Huawei’s chip breakthrough poses new threat to Apple in China — and questions for Washington
A man check his phone near an Apple logo outside its store in Shanghai, China September 13, 2023.
Aly Song | Reuters
Apple is facing a number of issues in China, with geopolitical risks mounting and the economy still not firing as many would have hoped.
But the biggest challenge of all, according to analysts, could be a resurgent Huawei after a purported major semiconductor breakthrough that flew in the face of U.S. sanctions.
The latest chip, made by China’s biggest semiconductor manufacturer SMIC, has sparked concern in Washington and raised questions about how it was possible, without the company being able to access critical technologies.
But there is also scrutiny on whether the process being used to make these new chips is efficient enough on a large scale to sustain a Huawei comeback.
What has happened to Huawei so far?
What’s the big deal about Huawei’s new chip?
Alongside Apple and Samsung, Huawei is one of only a few companies that has designed its own smartphone processor. This was done through the Chinese firm’s HiSilicon division.
The chip however was manufactured by Taiwan Semiconductor Manufacturing Co., or TSMC. U.S. export restrictions, which effectively barred Huawei from using American technology anywhere along the chipmaking process, meant the Chinese company could no longer source its chips from TSMC.
The Taiwanese chipmaker is the most advanced semiconductor manufacturer in the world. There is no Chinese company that can do what TSMC does. That’s why shockwaves were sent through the political and tech world when Huawei quietly released the Mate 60 Pro in China this month, with analysis showing a chip inside made by SMIC.
Along with Huawei, SMIC is on a U.S. trade blacklist called the Entity List. Companies on this list are restricted from buying American technology. Meanwhile, SMIC’s technology is seen as generations behinds the likes of TSMC.
So how could this have been done with the huge amount of sanctions on both Huawei and SMIC?
What we know about Huawei’s chip
Huawei’s smartphone chip is called the Kirin 9000S, which combines the processor and components for what appears to be 5G connectivity. 5G refers to next-generation mobile internet that promises super-fast speeds. Huawei has not confirmed the phone is 5G capable, but reviews have shown the device is capable of hitting download speeds associated with 5G.
The semiconductor has been manufactured using a 7 nanometer process by SMIC, China’s biggest contract chipmaker, according to an analysis of the Mate 60 Pro by software company TechInsights.
The nanometer figure refers to the size of each individual transistor on a chip. The smaller the transistor, the more of them can be packed onto a single semiconductor. Typically, a reduction in nanometer size can yield more powerful and efficient chips.
The 7nm process is seen as highly-advanced in the world of semiconductors, even though it is not the latest technology.
For years, SMIC struggled to make 7nm chips. That’s in part because it couldn’t get its hands on a very expensive piece of kit called an extreme ultraviolet (EUV) lithography machine. These are made by Dutch firm ASML, but the company has been restricted by its government from sending these machines to China.
Many thought this would hold back SMIC’s ability to make advanced chips. But it seems to have made it happen without these tools.
In a blogpost this month, Dan Hutcheson, vice chair of TechInsights, said the 7nm chip “demonstrates the technical progress China’s semiconductor industry has been able to make without EUV lithography tools.”
Huawei was not immediately available for comment regarding this story when contacted by CNBC.
Is this a big deal or just posturing?
From a technology perspective, it is significant that SMIC has manufactured chips using a 7nm process without ASML’s EUV machines.
Pranay Kotasthane, deputy director of the Takshashila Institution, told CNBC that it is likely that equipment used for older manufacturing processes are being “repurposed” for these more advanced chips. But he believes the process is likely being undertaken with “lower efficiency” than if SMIC were to use cutting-edge equipment.
And that’s a key point. While SMIC is able to create 7nm chips, it’s unclear how efficient, profitable and sustainable that is on a bigger scale. A closely watched metric is “yield” — the number of chips made out of a specific wafer.
If a chip manufacturer’s yield is low, then the process is not seen as efficient and can be costly. While the yield of SMIC’s 7nm process for Huawei chips is not known, it is “probably low,” Kotasthane said.
