Apple faces many challenges in the Chinese market as territorial disputes continue and China’s economic development does not meet expectations.
Analysts are suggesting that the most significant challenge Apple faces could arise from the resurgence of Huawei, following a purported major breakthrough in semiconductor technology that defied U.S. sanctions.
The recent development in chip technology, produced by China’s leading semiconductor manufacturer, SMIC, has raised concerns in Washington and has led to questions about how this achievement was possible without access to critical technologies.
Furthermore, there is ongoing scrutiny regarding the efficiency of the manufacturing process for these new chips on a large scale, as it could determine whether Huawei can sustain a successful comeback.
What Has Transpired With Huawei Thus Far?
Over the years, the United States has contended that Huawei poses a national security threat due to alleged connections to the Chinese Communist Party and the Chinese military. Huawei has consistently refuted these claims.
Beginning in 2019, during Donald Trump’s presidency, the U.S. government implemented several sanctions that deprived Huawei of critical technologies, including 5G chips, Google software, and its cutting-edge mobile processor. These technologies had played a significant role in propelling Huawei to the position of the world’s largest smartphone manufacturer.
The imposition of these U.S. restrictions had a severe impact, almost causing the collapse of Huawei’s smartphone business.
Why is Huawei’s New Chip Generating Significant Interest?
In addition to Apple and Samsung, Huawei stands out as one of the few companies that have developed their own smartphone processors, primarily through its HiSilicon division.
However, it’s worth noting that the chip’s production was outsourced to Taiwan Semiconductor Manufacturing Co., also known as TSMC. The reason for this outsourcing is U.S. export restrictions that essentially prohibited Huawei from utilizing American technology at any stage of the chip manufacturing process. Consequently, Huawei was compelled to seek alternative sources for its chips, no longer relying on TSMC.
TSMC, the Taiwanese chip manufacturer, holds the position of being the world’s most advanced semiconductor producer, a level of capability that no Chinese company can currently match. This is why there was a seismic shock in both the political and tech arenas when Huawei quietly unveiled the Mate 60 Pro in China this month, featuring an analysis-revealed chip produced by SMIC.
It’s noteworthy that both Huawei and SMIC find themselves on the U.S. trade blacklist, known as the Entity List, which imposes restrictions on these companies from procuring American technology. Moreover, SMIC’s technological capabilities are perceived as lagging behind those of industry leaders like TSMC.
This raises the question of how such a development could occur in the face of substantial sanctions imposed on both Huawei and SMIC.
What Can We Discern About Huawei’s Chip?
The chip utilized in Huawei’s smartphones goes by the name Kirin 9000S, and it integrates both the processor and components that seem to enable 5G connectivity. 5G, in this context, denotes the next-generation of mobile internet promising exceptionally high-speed connections.
Although Huawei has not officially confirmed the phone’s 5G capabilities, reviews have demonstrated that the device can achieve download speeds typically associated with 5G networks.
An analysis of the Mate 60 Pro conducted by software company TechInsights reveals that this semiconductor has been produced using a 7-nanometer manufacturing process, with SMIC, China’s largest contract chipmaker, being the manufacturer. The nanometer measurement pertains to the size of individual transistors on the chip. Smaller transistors allow for more of them to be packed onto a single semiconductor, often resulting in more potent and efficient chips.
The 7nm manufacturing process is considered to be quite advanced within the semiconductor industry, despite not being the most cutting-edge technology available.
SMIC faced significant challenges in producing 7nm chips for a considerable period. One of the primary reasons for this was the unavailability of an extremely expensive piece of equipment known as an extreme ultraviolet (EUV) lithography machine. These machines are manufactured by the Dutch company ASML, but governmental restrictions prevented the export of these machines to China.
Many initially believed that the absence of these tools would impede SMIC’s capacity to manufacture advanced chips. However, it appears that SMIC has managed to achieve this feat without relying on these specific tools.
In a recent blog post, Dan Hutcheson, the Vice Chair of TechInsights, noted that the 7nm chip “highlighted the technical advancements achieved by China’s semiconductor industry in the absence of EUV lithography tools.”
Is This Development of Substantial Significance or Merely a Show of Strength?
From a technological standpoint, it is noteworthy that SMIC has produced chips utilizing a 7nm process without relying on ASML’s EUV machines.
Pranay Kotasthane, Deputy Director of the Takshashila Institution, suggested that it’s probable that equipment originally designed for older manufacturing processes is being adapted or reutilized for these more advanced chips. But he believes the process will be carried out “less efficiently” than SMIC can do with state-of-the-art equipment.
This brings us to an important conclusion. Although SMIC has demonstrated the ability to produce 7nm wafers, the scale of production that will be efficient, effective and profitable remains unclear. An important metric analyzed is “yield,” which measures the number of wafers that can be processed from a single wafer.
Low profits for the wafer manufacturer indicate inefficiency and potential cost. Although the actual output from SMIC’s 7nm process for Huawei chips has not yet been announced, it will likely be “still low,” as Kotasthane points out.
The outcome depends on whether SMIC can obtain the chip volume necessary to meet Huawei’s requirements while maintaining profits.
What Actions Will the U.S. Take in Response?
The recent technological advancement has undeniably unsettled Washington. The U.S. Department of Commerce released a statement this month expressing its intent to gather more information regarding Huawei’s chip.
SMIC’s successful 7nm manufacturing process has also exposed vulnerabilities in the U.S.’s export restriction strategy, potentially leading to additional constraints.
“There will likely be pressure on the U.S. to reevaluate its export control strategy, which was originally based on the assumption that such controls would prevent Chinese companies from producing cutting-edge chips while permitting standard operations at older nodes. It is becoming increasingly evident that this distinction may not hold up in practice,” noted Kotasthane.
He also suggested that Washington might explore other facets of the chip design and manufacturing process for additional regulatory measures.
Apple’s Challenges in China Intensify Due to Huawei Chip
This month, The report disclosed that employees of the Chinese central government had been banned from using iPhones and other foreign-branded phones for work, with an additional restriction on bringing them into the office.
In response, China’s Ministry of Foreign Affairs stated last week that there were no regulations in the purchase and utilization of foreign-made phones.
As underlying geopolitical tensions persist between the U.S. and China, the looming possibility of a Huawei comeback may indeed represent the most significant threat to Apple in the Chinese market.
According to Will Wong, a senior research manager at IDC, the greater challenge for Apple in China is expected to come from Huawei rather than geopolitical concerns. Wong explained, ‘This is because Huawei not only enjoys a premium brand image similar to Apple’s but is also a source of national pride in China.’
For years, Apple has been viewed as a producer of high-end smartphones, and Huawei has been a direct competitor with the U.S. company in the Chinese market. But Huawei’s sales have been hurt by its inability to incorporate 5G technology and the latest chips into its smartphones.
Huawei’s new phone could be popular again, as the Mate 60 Pro shows. An attractive option for Chinese customers. Huang also added that Huawei’s most significant threat lies in continuous technological advancement, not only in chips but also in new designs such as foldable devices.
Conclusion
Apple is facing growing problems in China due to the regional crisis. Huawei’s resurgence, driven by a major breakthrough in electronics, is a major threat. SMIC’s development of a 7-nanometer wafer raises questions about performance and durability. The US may need to re-evaluate export controls, and Huawei’s resumption of operations could affect Apple’s position in China.
