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Huawei has sought to regain its position by developing its own domestic chip supply chain after its smartphone business plummeted following a U.S. embargo that began in mid-2019.
Huawei Technologies Co. Ltd. just reported an 18% increase in first-half net profit to 54.9 billion yuan ($7.7 billion). Revenue rose 34.3% to 417.5 billion yuan ($58.6 billion), the highest level in the first half of 2020 so far.
Huawei said the results were in line with the company’s expectations. “In the future, we will continue to improve the quality of all business processes, optimize our product portfolio to enhance resilience, and build a thriving ecosystem,” said Eric Xu, Huawei’s rotating chairman.
Send private message to South China Morning PostThe company revealed that smartphones and smart car solutions are “growing rapidly”, while the information technology infrastructure, cloud computing and digital energy sectors remain stable.
Data from market research firm Canalys showed that the Shenzhen-based company shipped 22.2 million smartphones in the first half of 2024, up 55.2% from the same period in 2023. This helped Huawei capture 18.1% of the Chinese smartphone market in the second quarter, according to data from International Data Corporation IDC, with Vivo and Oppo squeezing Apple out of the top five in China’s market share.
“Despite U.S. trade restrictions, Huawei has maintained its market leadership in the first half of this year and continues to narrow the gap with Apple in the $600 and above smartphone segment,” said Arthur Kuo, senior analyst at IDC China Client Systems Research.
But the process of finding a foothold is not easy. In mid-last month, Richard Yu, president of Huawei’s consumer business, admitted that the once lucrative smartphone business had become suffocated and faced “extremely difficult” days after the United States added it to the Entity List.
The impact of the “blacklist”
On May 15, 2019, the U.S. Department of Commerce added Huawei to the “Entity List”, prohibiting U.S. companies from providing technology and components without special licenses. The decision was made due to national security concerns. The United States claims that Huawei equipment can be used for espionage, but they deny this.
The decision immediately disrupted the company’s supply chain. Huawei is no longer allowed to purchase technology and components from US companies, including advanced semiconductor chips and software such as Google’s Android operating system. This has caused great difficulties in the production of electronic products, especially smartphones and telecommunications network equipment.
Losing access means Huawei phones no longer come pre-installed with services such as the Google Play Store, Gmail and YouTube, significantly reducing their appeal to international consumers who rely heavily on Google services.
As a result, sales, especially in the smartphone sector, have plummeted. Huawei was once the world’s largest smartphone maker, but the blacklisting immediately put its production into a state of collapse.
A year after the sanctions, Huawei suffered losses in the European market, with sales falling 16% in the second quarter of 2020, while Samsung and Xiaomi grew 20% and 48% respectively in the same period of 2019, according to data from research firm Canale.
In terms of production, Huawei shipped more than 240 million smartphones from its global factories in 2019. But by 2022, that number will be 8.5 times less, to just 28.1 million units, according to market research firm Omdia. That year, they fell to 10th place in the industry, with Samsung Electronics leading with global shipments of 258.5 million phones. “My team couldn’t function,” Yu recalled.
Huawei is one of the world’s leading suppliers of telecommunications equipment for 5G networks. Being blacklisted would reduce its ability to obtain advanced technology needed to develop and deploy 5G networks and to manufacture 5G phones. “As a global leader in 5G technology, we don’t even have 5G smartphones. Our days are extremely difficult,” he said.
Huawei logo at MWC in February 2023. Image: Lu Gui
Self-reliance
When the Android operating system was no longer allowed to be used on new devices, Huawei developed and launched its own operating system, HarmonyOS, in 2019. It is designed to be used on many different types of devices, from smartphones to IoT (Internet of Things) devices. Switching to HarmonyOS helps Huawei reduce its reliance on Android and build its own ecosystem.
One of the biggest challenges Huawei faces is the inability to obtain advanced semiconductor chips made in the United States or using American technology. In response to this, they worked hard to find chip suppliers at home and abroad, and invested heavily in R&D to produce their own chips. Subsequently, Huawei cooperated with SMIC, China’s largest chip manufacturer, to develop new microprocessors.
Due to limited access to 5G technology, Huawei has focused on developing 4G phones that are still equipped with high-end features. After the launch of models such as Huawei P50 and Mate 40, they have maintained their appeal to consumers with their powerful processing capabilities.
Faced with pressure from the international market, they focus on the domestic market, where they still have advantages and customer support. In marketing, the company emphasizes features such as high-quality cameras, good battery life, and deep integration with HarmonyOS.
In August 2023, Huawei surprised everyone by releasing the Mate 60, a 5G smartphone equipped with a 7nm “Made in China” Kirin 9000S processor. Shahram Mokhtari, a technician at the online technical repair company iFixit, told the news of the 9000S chip, which caused a little panic in American politics at the time.
“U.S. lawmakers face the possibility that sanctions imposed on Chinese chipmakers may not ultimately slow their technological advances,” he said.
In mid-April 2024, Huawei launched the Pura 70 mobile phone model. According to an analysis report by TechInsights, the Kirin 9010 chipset in the Pura 70 is an updated version of the Kirin 9000S in the Mate 60 model. (SMIC), showing Huawei’s resilience in resisting sanctions and solving bottlenecks in the semiconductor supply chain.
As suggested ReutersiFixit and consulting firm TechSearch International took a deep look at the Huawei Pura 70 Pro phone model. They also found a NAND memory chip, likely packaged by Huawei’s in-house chip division HiSilicon Semiconductor, and several other components made by Chinese suppliers.
Shahram Mokhtari said that although it is impossible to come up with an exact ratio, it is clear that the Pura 70 uses more domestic components than the Mate 60. “When we open a smartphone, we see components made in China, which is related to itself – enough,” he commented.
A person walks past the Huawei Pura 70 logo at a Huawei store in Shenzhen, China, April 2024. Image: Lu Gui
Huawei is expected to ship more than 50 million mobile phones in China this year, regaining the No. 1 spot on the mainland with a 19% market share, according to research firm TechInsights, and its market share is expected to rise from 12% in 2023. “We use chips instead of integrating Western chips, so our users are also contributing to the development of China’s electronics supply chain,” said Chairman Yu.
Last month, Huawei completed construction of a 10 billion yuan ($1.4 billion) research and development center in Shanghai that will focus on semiconductors, wireless networks and the Internet of Things. They are also looking to break the dominance of Western mobile operating systems in mainland China when they release HarmonyOS Next, which will end support for Android apps.
Huawei is about to officially launch its Ascend 910C chip for artificial intelligence (AI) applications, according to sources. The company claims that the chip has the same capacity as Nvidia’s H100 chip. Last year, the White House banned Nvidia from selling its advanced H100 chip to Chinese customers on the grounds of national security.
The Ascend 910C chip is being tested by Chinese telecom and Internet companies. ReutersPreliminary negotiations show that the potential customer could purchase more than 70,000 chips, bringing Huawei about $2 billion.
To reduce its reliance on the smartphone sector, Huawei has also expanded into other areas such as cloud services, smart wearable devices, smart cars and enterprise solutions. The company is also investing in artificial intelligence and 5G research and development to enhance its competitiveness in other areas.
Of course, Huawei’s rise under sanctions has attracted the attention of the United States. South China Morning Postthey may face greater scrutiny from Washington. This year, the Biden administration revoked eight licenses for several U.S. companies to ship goods to the company.
Bian An （theo Reuters, South China Morning Post, Nikkei）
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