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Huawei's Technological Resilience Amidst US Sanctions: A Comprehensive Overview

GOOVER DAILY REPORT 6/11/2024
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TABLE OF CONTENTS

  1. Introduction
  2. Huawei's Technological Advancements in 2024
  3. Breakthroughs in Chip Technology
  4. State Support and Industrial Policy
  5. Impact on Huawei's Market Position
  6. International Reactions and Geopolitical Implications
  7. Glossary
  8. Conclusion
  9. Source Documents

1. Introduction

  • The report provides an in-depth analysis of Huawei's technological developments and strategic maneuvers in the face of stringent US sanctions. It highlights the company's advancements in chip technology, new product launches, and the critical role played by state-backed enterprises in supporting Huawei's endeavors.

2. Huawei's Technological Advancements in 2024

  • 2-1. Impact of US Sanctions on Huawei

  • Despite stringent U.S. sanctions, Huawei reported a rise in profit for the fourth consecutive quarter in 2024. The company achieved a net profit of 19.6 billion yuan ($2.7 million) in the first quarter, representing a 564% increase from the previous year. Sales also rose by 37% to 178.8 billion yuan ($24.7 billion). Furthermore, U.S. sanctions have driven China to accelerate independent development of its semiconductor industry. Key players like SMIC and Huawei are leading efforts to reduce technological dependency on foreign countries. However, such sanctions have significantly impacted the development of China's semiconductor manufacturing processes, particularly advanced ones.

  • 2-2. Introduction of Advanced Chips by SMIC

  • Huawei has faced U.S. export controls that restricted its access to 5G technology. By collaborating with SMIC, Huawei has overcome these restrictions to use a 7-nanometer processor in the Kirin 9000s chip for the Mate 60 Pro smartphone. The Kirin 9000s chip design and manufacturing marked a significant technological achievement while being embedded with a 5G modem. U.S. efforts to curb China's advanced chipmaking appear partially effective, as the Kirin 9000s is still considered less advanced compared to U.S. counterparts. Both the Trump and Biden administrations have taken steps to contain Huawei’s advancements in chip technology, though some gaps remain in effective restriction.

  • 2-3. Launch of the Pura 70 Series

  • In early 2024, Huawei launched the Pura 70 series, the latest line-up of its smartphones aimed at challenging Apple's dominance in China. This series includes four devices: Pura 70, Pura 70 Pro, Pura 70 Pro Plus, and Pura 70 Ultra. The series is equipped with premium features, including a triple-lens camera system with long-range zoom and capturing fast-moving objects. The phones run on HarmonyOS 4.2, Huawei’s proprietary operating system. Prices range from 5,499 yuan to 9,999 yuan, directly competing with Apple’s iPhone 15 models.

  • 2-4. Huawei MateBook 14 2024

  • Huawei introduced the MateBook 14 2024 in China with notable features and specifications. The laptop is powered by the Intel Core Ultra 7 chip, and it comes with AI-enhanced features, including Super Turbo for faster performance and an AI space algorithm for capabilities like AI Summary, AI Subtitles, and AI Smart Eye. It features a 14.2-inch OLED touchscreen, high-resolution display, and a battery life of up to 19 hours. Prices for different configurations of the MateBook 14 2024 range from 6,099 yuan to 8,499 yuan.

  • 2-5. Technological Contributions of SMIC

  • SMIC has played a pivotal role in advancing Huawei’s technological capabilities by providing critical semiconductor technology amidst U.S. sanctions. SMIC manufactured the advanced 7-nanometer Kirin processors used in Huawei’s Mate 60 Pro and Pura 70 series. The Chinese government has been bolstering support for semiconductor development through initiatives involving key players like Huawei and SMIC. SMIC is actively working on expanding chip production capacities and enhancing chip packaging technologies to meet the demands for high-performance computing, IoT, electric vehicles, and green energy applications, mitigating reliance on foreign technology.

3. Breakthroughs in Chip Technology

  • 3-1. Collaboration with SMIC

  • The collaboration between Huawei and Semiconductor Manufacturing International Corporation (SMIC) has been crucial in Huawei's development of advanced chips. The partnership led to the creation of the Mate60 Pro smartphone, which marked Huawei's return to the 5G smartphone business. The mobile application processor chip, integrated with a 5G modem, was designed by Huawei’s HiSilicon and manufactured by SMIC using advanced 7-nanometer (nm) technology. This achievement raised significant questions in U.S. national security circles about the effectiveness of U.S. export controls on Huawei. Despite the restrictions aimed at preventing Huawei and SMIC from producing chips more advanced than 10 nm, they managed to create 7 nm chips, showcasing China's continued progress in semiconductor technology.