It is a waiting game to see if SMIC can produce the number of chips that Huawei requires at a profitable scale.
What will the U.S. do next?
The technology advancement has certainly rattled Washington. The U.S. Department of Commerce issued a statement this month saying it is looking to get more information on Huawei’s chip.
SMIC’s 7nm manufacturing process has also exposed some of the weaknesses in the U.S.’s export restriction strategy, which could lead to further curbs.
“There will be pressure on the U.S. to reconsider its export controls strategy, which was based on the assumption that controls would prevent Chinese companies from producing advanced-edge chips, while the business-as-usual approach would continue at the trailing-edge nodes. It is increasingly becoming clear that this distinction doesn’t work in reality,” Kotasthane said.
He added that Washington may look at other areas of the chip design and manufacturing process to enact further restrictions.
Apple’s China headwinds grow with Huawei chip
The Wall Street Journal reported this month that Chinese central government staffers had been banned from using iPhones and other foreign branded phones for work and even prohibited them from being brought into the office.
China’s Ministry of Foreign Affairs said last week there weren’t any regulations prohibiting the purchase and use of foreign phones.
As geopolitical tensions between the U.S. and China continue to bubble under the surface, it is perhaps a potential Huawei resurgence that poses the biggest threat to Apple.
“It’s expected that Huawei will pose a bigger challenge to Apple in China than the geopolitical issue,” Will Wong, a senior research manager at IDC, told CNBC.
“This is because Huawei not only has the same premium brand image as Apple but also is a national pride in China.”
Apple is seen as a high-end smartphone maker and Huawei had directly competed with the U.S. firm in China for years. But Huawei’s sales fell off a cliff when it couldn’t equip its smartphones with 5G technology and the latest chips.
Any kind of resurgence in this area, as appears to be the case with the Mate 60 Pro, could make Huawei’s new phones an attractive option again for Chinese buyers.
“The biggest threat from Huawei is its continuous development in technology, not only in chips but also in new form factors like foldables,” Wong added.
Jakub Porzycki | Nurphoto | Getty Images
Mark Zuckerberg’s announcement this week that Meta would pivot its moderation policies to allow more “free expression” was widely viewed as the company’s latest effort to appease President-elect Donald Trump.
More than any of its Silicon Valley peers, Meta has taken numerous public steps to make amends with Trump since his election victory in November.
That follows a highly contentious four years between the two during Trump’s first term in office, which ended with Facebook — similar to other social media companies — banning Trump from its platform.
As recently as March, Trump was using his preferred nickname of “Zuckerschmuck” when talking about Meta’s CEO and declaring that Facebook was an “enemy of the people.”
With Meta now positioning itself to be a key player in artificial intelligence, Zuckerberg recognizes the need for White House support as his company builds data centers and pursues policies that will allow it to fulfill its lofty ambitions, according to people familiar with the company’s plans who asked not to be named because they weren’t authorized to speak on the matter.
“Even though Facebook is as powerful as it is, it still had to bend the knee to Trump,” said Brian Boland, a former Facebook vice president, who left the company in 2020.
Meta declined to comment for this article.
In Tuesday’s announcement, Zuckerberg said Meta will end third-party fact-checking, remove restrictions on topics such as immigration and gender identity and bring political content back to users’ feeds. Zuckerberg pitched the sweeping policy changes as key to stabilizing Meta’s content-moderation apparatus, which he said had “reached a point where it’s just too many mistakes and too much censorship.”
The policy change was the latest strategic shift Meta has taken to buddy up with Trump and Republicans since Election Day.
A day earlier, Meta announced that UFC CEO Dana White, a longtime Trump friend, is joining the company’s board.
And last week, Meta announced that it was replacing Nick Clegg, its president of global affairs, with Joel Kaplan, who had been the company’s policy vice president. Clegg previously had a career in British politics with the Liberal Democrats party, including as a deputy prime minister, while Kaplan was a White House deputy chief of staff under former President George W. Bush.
