Mate has been discontinued due to the pressure of chip shortage. Where is Huawei's future?

LatePost, the self-media outlet that first broke the news that Huawei would sell Honor, released exclusive news these two days saying that Huawei will not release new Mate series flagship phones this year.

This means that the annual release rhythm of Huawei's original P series and Mate series dual-core high-end phones has come to a halt, and the mobile phone chip inventory accumulated by Huawei since the US cut off its supply is about to be exhausted.

Although it is not explosive news that the Mate series will not release new products, after all, given Huawei's current situation, it is expected that this day will come. But what is more worrying is that in addition to the consumer business, Huawei's other two major revenue sources, the carrier business and the enterprise business, will be affected in the future.

For example, Huawei's 5G base stations currently use the self-developed "Tiangang" chip, which uses a 7nm process. Chips of this level must be manufactured by TSMC. Therefore, if the base station chip inventory is insufficient, base station product supply problems may also arise in the future.

Huawei's server chip Kunpeng 920 also uses the ARM architecture with a 7nm process. Like base station chips, it can only be manufactured by TSMC. ARM, which is from the UK and has been sold to the Japanese (and may soon be sold to the United States), is also affected by the US supply cut and cannot provide Huawei with the latest services.

For Huawei, almost all of its current 2C and 2B products are centered on high-end chips, and the domestic industry chain cannot achieve independent manufacturing without "beautification". Therefore, after the inventory of various chips is exhausted, what will be Huawei's future path? The following are just some personal guesses:

1. 2C line: relying on software optimization and 4G chips to "extend life".

In early June, Huawei officially released the commercial version of Hongmeng OS. Wang Chenglu, the head of Hongmeng, said in an earlier interview: The development of Hongmeng ecosystem in the past two years is particularly important. We still have hundreds of millions of Huawei mobile phone users. If old users upgrade to Hongmeng OS and have a very good experience, they may stay. As long as we can grab these two years, our hardware may come back.

Therefore, Huawei will currently do its best to maintain existing Huawei mobile phone users, do its best to optimize the operating system, make the mobile phones smooth, and delay the user's phone replacement cycle.

Is it feasible? I think it is feasible. On the one hand, as mobile phone chips enter the 7nm and 5nm era, the chip industry chain is on the road to its limit, and the speed of research and development has shown a slowing trend. The performance improvement of new chip products over the previous generation of products has also declined.

On the other hand, the current version of 5G network, the main driving factor for mobile phone replacement, does not show significant advantages over 4G in the 2C field.

According to data released by the China Academy of Information and Communications Technology, in May 2021, domestic mobile phone shipments were 22.968 million units, a year-on-year decrease of 32.0%, of which 5G mobile phones were 16.739 million units, a year-on-year increase of only 7.0%, which also confirms my above point of view.

Data source: China Academy of Information and Communications Technology

Of course, it is impossible for Huawei to not release new phones at all, so what should it do? The United States actually left a loophole for Huawei. The technology supply cut to Huawei is mainly aimed at the 5G field, not including the previous generation of communication technology 4G.

According to the pictures exposed online a few days ago, Huawei's latest tablet product, MatePad Pro, will use the 4G version of Qualcomm Snapdragon 870 chip. It is believed that Huawei is likely to launch a Huawei "special" 4G version of Qualcomm or MediaTek's latest chip in its mobile phone products in the future.

Huawei launched four mobile phones on its official website in June, namely Mate40 Pro, Mate X2, Mate40E, and nova 8 Pro. All of them use Kirin chips, but due to the interruption of 5G RF supply, all four mobile phones are pure 4G mobile phones. Huawei has begun to test the model of high-end 4G mobile phones.

Data source: Late

It's easy to say about tablet products, but will consumers buy Huawei's new 4G mobile phones at this point? On the one hand, it depends on the future evolution speed of 5G networks and whether there are killer applications. On the other hand, it depends on consumers' loyalty to the Huawei brand. At the current stage, if the performance of the mobile phone is strong enough, it can indeed offset the impact of not supporting 5G networks.

2. 2B line: Chip shortage may force transformation.

