China’s Huawei is preparing to make a comeback in the 5G smartphone industry before the year ends, as indicated by research firms. This move comes after the U.S. ban on equipment sales severely impacted Huawei’s consumer electronics business.
According to three third-party technology research firms specializing in China’s smartphone sector, Huawei is expected to obtain 5G chips domestically by utilizing its own advancements in semiconductor design tools and partnering with Semiconductor Manufacturing International Co (SMIC). These firms, who cited industry sources and suppliers of Huawei, preferred to remain anonymous due to confidentiality agreements with their clients.
Huawei has declined to provide comments on these reports, while SMIC has not responded to requests for comment.
If Huawei successfully re-enters the 5G phone market, it would mark a significant victory for the company, which had been in “survival” mode for nearly three years. In 2020, Huawei’s consumer business revenue reached its peak at 483 billion yuan ($67 billion), only to plummet by almost 50% in the following year.
Huawei, headquartered in Shenzhen, used to compete with Apple and Samsung to become the world’s largest handset maker. However, the imposition of multiple U.S. restrictions starting in 2019 severely limited its access to chipmaking tools required for producing its most advanced smartphone models.
The U.S. and European governments have labeled Huawei as a security risk, an accusation that the company strongly denies. Since then, Huawei has only been able to sell limited batches of 5G models using stockpiled chips.
Being confined to selling last-generation 4G handsets, Huawei dropped from most global rankings in the past year, experiencing a sharp decline in sales. However, the company managed to capture a 10% market share in China during the first quarter of this year, as reported by consultancy Canalys.
5G shipment forecasts vary among the research firms. One firm expects Huawei to utilize SMIC’s N+1 manufacturing process, but with a forecast yield rate of usable chips below 50%. Consequently, the 5G shipments are expected to be limited to around 2 million to 4 million units. Another firm estimates that shipments could reach 10 million units but does not provide further details.
Canalys reported that Huawei shipped 240.6 million smartphones globally in 2019, its peak year. However, the company sold its Honor unit, which accounted for nearly a fifth of shipments that year.
The state-backed China Securities Journal stated that Huawei had raised its 2023 mobile shipment target to 40 million units, up from the initial target of 30 million units at the beginning of the year. The report did not mention a return to 5G phones.
The research firms suggest that Huawei could release 5G versions of flagship models, such as the P60, this year. They anticipate new launches to occur in early 2024. These predictions are based on information gathered from contacts within Huawei’s supply chain and recent company announcements.
However, due to the U.S. restrictions, Huawei lost access to Google’s Android operating system and the associated developer services that form the foundation for most Android apps. This limitation has hindered the appeal of Huawei handsets outside of China.
The research firms also highlighted Huawei’s breakthroughs in electronic design automation (EDA) tools for chips produced at or above 14 nanometers (nm) technology. EDA software is used by chip design companies to create blueprints for chips before they are mass manufactured.
According to the research firms’ sources, Huawei’s EDA software could be employed with SMIC’s N+1 manufacturing process to produce chips equivalent to 7 nm, which are typically used in 5G phones. Washington’s restrictions prevented SMIC from acquiring an advanced chipmaking tool called an EUV machine from Dutch firm ASML, a crucial component for making 7 nm chips. However, some analysts have observed indications that SMIC has managed to produce 7 nm chips by adapting simpler DUV machines that it can still acquire from ASML.
The second research firm noted that Huawei had requested SMIC to produce chip components below 14 nm for 5G products this year. However, the forecasted yield rate of less than 50% indicates that 5G chips are likely to be expensive. Doug Fuller, a chip researcher at the Copenhagen Business School, commented that while Huawei could absorb the cost, such chips might not be price competitive.
(Note: The currency conversion rate used is $1 = 7.2023 Chinese yuan renminbi)