Kaplan, who joined Meta in 2011 when it was still known as Facebook, has longstanding ties to the Republican Party and once worked as a law clerk for the late conservative Supreme Court Justice Antonin Scalia. In December, Kaplan posted photos on Facebook of himself with Vice President-elect JD Vance and Trump during their visit to the New York Stock Exchange.
Joel Kaplan, Facebook’s vice president of global policy, on April 17, 2018.
Niall Carson | PA Images | Getty Images
Many Meta employees criticized the policy change internally, with some saying the company is absolving itself of its responsibility to create a safe platform. Current and former employees also expressed concern that marginalized communities could face more online abuse due to the new policy, which is set to take effect over the coming weeks.
Despite the backlash from employees, people familiar with the company’s thinking said Meta is more willing to make these kinds of moves after laying off 21,000 employees, or nearly a quarter of its workforce, in 2022 and 2023.
Those cuts affected much of Meta’s civic integrity and trust and safety teams. The civic integrity group was the closest thing the company had to a white-collar union, with members willing to push back against certain policy decisions, former employees said. Since the job cuts, Zuckerberg faces less friction when making broad policy changes, the people said.
Zuckerberg’s overtures to Trump began in the months leading up to the election.
Following the first assassination attempt on Trump in July, Zuckerberg called the photo of Trump raising his fist with blood running down his face “one of the most badass things I’ve ever seen in my life.”
A month later, Zuckerberg penned a letter to the House Judiciary Committee alleging that the Biden administration had pressured Meta’s teams to censor certain Covid-19 content.
“I believe the government pressure was wrong, and I regret that we were not more outspoken about it,” he wrote.
After Trump’s presidential victory, Zuckerberg joined several other technology executives who visited the president-elect’s Mar-a-Lago resort in Florida. Meta also donated $1 million to Trump’s inaugural fund.
On Friday, Meta revealed to its workforce in a memo obtained by CNBC that it intends to shutter several internal programs related to diversity and inclusion in its hiring process, representing another Trump-friendly move.
The previous day, some details of the company’s new relaxed content-moderation guidelines were published by the news site The Intercept, showing the kind of offensive rhetoric that Meta’s new policy would now allow, including statements such as “Migrants are no better than vomit” and “I bet Jorge’s the one who stole my backpack after track practice today. Immigrants are all thieves.”
Recalibrating for Trump
Zuckerberg, who has been dragged to Washington eight times to testify before congressional committees during the last two administrations, wants to be perceived as someone who can work with Trump and the Republican Party, people familiar with the matter said.
Though Meta’s content-policy updates caught many of its employees and fact-checking partners by surprise, a small group of executives were formulating the plans in the aftermath of the U.S. election results. By New Year’s Day, leadership began planning the public announcements of its policy change, the people said.
Meta typically undergoes major “recalibrations” after prominent U.S. elections, said Katie Harbath, a former Facebook policy director and CEO of tech consulting firm Anchor Change. When the country undergoes a change in power, Meta adjusts its policies to best suit its business and reputational needs based on the political landscape, Harbath said.
“In 2028, they’ll recalibrate again,” she said.
After the 2016 election and Trump’s first victory, for example, Zuckerberg toured the U.S. to meet people in states he hadn’t previously visited. He published a 6,000-word manifesto emphasizing the need for Facebook to build more community.
The social media company faced harsh criticism about fake news and Russian election interference on its platforms after the 2016 election.
Following the 2020 election, during the heart of the pandemic, Meta took a harder stand on Covid-19 content, with a policy executive saying in 2021 that the “amount of COVID-19 vaccine misinformation that violates our policies is too much by our standards.” Those efforts may have appeased the Biden administration, but it drew the ire of Republicans.
Meta is once again reacting to the moment, Harbath said.
“There wasn’t a business risk here in Silicon Valley to be more right-leaning,” Harbath said.
While Trump has offered few specific policy proposals for his second administration, Meta has plenty at stake.
