According to the company’s latest report, Huawei has invested almost $130 billion in advanced research and development over the past ten years. In 2021 alone, the company allocated nearly 20% of its revenue. In an attempt to dodge US sanctions, the tech giant has been busy developing new processors and hardware that do not require any use of US technologies.
Huawei’s principal challenge is the lack of its own microprocessor architecture. Back in the early years of the century, the company developed a fairly decent Kirin chip for mobile devices and later launched mass production of smartphones and gadgets based on that chip. However, Kirin was not created from scratch; instead, Huawei had bought an ARM architecture license from the namesake UK company, currently owned by the American NVIDIA. After the US slapped sanctions on Huawei, the British revoked the license. Huawei spent nearly a year in courts to prove that ARM products were not US-origin and, therefore, not subject to US restrictions. However, in the summer of 2020, the Chinese giant finally acquiesced to the demand that it would have to stop production of Kirin chips.
The reason why Huawei had chosen the ARM architecture is straightforward. It is the de facto industry standard for most smartphones and gadgets manufacturers who install ARM processors on their devices. Around 10 years ago, Intel tried to break up the British monopoly by introducing its Atom chips for mobile devices. Although some manufacturers, including Taiwan’s ASUS and China’s Lenovo, did make smartphones using Intel’s Atom, none of their gadgets became a bestseller. Ten years later, the situation remains the same, as none of the mobile device manufacturers has succeeded in edging out ARM.
Huawei does not have that much room for manoeuvre. It may either try to negotiate an agreement with the Americans to be able to continue using the ARM architecture (which looks like an unlikely scenario), or it will have to start developing new processors that would be based on a different architecture. Their choices in that department are quite scarce, too. There are a few open-source projects that might be suitable for Huawei’s purposes, but only two of them – OpenRISC and RISC-V – use physical silicon-based processors. The latter of the two looks more promising as there are already several RISC-V-based chips, including a 16-core XuanTie 910 processor introduced in 2019 by T-Head, a Chinese company part of Alibaba Group. In October 2021, the same chip manufacturer published an open-source license report on the results of switching the Android platform to RISC-V-based chips. Huawei, a member of the international RISC-V support and development consortium, has developed its proprietary products based on this architecture. In May 2021, HiSilicon, a Huawei subsidiary, introduced its first RISC-V-based circuit board explicitly designed for IoT (Internet of Things) devices.
Huawei could perhaps continue using the ARM architecture without the developer's license, which begs where it would manufacture the processors. Chipmakers outside of China will not accept orders to make unlicensed Chinese processors. At the same time, there are no fabs in mainland China capable of manufacturing microchips to today’s state-of-the-art standards. SMIC, China's largest semiconductor manufacturer, has mastered the 7 nm process. However, it does not work for Huawei, given that its competitors have already introduced smartphones that are based on 5 nm chips. Moreover, according to publicly available sources, SMIC’s single Shenzhen- based plant can only manufacture 40,000 wafers a year, which is not enough to meet all the needs of such a large company like Huawei.
Huawei has been grappling with chipmaking challenges for years now. In the past, the company used to be the third largest customer of Taiwan’s TSMC. In 2019, the Chinese tech giant ordered 14% of all microchips manufactured by TSMC. However, in May 2020, approximately a year after the imposition of the US sanctions, the world's largest chipmaker succumbed to the pressure from the US and severed all its ties with Huawei. In October of that year, the United States allowed TSMC to manufacture processors for Chinese companies, but only if they followed an older manufacturing process of not less than 28 nm. Any more advanced tech processes would still be out of reach for Huawei.
Indeed, Samsung has always successfully mastered the 5 nm process in 2020. Still, it would hardly risk being slapped with secondary US sanctions for cooperating with Huawei, especially considering that amid the current global shortage of microchips, all chipmakers have been inundated with orders. It is simply impossible to free up the production capacity required.
China has set its sights on establishing its own state-of-the-art semiconductors industry, but that would not be an easy feat to accomplish. The world's largest economy has the requisite financial resources to achieve a task like that, but it is running the risk of getting bogged down in addressing various tech challenges. The crucial part of the process is the photolithography required to transfer the microchip structure onto silicon. Only a few companies in the world manufacture the equipment, including the United States’ Intel, Japan’s Nikon and Canon, and the Dutch ASML, the market leader. It remains to be seen whether China could persuade these companies to circumvent US sanctions.
Here is one noteworthy example. Back in 2018, before the introduction of sanctions against Huawei, the government of the Netherlands granted ASML a license to sell its most advanced EUV (Extreme Ultraviolet) lithography machine to a Chinese customer. This equipment uses a range of extreme ultraviolet wavelengths to make chips based on 10 nm (or smaller) tech processes. The Trump administration mounted an extensive campaign to block the Dutch chip manufacturing technology sale to China. As a result, in the summer of 2019 the Dutch government decided not to renew ASML’s export license, and the $150 million machine ended up not being shipped to China.
Huawei does not currently have its semiconductor manufacturing facilities. However, at the end of 2021, it was rumoured that the company was allegedly planning to build its first plant in Shenzhen together with SMIC, China's largest chipmaker.
Additionally, microchip development and production necessitate other, still unparalleled, US technologies. These include the software by Cadence and Synopsys. China's Empyrean Software company is already developing its processor design software.
Now that Huawei has decided to become technologically independent from the US, there is no doubt that it will achieve that goal sooner or later. However, this may take years to attain. China is following in the footsteps of Japan and South Korea. They initially copied Western products and technologies before they learned to develop their technologies and set up their mass-scale manufacturing. The outcome is easy to predict: China will succeed. It bears reminding that in the middle of the 20th century, Americans and Europeans were making fun of Japanese and later South Korean cars. But these days these cars are driven by people all over the world.