Huawei 5G products not hurt by US sanctions – sources

Measures against China's biggest network equipment vendor have not had a noticeable impact on the quality of its products, Light Reading has learned.

Iain Morris, International Editor

October 3, 2024

5 Min Read
Huawei radio equipment deployed in the Philippines
Sanctions have not stopped Huawei from producing competitive 5G equipment, according to sources.(Source: Huawei)

Deny a strong man a vital enzyme and he will eventually perish. Applying the same kind of logic, the US government hoped it could finish off Huawei, a powerful Chinese vendor of 5G network products, by cutting it off from various critical components over which the US could exercise control. Although it designs and produces much of its own kit, Huawei used to be one of the biggest customers of TSMC, a Taiwanese chip foundry reliant on US tools. Under new rules, TSMC was prohibited from serving Huawei. Without access to its cutting-edge chips and other supplies, Huawei would be weakened to the point of collapse.

Or so people thought. A trial run of sanctions against ZTE, a smaller Chinese vendor, had nearly driven it out of business a few years before. But they have not had the same desired effect on Huawei. While it initially struggled after a tightening of restrictions, its sales grew a tenth last year and its net profit rose 145%. Those are much higher growth rates than Ericsson and Nokia, Huawei's main network rivals, were able to achieve. Diversification into new business areas is partly responsible. But Huawei's 5G network equipment has also remained extremely competitive, according to multiple sources on the buyer side.

In massive MIMO, an advanced 5G technology, its top-of-the-range antennas remain a "generation ahead" of the best products from Ericsson, weighing a fraction as much, according to one of those sources. Weight is not just a proxy for the energy efficiency of network products. Lighter equipment puts less pressure on masts and can be hoisted into place by fewer technicians. US sanctions have not had a noticeable impact on Huawei's technology competitiveness, said an executive at another company still using the Chinese vendor alongside other equipment suppliers.

At first, the assumption was that frenzied stockpiling of TSMC-made chips had given Huawei sufficient inventory to serve network operators for perhaps a couple of years. Evidence of that seemed to come in the annual report for 2019, showing a 73% rise in inventory costs, to more than 167 billion Chinese yuan (US$23.7 billion). Huawei, importantly, ships many more smartphones than it does basestations, meaning its networks unit also has far less need for a mountain of cutting-edge chips.

Still standing after chip war

But stocks of old TSMC chips now seem bound to have disappeared, and Huawei has proven itself capable of putting advanced 7-nanometer chips into basestations, said one source. The concern is that it may be unable to obtain smaller designs. Sanctions architects assumed even 7-nanometer chips would be outside Huawei's grasp.

That was because it can no longer buy from TSMC. Besides relying on American equipment and software, the Taiwanese foundry uses a technique called extreme ultra-violet lithography (EUV) to make the most advanced chips with the tiniest transistors. Today, the market for EUV machines is monopolized by ASML, a Dutch company, and the Dutch government has long denied ASML an export license to serve China.

All this has left Chinese foundries such as SMIC stuck with an older technology called deep ultra-violet lithography (DUV), formerly deemed insufficient for 7-nanometer production. SMIC's DUV workaround appears to be a method known as multiple patterning, which effectively repeats the lithography process. Intel previously tried it without apparent success before subsequently investing in EUV. Within SMIC, multiple patterning is likely to have had some impact on yields, the percentage of functional chips derived from a wafer, according to experts.

Lacking EUV, then, SMIC may be unable to move to even smaller nodes. And ZTE, no longer subject to US sanctions, is already talking about network products that feature 3-nanometer chips, said one buyer. But in most other areas, Huawei already looks self-reliant. HiSilicon, its design business, was highly regarded before the sanctions era and looks outside the range of US controls.

So do the power amplifiers (PAs) used in Huawei's massive MIMO radio units. Those units owe their lightweight designs partly to the company's investment in gallium nitride, an energy-efficient alternative to silicon, for its PAs. "For this component, we are leading the industry one generation ahead of our competitors, and that is why, according to third parties who report, we keep leading market share," said Philip Song, the chief marketing officer for carrier networks, during a press conference at this year's Mobile World Congress.

Germany's no help anymore

Huawei's progress in still-friendly markets has also been good. That naturally includes China, where it remains the biggest 5G supplier to China Mobile, China Telecom and China Unicom, the country's three state-backed telcos. All are now investing in 5G Advanced, the newest release of the technology.

Indeed, in a presentation accompanying its first-half results, China Mobile said it had put another 351,000 5G basestations into commercial use in 2024 and launched 5G Advanced in more than 280 cities. China Telecom claims to have added 100,000 basestations, while China Unicom said it had activated 5G Advanced across 100 cities. Telco customers of Huawei in the Middle East are also deploying 5G Advanced, says Huawei.

Opponents are on the defensive. Germany, Europe's biggest economy, has resisted European Union pressure to remove Huawei. It is allowing operators to retain Huawei's radio access network and transport equipment, provided the management systems used with these products are replaced by 2029. Deutsche Telekom, the incumbent, is working on its own management systems as a potential substitute.

Critics have lashed out, saying the substitution of management systems alone would not prevent the Chinese from slipping malicious code into basestation software. The response of Huawei and its supporters is usually to point out that no such code has ever been found. In the meantime, Germany's new approach to the Huawei problem is now being considered in other European countries, said one source.

"We are seeing sharply increased competition from Chinese vendors in Europe and Latin America," said Börje Ekholm, the CEO of Ericsson, on his company's first-half earnings call, as he warned analysts he expects to lose some deals. Hawks in the US will be hoping the European Union takes a dim view of the German scheme – and that ASML keeps its monopoly.

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About the Author

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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