Concerns Mount As Huawei's Chip Stockpile Grows

Advertisement
Advertisement

Huawei's near-term prospects may be even better than analysts first anticipated due to a miraculously amassed American chip stockpile. Namely, China's strained tech giant is reportedly much better-positioned to maintain existing mobile operations than it lets on. Insiders claim Huawei did not manage the said feat overnight. Instead, it began building reserves of key American tech, smartphone chipsets included, way back in 2018. For reference, that would be the period wherein Trump began threatening to revoke Huawei's access to those very same solutions.

Huawei began planning for the worst even before it became clear it will stay on Washington's trade blacklist throughout 2020. It did so by purchasing large volumes of Xilinx and Intel chips, products it simply cannot do without. Even after pumping billions of dollars into domestic industries, Huawei remains extremely dependent on American technologies. Its attachment to U.S. intellectual property is so profound that it reaches the very core of its business – telecommunications. Most notably, losing access to Intel and and Xilinx chips would render Huawei unable to produce its wireless base stations. That, in turn, stops the conglomerate in its tracks on the 5G front. As a matter of fact, this particular battle was already lost on May 15th.

Anticipating its current predicament, the company began stockpiling these system-on-chips and similar stateside hardware nearly two years ago. There is one thing that hurts Huawei more than its overreliance on American chips; that would be its growing overdependence on old American chips. Silicon that newer generations of processing technologies are outclassing at this very moment.

Advertisement

Huawei's chip stockpile a blunt omen of things to come?

Earlier this month, the incumbent Republican administration extended its sweeping sanctions on Huawei by another year. In effect, the firm's now sitting one of its worst-case backup plans – an American base station chip stockpile sufficient to sustain its telecom business for another 18 to 24 months, Nikkei reports. While Huawei can continue churning out telecom infrastructure using old chips in the meantime, that's 100% a losing play; one inevitably dilluting its currently industry-leading portfolio. One hurting its competitiveness, much like its mobile business would have suffered if it weren't for the Kirin division. Huawei's chipmaking arm may have followed an extremely impressive growth arc in recent years but when it comes to base station hardware, it still can't compare to American companies.

Nonetheless, the firm began its descent into inefficiency by commencing initial reserve-building efforts in late 2018 – mere weeks after its CFO found herself in cuffs. Some dozen-plus counts of fraud, racketeering, conspiracy to violate international trade sanctions, and similar transgressions later, Meng Wanzhou is inching closer to extradition and decades in federal prison. Simultaneously, Huawei's doubling down on its chip stockpile, new reports out of the Far East reveal. The speed at which the company managed to estalish a massive critical tech reserve, even in face of crippling sanctions from the world's largest economy, is testament to both its size and ability. Hopefully, however, this display of prowess doesn't end up being a "wartime" omen as some sources are keen to label it.