  • 3-2. Development of Kirin 9010 Processor

  • Huawei's Kirin 9010 processor represents a significant technological advancement, manufactured using SMIC's advanced 7 nm technology. This processor powers Huawei's latest Mate60 Pro smartphone, enabling it to support 5G connectivity. The Kirin 9010 processor's development signifies Huawei's ability to overcome U.S. sanctions that targeted its access to advanced semiconductor technology.

  • 3-3. Use of Self-Aligned Quadruple Patterning (SAQP) Method

  • Huawei has pioneered the use of the Self-Aligned Quadruple Patterning (SAQP) method in chip manufacturing, potentially circumventing the need for high-end lithography equipment prohibited by U.S. export controls. This technique enhances transistor density on silicon wafers, boosting chip performance. Through patents and collaboration with state-backed enterprises like SiCarrier, Huawei aims to achieve benchmarks comparable to 5 nm chips using deep ultraviolet lithography (DUV) alongside SAQP.

  • 3-4. Implications of Export Controls on Chip Manufacturing

  • U.S. export controls have aimed to restrict Huawei's access to advanced semiconductor technology, particularly chips, chip design software, and chipmaking equipment. Despite these measures, Huawei's collaboration with SMIC and innovations like the SAQP method have enabled the production of advanced chips. The effectiveness of these export controls has been called into question as Huawei continues to make technological progress. Sales of the Mate60 Pro during significant political events further emphasize the symbolic importance of these advancements in the context of U.S.-China tech competition.

4. State Support and Industrial Policy

  • 4-1. Financial Aid and Policy Initiatives

  • State-sanctioned financial support and policy initiatives have been crucial in bolstering the resilience of Chinese technology giants like Huawei amidst stringent US sanctions. Subsidies and targeted financial aid are part of broader national strategies aimed at maintaining and progressing the domestic tech industry's capabilities. These initiatives include heavy investment in research and development, as well as infrastructural expansion to mitigate the impacts of limited access to foreign technology and markets.

  • 4-2. Partnerships with State-Owned Enterprises

  • Huawei has strategically partnered with key state-owned enterprises to fortify its supply chain and technological capabilities. These partnerships ensure a steady flow of resources and support in areas like semiconductor production, which are critical to sustaining operations and advancing technological competencies despite international trade barriers.

  • 4-3. Role of SMIC in National Semiconductor Strategy

  • The Semiconductor Manufacturing International Corporation (SMIC) plays a pivotal role in China’s semiconductor strategy. Even under substantial US sanctions, SMIC has continued to innovate and expand. The company successfully developed a 5nm node and established a production line in Shanghai dedicated to Huawei's future flagship smartphones. This collaboration has been instrumental in advancing China's domestic semiconductor capabilities.

  • 4-4. Made in China 2025 Plan

  • The 'Made in China 2025' initiative is a comprehensive blueprint aimed at transforming China into a global leader in high-tech industries, including semiconductor manufacturing. Under this plan, projects like Huawei’s Shanghai Qingpu R&D base and SMIC’s 12-inch wafer fab are prioritized investments. These efforts represent China's broader strategy to reduce dependency on foreign technology and increase self-sufficiency in critical tech sectors.

5. Impact on Huawei's Market Position

  • 5-1. Resurgence in Smartphone Market

  • Despite being on the U.S. trade blacklist since 2019, Huawei has shown remarkable resilience. After the release of the Mate 60 Pro smartphone series, powered by the Kirin 9000s chip made by Semiconductor Manufacturing International Corp. (SMIC), Huawei experienced a resurgence in China. Smartphone sales rose almost 70% year-over-year in the first quarter of 2024. This resurgence is a testament to Huawei's ability to innovate and capture market share even under strict sanctions.

  • 5-2. Huawei’s Competitiveness Against Apple

  • Huawei has outpaced its rival Apple in the Chinese market. In the first quarter of 2024, Huawei reported a net profit of 19.6 billion yuan ($2.7 million), an increase of 564% from the previous year. Similarly, sales rose by 37% to 178.8 billion yuan ($24.7 billion). In contrast, Apple's iPhone sales in China fell by 19% during the same period, marking its worst performance since the onset of the COVID-19 pandemic in 2020. Moreover, Apple's share of China's smartphone market declined from 19.7% to 15.7% year-over-year in the first quarter of 2024.

  • 5-3. Consumer Market Response and Sales Figures

  • The consumer market has responded positively to Huawei's product launches. The company reported a rise in profit for the fourth consecutive quarter. The release of the Mate 60 Pro and the newer Pura 70, powered by the Kirin 9010 processor, has driven significant sales. In the first quarter of 2024, Huawei reported a 37% rise in sales to 178.8 billion yuan ($24.7 billion). This success reflects consumer confidence and the competitive edge provided by Huawei's innovations.