Whether it is 5G communication equipment or servers, the probability of Huawei obtaining a license to produce its own chips is very low at present. Compared with the 2C market, it is even more difficult for Huawei.

Especially in terms of 5G communication equipment, this is a "forbidden zone" within a "forbidden zone".

Therefore, if Huawei wants to continue its server business, it may have to use products from American companies. Moreover, the United States has actually approved Intel and AMD's supply licenses to Huawei, but in this case, Huawei will become an integrator and lose control of core technologies. It is questionable whether Huawei wants to do this.

A few days ago, Huawei's major government and enterprise customers China Telecom and China Mobile respectively announced their lists of winning companies for server procurement. Huawei was not selected in both cases. Among them, China Telecom even replaced Huawei, which had won the bid in the early stage, with FiberHome.

Data source: C114

According to industry experts, this move may be Huawei's initiative to withdraw from producing its own servers and turn to the field of rear-end service support.

As for 5G communication equipment, especially base stations, although the demand is relatively stable and Huawei has predicted the production scale in advance, once the demand from subsequent operators increases, Huawei's market will most likely be given to peers who have no worries about chip shortages.

Therefore, in the 2B field, Huawei's transformation is imperative, and Huawei has already shown a trend of transformation. On the one hand, it is transforming to the application side, such as Huawei's 5G 2B solution, and on the other hand, it is transforming to areas other than ICT, including the smart electric vehicle and energy fields, where Huawei is currently deeply involved.

After all, whether it is smart electric vehicles or new energy, both industries are very large and many sub-sectors are not highly dependent on high-end chips, such as unmanned driving algorithms, vehicle operating systems, and lidar in the field of smart electric vehicles, and photovoltaic inverters, communication power supplies, and computer room power supplies in the energy field.

Moreover, in these two fields, Chinese companies occupy a key position in the industrial chain and have sufficient voice. These are China's "main battlefields" where it is difficult for the United States to strangle them. This will allow Huawei to obtain stable profits in the future without having to worry.

3. The key lies in building a "de-beautification" chip industry chain.

Of course, the above are only temporary solutions. If Huawei, the absolute king in the ICT field, wants to survive in the long run, it must eventually be able to truly master controllable chip sources.

However, it is useless for Huawei to achieve this goal by itself. Huawei's strength in the chip industry chain is upstream chip design. In the first half of 2020, before the supply cut, HiSilicon was the world's tenth largest semiconductor company, second only to Texas Instruments in terms of revenue. If there had been no supply cut, HiSilicon would have likely continued to climb the list.

If Huawei HiSilicon really wants to be able to manufacture its own chips without being controlled by the United States, it needs to build a "de-beautification" production line covering all aspects of EDA software, materials, equipment, manufacturing, and packaging.

It is nothing but a pipe dream to want to achieve complete independence in high-end chips in the short term. However, it may not take too long for the joint efforts of enterprises in my country's industrial chain to realize the "de-beautification" manufacturing of 28nm chips. Among them, the core equipment, the lithography machine, is planned to be produced by Shanghai Micro Electronics (SMEE) before the end of this year, according to foreign media reports. In addition, it is expected that in 2023, Shanghai Micro Electronics' 20nm lithography technology will be first deployed for the manufacture of 5G equipment chips.

Although 28nm is not as advanced as 7nm and 5nm, in fact, most chip processes are above 28nm, including IoT chips, automotive chips, router chips, camera chips, etc. In 2020, the share of chips above 28nm is still above 60%. Therefore, once the domestic production of 28nm chip manufacturing is achieved, HiSilicon can continue to operate.

Huawei director Lifang Chen said that Huawei's management has made it clear that it will retain HiSilicon and the HiSilicon department will not make any restructuring or layoffs. Personally, I think this is mainly because the company already understands the progress of the industry and can see hope.

Recently, while the A-share market as a whole has been sluggish, chip stocks have been far ahead, and companies in various links have seen a surge in their share prices, which also illustrates the capital market's expectations for localization and national-level promotion.

Perhaps, if Huawei just waits a little longer, there may really be a turning point.