcing the Chinese semiconductor industry to try to develop such tools internally, a process that will take years. The big issue that still remains however is the inability to access current versions of Android or access to the Google (GOOG) store applications, which continues to keep Huawei’s markets primarily in China.
That said, Huawei has certainly gone a long way from the over 70% non-local component content seen a few years back, and while there have been fits and starts as to negotiations between Huawei and the US government, we expect little will change unless the global (and US) semiconductor industry goes into a sustained downturn, at which point we would expect some of those restrictions to be eased, although that would likely not be this year. In the interim, Huawei will have to try to eke out another percent or two of local sourcing to keep from inciting the US government to tighten sanctions further.
[1] Huawei – 19.4% Samsung 19.5% in 2Q ’20 according to our composite smartphone shipment database.
Huawei’s founder vowed that the company would survive the loss of US components and technology by building local sourcing with the help of the Chinese government. Over the past few years Huawei itself, and many Chinese government sponsored programs and subsidy enticements have helped to build the infrastructure that Huawei, and other banned Chinese companies need to survive, but it is hard to gauge how much dependency Huawei still has on foreign components given the Chinese government’s positively biased propaganda extoling the virtues of locally produced components. A recent teardown of Huawei’s Mate 50 Pro, the company’s most popular smartphone (released in September of 2022) gives some indication as to the progress Huawei has made toward local sourcing.
According to the most recent teardown, ~90% of the components in the Huawei Mate 50 Pro smartphone are sourced from Chinese companies. The display, which tends to be the most costly single component, is sourced from BOE (200725.CH) and Visionox (002387.CH), which is not surprising,, with the lens cover supplied by Lens Technology (300433.CH), with a long list of Chinese companies supplying everything from structural parts, analog chips, batteries, PCBs, and touch and fingerprint ID components, but there were still a variety of components produced outside of China, some of which are key components.
In particular Qualcomm (QCOM) provides the 4G processor, a number of power management chips, an audio codec, RF transceiver, Wi-Fi, and power amplifier, many of which operate under it’s Snapdragon 8+ Gen 1 processor that runs the phone. SK Hynix (000660.KS), Samsung (00930.KS) , and Micron (MU) provide memory, along with HiSilicon (pvt), which is owned by Huawei. Qorvo (QRVO) provides RF front-end silicon, ST Micro (STM) supplies encryption protection, NXP (NXPI) NFC, audio power amp, and battery charging management, while Maxim (ADI), IDT (IDT), Skyworks (SWKS) and Broadcom (AVGO) all supply various sensors and other silicon.
While Huawei has developed its own OS (Harmony 3.0) the company must still rely on outside companies for its main processor, the Qualcomm Snap 8+ which is produced using a 4nm process as China’s silicon fabs have been unable to develop the necessary technology to duplicate much silicon at these node levels. Even more stringent limitations on EUV and potentially DUV tools from ASML (ASML) have made things even harder, forcing the Chinese semiconductor industry to try to develop such tools internally, a process that will take years. The big issue that still remains however is the inability to access current versions of Android or access to the Google (GOOG) store applications, which continues to keep Huawei’s markets primarily in China.
That said, Huawei has certainly gone a long way from the over 70% non-local component content seen a few years back, and while there have been fits and starts as to negotiations between Huawei and the US government, we expect little will change unless the global (and US) semiconductor industry goes into a sustained downturn, at which point we would expect some of those restrictions to be eased, although that would likely not be this year. In the interim, Huawei will have to try to eke out another percent or two of local sourcing to keep from inciting the US government to tighten sanctions further.
[1] Huawei – 19.4% Samsung 19.5% in 2Q ’20 according to our composite smartphone shipment database.
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