  • 5-4. Huawei’s Market Strategy

  • Huawei’s strategy emphasizes leveraging state-backed technological advancements and robust R&D to mitigate the impacts of U.S. sanctions. By developing advanced processors like the Kirin 9000s and 9010, and releasing competitive products like the Mate 60 Pro and Pura 70, Huawei has enhanced its market position in China. Despite the U.S. sanctions, which have curtailed its ability to procure cutting-edge technology, Huawei has managed to sustain its growth trajectory. Huawei's strategy also includes securing special licenses that allow American companies to supply them with advanced chipmaking tools, ensuring continuity in its production processes.

6. International Reactions and Geopolitical Implications

  • 6-1. US Sanctions and Export Controls

  • On May 10, 2024, the US Commerce Department imposed a new set of sanctions targeted at Huawei. These sanctions have made it more difficult for companies such as Intel and Qualcomm to sell to Huawei, requiring them to apply for difficult-to-obtain licenses before shipping. The US Commerce Department also revoked certain unspecified licenses for exports to Huawei. These sanctions are part of a broader strategy to prevent Huawei from developing competitive technologies, a concern that emerged when Huawei began selling 5G network equipment at the turn of the decade.

  • 6-2. Global Trade and Technology Policies

  • These new sanctions reflect the US's persistence in tightening controls over global technology and trade policies, particularly concerning Chinese companies. This ongoing trade and technology war is driven by a desire to curb China's advancement in key technological sectors such as semiconductor manufacturing. Despite these measures, there is evidence that Huawei is developing ways to work around the sanctions. For instance, Huawei's recent launch of the Pura 70 series smartphones, which include the Kirin 9010 processor, demonstrates the company's continued advancement in chip technology. The Kirin 9010 processor, made by Semiconductor Manufacturing International Corp (SMIC), uses the advanced 7nm N+2 process, indicating significant progress in China's chip fabrication capabilities.

  • 6-3. Reactions from US and European Officials

  • Given the substantial threat Huawei poses to US technological dominance, American officials have remained vigilant and quick to act. While specific reactions from European officials were not detailed in the provided data, it is well-documented that similar concerns about security and market competition with Chinese tech giants have permeated European policymaking as well.

  • 6-4. Geopolitical Tensions and Technological Race

  • The imposition of sanctions and export controls against Huawei is a clear indicator of the ongoing geopolitical tensions and technological race between the US and China. The intention behind these sanctions is to stymie Huawei's progress and maintain US supremacy in critical technological domains. However, Huawei's resilience and innovation, as evidenced by its successful development of the Kirin 9010 processor using advanced fabrication techniques, underscore the broader implications of this technological race. This conflict continues to influence global trade dynamics and international relations, marking a significant chapter in the ongoing power struggle between major world economies.

7. Glossary

  • 7-1. Huawei Technologies Co. [Company]

  • A leading global provider of information and communications technology (ICT) infrastructure and smart devices, Huawei's innovations in smartphone technology and chip manufacturing have positioned it as a formidable player in the tech industry, despite severe US sanctions.

  • 7-2. Semiconductor Manufacturing International Corporation (SMIC) [Company]

  • China's largest semiconductor foundry, SMIC has been pivotal in Huawei's production of advanced chips such as the Kirin 9010, leveraging non-EUV lithography methods to achieve significant technological milestones.

  • 7-3. Kirin 9010 Processor [Technology]

  • An advanced processor developed by Huawei in collaboration with SMIC, using the 7nm+2 process node, showcasing Huawei's capability to produce high-performance chips under stringent trade restrictions.

  • 7-4. Self-Aligned Quadruple Patterning (SAQP) [Technology]

  • A lithography technique used by SMIC to enhance transistor density on semiconductor wafers without relying on EUV technology, crucial for Huawei's ability to produce cutting-edge chips amidst export controls.

  • 7-5. Pura 70 Series [Product]

  • Huawei's latest line of smartphones, featuring advanced chip technology and aimed at challenging Apple's dominance in the high-end smartphone market in China.

  • 7-6. Made in China 2025 [Policy]

  • A strategic plan initiated by the Chinese government to boost domestic manufacturing of high-tech goods, including semiconductors, to reduce reliance on foreign technology and assert China's technological independence.

8. Conclusion

  • Huawei's resilience and strategic advancements in developing cutting-edge technologies demonstrate its ability to overcome significant obstacles posed by international sanctions. This report underscores the intricate relationship between state support and corporate innovation, and highlights the broader geopolitical implications of the ongoing technological race.

9. Source Documents