Chinese telecom giant Huawei has stockpiled billions of dollars worth of chips from suppliers such as Intel, Advanced Micro Devices (AMD), Xilinx, and Samsung, building a buffer against a US crackdown on Huawei that began last May and escalated last month, per Nikkei Asian Review.
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Huawei has secured enough chips to last 18-24 months in a bid to maintain hardware output across segments such as cloud computing, networking equipment, and smartphones. For context, in May 2019, the US cut Huawei off from critical US-based suppliers through a trade ban, which mounted in May 2020 when the US pressured Taiwan Semiconductor Manufacturing Company (TSMC) — one of Huawei’s most important chip manufacturers — to stop fulfilling new Huawei orders.
Huawei has managed to continue procuring chips by indirectly purchasing “off-the-shelf” models, often for a premium, per Nikkei. And in 2019, the company ramped up its stockpiling efforts: It spent 167.4 billion yuan ($23.5 billion) stockpiling chips, components, and materials — marking a 74% year-over-year increase in spending.
Here’s how Huawei’s stockpiling efforts will impact three of its core business segments:
- Networking equipment. Huawei has built up chip inventory from San Jose-based Xilinx, which specializes in programmable chips that are used in Huawei’s base stations and telecom equipment rooms, according to Nikkei. The chips are highly customizable, and therefore enable Huawei to adjust its network equipment to meet different regional standards for 5G. But Xilinx is a highly specialized chip developer — which will make it harder for Huawei to replace the chips once its supply runs out. Given the overall slowdown of 5G network rollouts outside China in response to coronavirus, however, Huawei may have more time to find an alternative to Xilinx and still remain in the running to fulfill lucrative network equipment contracts.
- Cloud computing. Like networking equipment, Huawei’s cloud computing business relies on highly specialized chips, which allow the company to offer advanced AI capabilities to customers. Huawei is therefore said to be stockpiling high-end central processing units (CPUs) from Intel and AMD. Huawei is developing its cloud computing capabilities with network integrations, such as through edge computing and the IoT. Limitations on cloud capabilities would therefore impact Huawei’s networking business at large. The limited CPU supply could have an outsize impact on Huawei, even though its revenue from cloud services is still relatively small.
- Smartphones. Huawei has turned to China-based Semiconductor Manufacturing International Corporation (SMIC) to manufacture its lower-tier chips, like the Kirin 710A. It still hasn’t found an alternative manufacturer for the more advanced chips featured in its flagship smartphones: For instance, the company’s flagship P40 Pro, launched in March 2020, still contained components from US-based suppliers Qualcomm and Micron. Huawei is likely focusing on stockpiling components that would go into its flagship devices while it waits for suppliers like SMIC to develop more advanced manufacturing capabilities. This is a significant need for Huawei, as the company is hoping its stockpile will stretch up to two years, and it will have trouble charging a premium for flagship devices if it uses 2020 stockpiled components for smartphones shipped in 2022.
