China: A look inside Huawei’s phone shows how China’s chip advance has stalled

In the tense geopolitical rivalry between China and the United States for control of advanced technology, Huawei is often in the middle. The Chinese telecommunications giant is a main target of a US trade blacklist and other controls intended to keep Chinese companies from buying or making advanced computer chips. Officials in Washington say these tiny chips, used to power chatbots and smartphones, are also essential for China’s efforts to build its military might.

Huawei is determined to prove that Washington’s trade barriers cannot hold it back. Last year, the company released a line of smartphones, the Mate 60, with chips more advanced than any previously made in China.

But Huawei’s new series of phones, the Mate 70, released last month, indicates that the company has made little progress toward more advanced chips in the past year, according to a new analysis. The chips inside Huawei’s latest devices appear to have been made using the same manufacturing processes as the ones in last year’s phones, said Alexandra Noguera, an analyst at TechInsights, a Canadian research firm.

Noguera and her colleagues examined the chips inside two models of the Mate 70 series and concluded that they were made by China’s top chipmaker, Semiconductor Manufacturing International Corp., known as SMIC.

The analysts compared the chips with others made by SMIC, including those in Huawei’s breakthrough Mate 60 phone. “Every dimension fits exactly what we have seen for the past two years,” Noguera said.

That is not a surprise: SMIC is the only company in China that can make such chips. The finding is notable, however, because it suggests that US restrictions are at least stalling the country’s advances in chip technology. “The primary impact of the export controls has not been reversing China’s progress, it has been making it very difficult for SMIC to increase production capacity,” said Gregory C. Allen, a technology expert at the Centre for Strategic and International Studies, a Washington think tank.

SMIC did not respond to a request for comment. Huawei declined to comment.

The Chinese government has made the manufacturing of computer chips and other advanced technology a major policy priority. China has poured billions of dollars into its chip industry, helping to fund a major expansion of factories.

SMIC, which has close ties to the government, has built factories at a blistering pace. It has grown into one of the largest contract chipmakers in the world, making products that are designed by its clients, including Huawei.

US officials have progressively tightened restrictions to slow SMIC’s progress by limiting the kinds of chipmaking tools it can buy from other countries. They have pushed Dutch and Japanese officials to stop their companies from supplying crucial machinery and equipment to SMIC’s most advanced factories.

That means SMIC depends on dated machinery. It is making even its most advanced chips using a manufacturing process that the world’s leading chipmaker, Taiwan Semiconductor Manufacturing Co., had perfected by 2018.

The latest Huawei devices do not contain more advanced chips because SMIC is probably unable to make them at a large enough scale, Noguera said.

“If they could, they would have,” she said.

Huawei’s devices are hugely popular in China. Its sales have grown faster than any other brand in China during the past year, according to Counterpoint Research, which analyzes the smartphone market.

But widespread commercial success for Huawei’s latest devices will depend in part on its ability to secure a steady supply of chips from SMIC.

And experts say SMIC is already pushing the limits of its outdated tools and factory processes to make enough chips for Huawei’s existing phones — a costly strategy that results in a high number of faulty chips.

In part to further slow SMIC’s advances, the Biden administration this month announced broader restrictions on advanced technology that can be sent to China. The updated rules add more than 100 Chinese companies, many of which make the tools and machinery needed to manufacture chips, to a restricted trade list.

Since the Mate 60 Pro was launched last year, Huawei has been eating into Apple’s yearslong dominance in China. In 2022, three-quarters of high-end smartphones sold in China were iPhones. This year, the portion was about half, as Huawei’s share more than doubled, according to Canalys, a market research firm.

“SMIC, like Huawei, has obviously suffered from US restrictions,” said Dan Wang, a fellow at the Paul Tsai China Center at Yale Law School. “But what matters for Beijing is not its yield rate or profitability as much as whether it is able to deliver the technology that China needs.”