Huawei’s Hi-Silicon – Down But Not Out
In 2004 Huawei’s chip design department became HiSilicon (pvt), an affiliate of its parent, and one of the top fabless design shops globally. In fact, in 1Q 2019 HiSilicon moved from #25 to #14 in ranking among all semiconductor companies, based on sales, including foundries, and by 1Q of last year it made it into the top ten in both 1Q and 2Q. That said, by the end of 2020, it had fallen out of the top 15 and in the first quarter of this year, reported only $385m in sales, down 87% y/y.
US trade sanctions against parent Huawei that have restricted foundries from producing semiconductors for HiSilicon have left the company with a very large operation and little revenue to offset such an operation, and the burden of a staff of over 7,000 does not make things any easier, however, despite the fact that HiSilicon’s major customer is struggling to find semiconductor production capacity for many of its CE products, Huawei has indicated that they are a private company and therefore ‘will not be affected by external forces’ and will not give up HiSilicon. HiSilicon continues to develop 3nm application processor chips (Kirin 9010), despite the fact that they cannot be produced, along with developing new 5G silicon, even though its share in 5G is expected to decline from 23% (2020) to 5% this year, and is forced to use Mainland foundries such as SMIC (688981.CH) and HuaHong (1347.HK) that do not have capacity at nodes below 28nm.
While this allows the production of a number of needed semiconductor products, application processors, a necessary item for smartphones and other CE devices, are competing at the 5nm node, which is unavailable to HiSilicon. While Huawei can continue to fund HiSilicon for what we expect would be another year without outside help, unless the US lowers the barriers it has placed in front of China’s semiconductor development plans, HiSilicon will have to change, and that will not be easy for Huawei or the Chinese government to accept. With that in mind, we struggle to find a way that a fiercely private company like Huawei will accept what would likely have to be subsidies and partial ownership by the Chinese central or local government, but the key word is survival and the US does not seem to be easing any restrictions thus far.
US trade sanctions against parent Huawei that have restricted foundries from producing semiconductors for HiSilicon have left the company with a very large operation and little revenue to offset such an operation, and the burden of a staff of over 7,000 does not make things any easier, however, despite the fact that HiSilicon’s major customer is struggling to find semiconductor production capacity for many of its CE products, Huawei has indicated that they are a private company and therefore ‘will not be affected by external forces’ and will not give up HiSilicon. HiSilicon continues to develop 3nm application processor chips (Kirin 9010), despite the fact that they cannot be produced, along with developing new 5G silicon, even though its share in 5G is expected to decline from 23% (2020) to 5% this year, and is forced to use Mainland foundries such as SMIC (688981.CH) and HuaHong (1347.HK) that do not have capacity at nodes below 28nm.
While this allows the production of a number of needed semiconductor products, application processors, a necessary item for smartphones and other CE devices, are competing at the 5nm node, which is unavailable to HiSilicon. While Huawei can continue to fund HiSilicon for what we expect would be another year without outside help, unless the US lowers the barriers it has placed in front of China’s semiconductor development plans, HiSilicon will have to change, and that will not be easy for Huawei or the Chinese government to accept. With that in mind, we struggle to find a way that a fiercely private company like Huawei will accept what would likely have to be subsidies and partial ownership by the Chinese central or local government, but the key word is survival and the US does not seem to be easing any restrictions thus far.
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