Despite draconian export controls and blacklisting by the United States, the Chinese telecoms giant, Huawei, is alive and well—at least for now. Huawei’s current relatively strong competitive state comes from a variety of sources: Yes, Chinese government subsidies and huge home markets helped greatly, but there are also other factors such as Huawei’s own resilience and forward planning, new domestic technological alliances in response to US actions, and—not least—muddled US policy.

On this last point, analysts have pointed out that US moves to interdict chips and machinery from Chinese hands were dilatory and contained loopholes for some years after the Trump administration and later the Biden administration first announced such moves. This inconsistency applied to both chips and chip-making machinery. And it included sourcing from both the US and other national companies well into 2023.  It should also be noted that the US exercised little control over high-tech talent, so Huawei and its partners received vital knowledge from employing talent from, German, Japanese, Korean, Taiwanese, and US telecoms companies.

Smart Phones. Last August, Huawei surprised the world with the introduction of the Mate 60, powered by a 7nm processor previously unknown in China. Within brief blog space, the back story begins in 2020 after crippling US sanctions, when Huawei teamed up with the Semiconductor Manufacturing International Corporation (SMIC) to attempt to develop an advanced smartphone chip that would allow it to compete with Apple and Samsung smartphones. It utilized less advanced deep ultraviolet equipment (DUV) manufacturing equipment from Dutch manufacturer ASML rather than the company’s more advanced extreme ultraviolet lithography (EUV) equipment. The resulting product, while somewhat less efficient and more expensive to produce, still proved serviceable for Huawei’s new smartphone. (Huawei is also leading an effort for a more sophisticated technique using DUV, quadruple patterning, which will allow manufacturing down to 5 nm.) After the introduction of the new phone last August, sales took off, and estimates are that Huawei will produce some 60 million units in 2024, making it the number 4 producer in China, with strong growth also expected outside the mainland in coming years.

Much more ambitiously, Huawei has also introduced its own operating system, the Harmony OSS to compete with Apple’s iOS and Google’s Android system. Chinese officials are pushing developers to create apps compatible with the Harmony OSS system. At this point, Harmony OSS is being used in some 800 million tablets and laptops, largely on the mainland. Huawei and SMIC jointly are planning to produce a 5nm chip this year to underpin a more advanced phone. This would still place China a generation behind Western companies, who are now producing 3nm chips, but it will keep Huawei in the global competitive smartphone game. The two companies are also pushing forward with chips to underpin Artificial Intelligence, with ever-increasing Chinese state funds.

Cautions. While Chinese telecom advances have been impressive—and have surprised Western officials—future progress remains uncertain. After some years, Huawei’s stockpile of Western chips and adequate semiconductor equipment will run dry. Further, on the equipment side, the lack of support for component and software updates and maintenance from firms such as ASML will take an increasing toll. And process machinery for the EUV process have taken years to create, and millions of dollars in sustained investment.

In sum, Chinese companies are in a race with time—even with almost unlimited resources, can they keep up with the West in advanced semiconductors and the process to make them, while the West is itself advancing beyond current technology?

A second blog will analyze the rollout for equipment underpinning the fallouts of 5G, particularly baseline equipment.