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Huawei Isn't Out Of Chip Business, Building Its Own Wafer Fab

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Huawei may be down but definitely not out. The beleaguered Chinese giant, whose chip supply has been cut out by the US sanctions, is now reportedly looking to build its own wafer fabrication plant. According to a DigiTimes report, Huawei will set up its first wafer fab in Wuhan, Hubei province of China. It expects to start production at the new factory as early as next year, though not in full capacity.

Huawei will initially make optical communication chips and modules, as well as microcircuit designs, at the pant. But in the long run, the company could also produce advanced semiconductor chips including smartphone SoCs at its new HiSilicon factory.

HiSilicon, if you don’t already know, is a wholly-owned subsidiary of Huawei. The company designs Kirin chipsets for the Chinese giant. However, like many other chipmakers out there, it is also a fabless company. It designs its own chipsets but outsources the actual manufacturing to other companies, Taiwan’s TSMC, in its case.

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TSMC is one of the very few companies that own chip fabrication plants, with Samsung and Intel being the other big names in the industry. Perhaps the limited number of chip manufacturers is a primary reason for the ongoing global semiconductor chip shortage, though that’s a story for another day.

Since the US sanctions prevent TSMC from manufacturing chips for HiSilicon, Huawei is now looking to build its own wafer fab. The company will reportedly invest 1.9 billion Yuan (approx. 278 billion USD) in the project that will help it become more self-sufficient.

Huawei aims to become more self-sufficient by building its own wafer fab

Huawei has become a shadow of itself since the US government put it on the country’s Entity List back in May 2019. Updated sanctions a year later cut the company’s access to American technologies. The effect is that it cannot offer Google Mobile Services (GMS) on its phones.

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Worst yet, its chipmaking subsidiary HiSilicon can no longer make Kirin chipsets for the company. As a recent Strategy Analytics report revealed, HiSilicon suffered an 88 percent decline in application processor shipment in Q1 2021. The global industry grew 21 percent during the same period.

This poor show fueled speculations that Huawei may spin-off HiSilicon as it did with its HONOR sub-brand. However, it appears the company has no such plans. It sees a bigger picture and is looking to make HiSilicon self-sufficient.

The latest report comes just weeks after a Huawei executive confirmed that the company intends to keep HiSilicon intact. There are no plans for layoffs even if it doesn’t contribute to earnings, Catherine Chen, a Huawei director and senior vice president, told Nikkei Asia. The company will continue research on semiconductor technology even if it doesn’t make chips anymore.

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Since Huawei is a privately-held company, there’s no investor pressure. As such, it could continue operations at HiSilicon for as long as it wants, Chen said. The Chinese giant is also hoping other countries to come up with their own chip supply chain that doesn’t rely on American technology. It will now be interesting to see how things pan out.