The White House could create more relaxed AI regulations compared with those in the European Union, where Meta says harsh restrictions have resulted in the company not releasing some of its more advanced AI technologies. Meta, like other tech giants, also needs more massive data centers and cutting-edge computer chips to help train and run their advanced AI models.
“There’s a business benefit to having Republicans win, because they are traditionally less regulatory,” Harbath said.
Meta’s CEO Mark Zuckerberg reacts as he testifies during the Senate Judiciary Committee hearing on online child sexual exploitation at the U.S. Capitol in Washington, U.S., January 31, 2024.
Evelyn Hockstein | Reuters
Meta isn’t alone in trying to cozy up to Trump. But the extreme measures the company is taking reflects a particular level of animus expressed by Trump over the years.
Trump has accused Meta of censorship and has expressed resentment over the company’s two-year suspension of his Facebook and Instagram accounts following the Jan. 6 attack on the Capitol.
In July 2024, Trump posted on Truth Social that he intended to “pursue Election Fraudsters at levels never seen before, and they will be sent to prison for long periods of time,” adding “ZUCKERBUCKS, be careful!” Trump reiterated that statement in his book, “Save America,” writing that Zuckerberg plotted against him during the 2020 election and that the Meta CEO would “spend the rest of his life in prison” if it happened again.
Meta spends $14 million annually on providing personal security for Zuckerberg and his family, according to the company’s 2024 proxy statement. As part of that security, the company analyzes any threats or perceived threats against its CEO, according to a person familiar with the matter. Those threats are cataloged, analyzed and dissected by Meta’s multitude of security teams.
After Trump’s comments, Meta’s security teams analyzed how Trump could weaponize the Justice Department and the country’s intelligence agencies against Zuckerberg and what it would cost the company to defend its CEO against a sitting president, said the person, who asked not to be named because of confidentiality.
Meta’s efforts to appease the incoming president bring their own risks.
After Zuckerberg announced the new speech policy Tuesday, Boland, the former executive, was among a number of users who took to Meta’s Threads service to tell their followers that they were quitting Facebook.
“Last post before deleting,” Boland wrote in his post.
Before the post could be seen by any of his Threads followers, Meta’s content moderation system had taken it down, citing cybersecurity reasons.
Boland told CNBC in an interview that he couldn’t help but chuckle at the situation.
“It’s deeply ironic,” Boland said.
— CNBC’s Salvador Rodriguez contributed to this report.
WATCH: Meta is returning to free speech tradition, says Facebook’s former chief privacy officer Chris Kelly
Jaap Arriens | Nurphoto | Getty Images
Apple is losing market share in China due to declining iPhone shipments, supply chain analyst Ming-Chi Kuo wrote in a report on Friday. The stock slid 2.4%.
“Apple has adopted a cautious stance when discussing 2025 iPhone production plans with key suppliers,” Kuo, an analyst at TF Securities, wrote in the post. He added that despite the expected launch of the new iPhone SE 4, shipments are expected to decline 6% year over year for the first half of 2025.
Kuo expects Apple’s market share to continue to slide, as two of the coming iPhones are so thin that they likely will only support eSIM, which the Chinese market currently does not promote.
“These two models could face shipping momentum challenges unless their design is modified,” he wrote.
Kuo wrote that in December, overall smartphone shipments in China were flat from a year earlier, but iPhone shipments dropped 10% to 12%.
There is also “no evidence” that Apple Intelligence, the company’s on-device artificial intelligence offering, is driving hardware upgrades or services revenue, according to Kuo. He wrote that the feature “has not boosted iPhone replacement demand,” according to a supply chain survey he conducted, and added that in his view, the feature’s appeal “has significantly declined compared to cloud-based AI services, which have advanced rapidly in subsequent months.”
Apple’s estimated iPhone shipments total about 220 million units for 2024 and between about 220 million and 225 million for this year, Kuo wrote. That is “below the market consensus of 240 million or more,” he wrote.
Apple did not immediately respond to CNBC’s request for comment.
-
Sports2 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports9 months agoStory injured on diving stop, exits Red Sox game
-
Sports1 year agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports3 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business2 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway