So, here we are again! Last year ZTE; this year Huawei.
Exactly how much trouble is the company in? What are its – and the Chinese government’s – options from here? And could there be big opportunities for European and Asian tech firms to step in to fill the void of banned US technologies?
What the US has just done
While not explicitly labelled as an export ban, the effect of placing Huawei on an ‘entity list’ means any US company now has to apply for permission to license or sell technology to the Chinese firm. It’s an export ban in all but name.
Such actions are usually reserved for situations where the US government deems a certain organisation a national security threat. We saw this in 2015, when Intel chips were banned from supercomputers in China which were suspected of running nuclear explosion simulations.
Although there’s nothing so specific the US can point to this time, Huawei — like ZTE — has been in the country’s crosshairs for some time, with concerns around IP theft, security back doors and connections with the Chinese Communist party.
Warranted or not, Huawei’s now on this list, so what does it mean for the company? And does it present any opportunities to others?
Whilst Huawei founder Ren Zhengfei has put on a brave face in public, he and his company are staring down the barrel of a gun.
Not only is the effective ban cutting off Huawei’s US suppliers, it’s already spreading to non-US vendors whose technologies incorporate American components.
We’ve seen plenty of headlines about Google ceasing Android support for Huawei. This is important, but it’s not the whole story by any means. If it were the only issue, perhaps Huawei’s own Android fork or non-Android-based operating system could fill the gap.
Granted, the company would face a drop in handset sales outside China. People don’t like moving to another operating system, and they’d face an absence of Google services and a smaller ecosystem of apps. Microsoft tried this and failed. But it might be a barrier Huawei could possibly overcome.
An equally critical issue for Huawei, however, centres on its hardware. Much has been made of the company’s ability to design its own chips. ZTE had been reliant on Qualcomm, so when it faced a US export ban, it didn’t have anything to fall back on, nor sufficient internal capabilities to design its own, despite how hard its subsidiary Sanechips had tried.
Huawei, on the face of it, has its own chip design subsidiary in HiSilicon, and all high-end Huawei handsets use its Kirin application processors. Huawei’s main business is telecoms equipment - cellular base stations, routers, switches and the like – and these use HiSilicon chips, too.
No reliance on Qualcomm, so no problem - right? Wrong.
Firstly, to design and verify its chips, HiSilicon relies on Electronic Design Automation (EDA) tools from US companies like Synopsys and Cadence, as well as US-based Mentor Graphics. There are no other companies in the world which can replace these tools (although Empyrean may be able to handle a few of their tasks.)
No chip design tools = no chips.
The second irreplaceable area is Field Programmable Gate Arrays (FPGAs), where the two big players are US firms Xilinx and Intel (Altera).
Their FPGAs are sometimes used in end devices if it’s deemed ASIC is not required, but they’re also used in the semiconductor design process for prototyping. Support for these and any future products would be lost, putting Huawei at a great competitive disadvantage.
Chinese companies such as GoWin and Unisoc have FPGA products and are trying to catch-up, but they’re not there yet. (These events, though, will have increased their desire to create 5G-capable FPGAs, which could present opportunities for non-US international IP providers).
The third irreplaceable area is memory. Many of Huawei’s products use Micron memory right now. It could potentially switch from this US supplier to Korean vendors such as SK Hynix or Samsung. But, at time of writing, I’m wondering if these companies could be affected by the ban because their products incorporate US technologies.
Toshiba seems to have already been hit for the same reason. China has been building up its own NAND and DRAM capabilities, but the likes of YMTC are some way off as yet; and using their memory would result in inferior products to Huawei’s competitors’. The same can be said for SSD and HDD components in data centre and laptop products: there are no viable Chinese alternatives.
Added to all of this, Huawei will lose access to Intel processors, effectively killing its server and storage business as the industry is dominated by Intel x86 architecture Xeon chips.
Without these chips, it can’t effectively compete in servers – ditto the laptop market. Huawei’s laptops receive universal praise on virtually any review site you look at. But without Intel CPUs, what do they have to fall back on? How well do non-Intel CPU laptops sell, and what if they aren’t even running Windows?
Nail in the coffin?
What may be the final nail in Huawei’s coffin is the way the ban is already spreading from US suppliers to other international firms.
Whilst I’ve mentioned Toshiba, the true shock for Huawei is Arm’s decision to stop selling to the company until further notice.
Most – if not all – HiSilicon’s chips are Arm-based, with its Kirin chip, Kunpeng server chip, camera chips and router chips all based on Arm architecture. As an Arm licensee, Huawei will, as far as I understand, be able to continue using the IP it’s already paid for it. But it loses access to support and further developments, which will deeply affect its competitiveness.
Huawei and the Chinese government have some tough decisions to make.
Some may argue Huawei can innovate its way out of this situation. Perhaps it could develop RISC-V based designs? But that’s a long shot without the tools required. And, although RISC-V is maturing and there’s a growing ecosystem around it, it’s still not Arm. Nor do I believe we will see a RISC-V HPC server replacing Intel in the medium term, or replacing the AP within a handset for that matter. Some RISC-V based processors can run Linux now, but I don’t believe any are running Android as yet. The community is moving fast, though, and some have even predicted the downfall of Arm at the hands of RISC-V.
If the ‘ban’ isn’t lifted, then possibly — through intensive Chinese government support — Huawei could be kept alive whilst it works out how to replace all this US technology with other options. Indeed, whether the ban is lifted or not, it’s another wake-up call for China, and I suspect investments in the industry will increase further from the USD $118 billion already planned. But, in the meantime, the company would need to lay-off thousands of people and disappear as a global player for some considerable time.
That would be embarrassing for China, given how the country has talked up its tech superiority in recent years.
Alternatively, China could strike a deal with the US. This would likely mean huge concessions on China’s side, which wouldn’t go down well domestically, given the country’s history of unfair treaties with western powers.
So, China’s in a tight spot: let Huawei lose its global status, or give further concessions to the US — and, either way, manage the message as best as it can. In both scenarios, a loss of face is inevitable.
Opportunity from chaos
At the same time, with great chaos comes great opportunity.
In this case, the big potential opportunities are for European, Korean and Japanese firms which could potentially replace some of these American technologies. Just so long, that is, as they don’t have US tech embedded in their own products.