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.
Dado Ruvic | Reuters
Elon Musk’s SpaceX, is initiating a secondary share sale that would give the company a valuation of up to $800 billion, The Wall Street Journal reported Friday.
SpaceX is also telling some investors it will consider going public possibly around the end of next year, the report said.
At the elevated price, Musk’s aerospace and defense contractor would be valued above ChatGPT maker OpenAI, which wrapped up a share sale at a $500 billion valuation in October.
SpaceX has been investing heavily in reusable rockets, launch facilities and satellites, while competing for government contracts with newer space players, including Jeff Bezos‘ Blue Origin. SpaceX is far ahead, and operates the world’s largest network of satellites in low earth orbit through Starlink, which powers satellite internet services under the same brand name.
A SpaceX IPO would include its Starlink business, which the company previously considered spinning out.
Musk recently discussed whether SpaceX would go public during Tesla‘s annual shareholders meeting last month. Musk, who is the CEO of both companies, said he doesn’t love running publicly traded businesses, in part because they draw “spurious lawsuits,” and can “make it very difficult to operate effectively.”
However, Musk said during the meeting that he wanted to “try to figure out some way for Tesla shareholders to participate in SpaceX,” adding, “maybe at some point, SpaceX should become a public company despite all the downsides.”
WATCH: What retail investors should know about OpenAI and SpaceX
The logo for Google LLC is seen at the Google Store Chelsea in Manhattan, New York City, U.S., November 17, 2021.
Andrew Kelly | Reuters
A U.S. judge on Friday finalized his decision for the consequences Google will face for its search monopoly ruling, adding new details to the decided remedies.
Last year, Google was found to hold an illegal monopoly in its core market of internet search, and in September, U.S. District Judge Amit Mehta ruled against the most severe consequences that were proposed by the Department of Justice.
That included the proposal of a forced sale of Google’s Chrome browser, which provides data that helps the company’s advertising business deliver targeted ads. Alphabet shares popped 8% in extended trading as investors celebrated what they viewed as minimal consequences from a historic defeat last year in the landmark antitrust case.
Investors largely shrugged off the ruling as non-impactful to Google. However some told CNBC it’s still a bite that could “sting.”
Mehta on Friday issued additional details for his ruling in new filings.
“The age-old saying ‘the devil is in the details’ may not have been devised with the drafting of an antitrust remedies judgment in mind, but it sure does fit,” Mehta wrote in one of the Friday filings.
Google did not immediately respond to a request for comment. The company has previously said it will appeal the remedies.
In August 2024, Mehta ruled that Google violated Section 2 of the Sherman Act and held a monopoly in search and related advertising. The antitrust trial started in September 2023.
In his September decision, Mehta said the company would be able to make payments to preload products, but it could not have exclusive contracts that condition payments or licensing. Google was also ordered to loosen its hold on search data. Mehta in September also ruled that Google would have to make available certain search index data and user interaction data, though “not ads data.”
The DOJ had asked Google to stop the practice of “compelled syndication,” which refers to the practice of making certain deals with companies to ensure its search engine remains the default choice in browsers and smartphones.
The judge’s September ruling didn’t end the practice entirely — Mehta ruled out that Google couldn’t enter into exclusive deals, which was a win for the company. Google pays Apple billions of dollars per year to be the default search engine on iPhones. It’s lucrative for Apple and a valuable way for Google to get more search volume and users.
Mehta’s new details
In the Friday filings, Mehta wrote that Google cannot enter into any deal like the one it’s had with Apple “unless the agreement terminates no more than one year after the date it is entered.”
This includes deals involving generative artificial intelligence products, including any “application, software, service, feature, tool, functionality, or product” that involve or use genAI or large-language models, Mehta wrote.
GenAI “plays a significant role in these remedies,” Mehta wrote.
The judge also reiterated the web index data it will require Google to share with certain competitors.
Google has to share some of the raw search interaction data it uses to train its ranking and AI systems, but it does not have to share the actual algorithms — just the data that feeds them.” In September, Mehta said those data sets represent a “small fraction” of Google’s overall traffic, but argued the company’s models are trained on data that contributed to Google’s edge over competitors.
The company must make this data available to qualified competitors at least twice, one of the Friday filing states. Google must share that data in a “syndication license” model whose term will be five years from the date the license is signed, the filing states.
Mehta on Friday also included requirements on the makeup of a technical committee that will determine the firms Google must share its data with.
Committee “members shall be experts in some combination of software engineering, information retrieval, artificial intelligence, economics, behavioral science, and data privacy and data security,” the filing states.
The judge went on to say that no committee member can have a conflict of interest, such as having worked for Google or any of its competitors in the six months prior to or one year after serving in the role.
Google is also required to appoint an internal compliance officer that will be responsible “for administering Google’s antitrust compliance program and helping to ensure compliance with this Final Judgment,” per one of the filings. The company must also appoint a senior business executive “whom Google shall make available to update the Court on Google’s compliance at regular status conferences or as otherwise ordered.”
This is breaking news. Check back for updates.
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