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Security

Huawei is reportedly rebuilding its telecom supply chain

Huawei has enlisted Chinese chipset makers Fujian Jinhua Integrated Circuit Co. (JHICC) and Ningbo Semiconductor International (NSI) to make chips for its telecom and automotive businesses, according to a new report. The company hopes to begin producing products via the partnerships as early as this year.

JHICC is to supply Huawei with processors, and NSI will provide radio frequency components and high-voltage analog chips.

The move, as reported by Japan's Nikkei, is designed to help Huawei continue selling telecom equipment globally as its component stockpile – hoarded before widespread US export controls took effect – dwindles. The company's broad goal, according to multiple unnamed sources who spoke with the publication, is to build production lines free from US "interference."

(Source: Karlis Dambrans on Flickr, CC 2.0)
(Source: Karlis Dambrans on Flickr, CC 2.0)

However, the publication noted that Huawei doesn't expect to produce semiconductors as advanced as those used by its telecom rivals like Ericsson and Samsung.

Nonetheless, Nikkei reported that Huawei is focusing on chips for telecom equipment "in part because they are less technologically demanding than those used in consumer devices like smartphones." Huawei was once the world's largest smartphone vendor but is now No. 10 following strict US sanctions that prevented the company from using Google's Android smartphone operating system and 5G.

But Huawei's telecom equipment business has been somewhat more resilient, according to the publication. Citing data from LightCounting, it reported that Huawei's telecom market share sat at 27.4% in the first half of 2022, down from 33% in 2020.

The global situation

For its part, Huawei has been clear about the challenges it faces. In a recent internal memo, Huawei CEO Ren Zhengfei said the company has to wind back its "overly optimistic expectations" and target profitability and cash flow instead of scale. He suggested that the next ten years would be "very painful" as the global economy contracts.

To be clear, this isn't the first time Huawei has sought to bolster its domestic supply situation. For example, the company last year placed bets on dozens of China chip startups, and had planned to open its first chipset fabrication plant.

Perhaps not surprisingly, US companies are working along a similar track. President Biden recently inked legislation allocating more than $50 billion for US-based chipset production in a move that will undoubtedly aid companies like Intel.

At the same time, though, the Biden administration has eased some restrictions against Huawei and other Chinese companies. For example, the US Commerce Department's Bureau of Industry and Security recently allowed the release of certain "low level" technology and software to blacklisted firms. The agency's goal is to support US participation in global technology standards.

Further, the Wall Street Journal recently reported that a Commerce Department-led review process has barely slowed overall US exports to China. Specifically, the publication cited data showing that less than half a percent of the US' total $125 billion in exports to China in 2020 required a license. And of those, 94% of technology exports to China were approved.

Nonetheless, Huawei's global telecom business specifically has been targeted by US diplomats who argue that the company's products pose a security risk. Huawei denies those accusations. Nonetheless, countries ranging from India to Australia to Canada to the UK have blocked Huawei as a result. But other countries, such as some in Latin America and Russia, remain open to Huawei.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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