Huawei forced to halt Kirin output

Graphics: GT

The US chip ban that is set to be effective from mid-September might spell the end for production of Huawei's self-developed Kirin chips, and it could also dampen the competitiveness of the company's high-end phones in the key domestic market as its share in overseas consumer markets shrinks amid US sanctions, Chinese analysts said.

The Kirin series of chips will not be produced after September 16, and Huawei's Mate 40 series will become the last flagship to carry its brilliant Kirin chips, with the new Kirin 9000 onboard, Richard Yu Chengdong, chief executive of the company's consumer business group, said on Friday during a China Info100 summit.

Huawei is rapidly running out of its high-end chips, according to Yu, adding that the firm's mobile phone business is having a hard time and Huawei's full-year shipments will be less than the 240 million units it shipped in 2019, given the chip supply situation.

The US government put Huawei on its Entity List in May 2019, which required US companies to obtain a license to export domestically produced chips and software. On May 15 this year, Washington toughened the rules by requiring licenses for sales to Huawei of semiconductors made abroad with US technology, with a 120-day buffer period that will expire on September 16.

"A halt of production of its self-developed chips might deal a heavy blow to its domestic phone sales, especially the high-end series, as it may lose advantages over its Chinese counterparts without the features offered by its own chips," Ma Jihua, an industry analyst and a close follower of Huawei, told the Global Times on Sunday.

Yu also disclosed at the forum that the reason Huawei achieved revenue growth amid the US' intensified sanctions in the first half was the increasing proportion of high-end product sales.

Sales revenue from its consumer business division accounts for more than half of the total. This segment has been the most important source of revenue overall, as well as profit and cash flow, and indeed overall growth for Huawei, in recent years.

"Huawei's chip stockpile may last for up to one year," an industry insider, who asked to remain anonymous, told the Global Times on Sunday. After that, it would depend on chip purchases from other firms.

Analysts said that the rare expression of weakness coming from a Huawei executive like Yu may on the one hand give a clue as to how difficult the situation is as the US chip ban comes closer. On the other hand, it may also indicate the firm has mapped out a solution and is ready to cope with whatever comes from the US.

The company will continue to look for substitutes for its own chips from MediaTek and Samsung, and also meanwhile try to ramp up research and development to become a manufacturer on its own, Ma said.

Huawei will start using two processor solutions starting initially from the upcoming Mate 40, and MediaTek and Samsung may be its two choices, insiders close to Huawei told the Global Times.

The Wall Street Journal reported that US chip firm Qualcomm has been putting pressure on the Trump administration to allow it to sell components to Huawei, saying current restrictions risk channeling revenue to foreign competitors rather than preventing the Chinese company from obtaining the products.

"But the Trump administration has already become aware that it can't kill Huawei, so it's adopting a 'dragging Huawei behind strategy' to prevent it from getting ahead of its US counterparts," Ma said.

The Chinese firm has been moving against the headwinds in recent months. According to a report from TrendForce sent to the Global Times, Huawei is set to surpass Sweden's Ericsson to become the largest supplier in the mobile base station equipment market this year. For the first time, Huawei in the second quarter unseated Samsung to become the top smartphone vendor globally.

"Had it not been for the US restrictions, Huawei would have surpassed Samsung in mobile phone shipments last year," Yu said.

Yu's comments also tell everyone that any company could be the next Huawei, amid the Trump administration's unreasonable and arbitrary crackdown, which goes against business rules, analysts said.

"We hope to provide a platform that allows everyone to continue to develop without being controlled by others … for not only companies from China, but also those from Europe, Japan, South Korea and the world to build a digital and intelligent platform for the new economic era, and let our roots grow deep," Yu said.