Almost a year after being blacklisted by President Trump, Huawei seems to still be holding its ground. By the end of 2019, Huawei’s market share was still enough to outpace Apple. At the beginning of 2020, despite the severe damages caused by Covid-19, Huawei’s decline was significantly less compared to its largest rival above – Samsung.
However, the joy of the Chinese giant could not last long. Near the “anniversary” of Huawei’s blacklisting (which resulted in the company losing its partnership with Google, Intel, and Qualcomm), President Trump delivered another blow: a new export control law, under which companies worldwide must seek permission from the U.S. government before selling products that use technology sourced from the U.S. to Huawei.
Almost immediately, Huawei was cornered. The target of this law was none other than TSMC, the world’s leading semiconductor manufacturer based in Taiwan. After the new law was enacted, TSMC would be required to seek permission from the U.S. if it wanted to sell to Huawei. Given the escalating U.S.-China trade war, this “permission-seeking” mechanism is nothing short of forcing TSMC to “cut ties” with Huawei.
Theoretically, Huawei still has a lifeline after losing its partnership with TSMC. Many years ago, the company stopped using Snapdragon designs or standard ARM designs and acquired a chip design company named HiSilicon. TSMC merely plays the role of producing designs provided by HiSilicon – if Huawei finds a replacement, it will not need TSMC.
But in reality, finding a substitute for TSMC is not easy at all. This Taiwanese company is currently the world’s top chip manufacturing power, playing a crucial role in the success of many client companies – including Apple, AMD, Qualcomm, and of course Huawei. Even assuming other foundries are allowed to replace TSMC as manufacturers for Huawei, the demand for the Chinese smartphone brand has exceeded 100 million units per year over the past two years. The likelihood of any company catching up to TSMC’s production capacity is almost zero.
Not stopping there, almost all of TSMC’s significant competitors are also not allowed to partner with Huawei. Last month, after rumors that Huawei would “bypass” the ban by purchasing MediaTek chips, the mid-range/low-cost SoC brand quickly denied the claims. Those spreading rumors about the relationship between Huawei and MediaTek (or Samsung, Intel, etc.) failed to realize that Trump’s new ban targets technologies “sourced from the U.S.” Taiwanese names (TSMC, MediaTek), South Korean (Samsung, LG…), or British (ARM) are all within the scope of this ban.
In other words, any company that wants to replace TSMC as a chip supplier for Huawei must come from Mainland China. Once again, this is an impossible task. Reports from IC Insights indicate that by the end of 2019, the top 5 chip manufacturers in the world were all from South Korea, Taiwan, the U.S., and Japan. Moreover, among the 5 pure foundries (not selling their own products like Samsung or Intel), only one company comes from Mainland China: SMIC.
Unfortunately for Huawei, SMIC is still struggling with 14nm technology while TSMC has already transitioned to researching 5nm. In fact, since 2018, TSMC has only used 12nm technology for… mid-range chips. The chances of chip foundries from China catching up to TSMC are almost zero, as the ban from President Trump includes machinery used in the design/manufacturing of chips.
Even assuming that China could somehow catch up to the U.S. and its allies in chip production capacity, within the next 1 – 2 years, chips produced on outdated processes in Mainland China will cause Huawei to lag behind all its competitors, including “homeland” rivals like Xiaomi, OPPO, and Vivo. Just days before Trump announced the new ban, Xiaomi seemed to “taunt” Huawei by unveiling the Redmi K30 5G Racing Edition using the Snapdragon 768G chip – a chip designed by an American company (Qualcomm) and almost certainly manufactured at TSMC’s facility.
Not only has Huawei lost the right to purchase SoC chips, but it has also lost its supply of OLED displays, ROM memory chips, RAM chips, and CMOS sensors for cameras. Most frighteningly, China’s top technology company will lose the right to purchase/rent chip manufacturing for telecommunications. Even Chinese telecommunications chip manufacturers must use components, machinery, or software from American companies. With one strike, the U.S. has shut down Huawei’s remaining glimmers of hope in a crucial business area (smartphones), while also delivering a fatal blow to its remaining business (5G equipment).
The Chinese company also only has enough reserves to produce until the end of the year. By then, Huawei will face annihilation. Unable to use international Android, unable to purchase chips for smartphones or network devices, unable to find partners to pave a way for survival, the company that ranks second in the world for smartphones and first in telecommunications will face death within this year.