Huawei intends to launch a chip factory in China that utilizes locally developed technology to make its electronic components, Financial Times reported. The corporation wants the facility to produce its non-smartphone parts without using American-derived technology to avoid U.S. sanctions.
In mid-September, the U.S. Department of Commerce issued new rules restricting the conglomerate’s access to American semiconductor innovations.
Huawei’s Locally Sourced Foundry Plans
Huawei reportedly plans on reshaping its supply chain around a new foundry based in Shanghai. The facility will be administered by Shanghai IC R&D, a local chip research and design firm. Initially, the complex will fabricate 45nm products, followed by 28nm parts by 2021, and 20nm processors in 2022.
Financial Times’ sources explained Huawei would use its new facility to expand its telecom business and pursue new consumer electronics and Internet of Things (IoT) opportunities.
Mark Li, a Bernstein analyst, told the publication 14nm, and smaller chips are used to established contemporary mobile networks. However, he also said the Chinese telecom could overcome that deficiency with its system and software offerings. Because of the quality and affordability of its gear, Huawei said it landed over 90 5G infrastructure contracts in February.
As of this writing, the conglomerate has not publicly commented on reports about its production capacity expansion plans.
How Huawei Would Benefit From Opening a New Foundry
If Huawei launches a chip factory that is not reliant on U.S. semiconductor tech, the facility could become its lifeline.
According to Caixin, it made 56.3 percent of its revenue from its consumer products division in the first half of 2020. In Q2, the conglomerate shipped 55.8 million devices, enough to unseat Samsung as the world’s largest smartphone vendor. But once the Commerce Department announced it would tighten its export controls in May, the firm began to lose access to the cutting-edge components that powered its handsets.
Even though the company built up a chipset stockpile, it admitted to running out of premium smartphone processors in August.
Since then, Huawei has reportedly worked to expand its telecom and cloud computing segment, develop a desktop computer product, and become a force in the automotive sector. But the U.S. government’s new rules include fines for organizations that sell the Chinese conglomerate certain items without its approval. While less pressing than its mobile central processing unit (CPU) shortage, the company still faces long-term raw material sourcing problems.
The corporation could resolve its procurement challenges by acquiring components from a domestic vendor that does not utilize American tech in its manufacturing operations.
Li noted that Huawei’s theoretical factory could meet its production schedule without violating Washington’s sanctions. Provided the Chinese corporation can make its base station inventory last through 2022, its plan could succeed. That said, the firm’s reported plans would not address its stockout of premium handsets processors.
In the last decade, Huawei’s smartphone lineup allowed it to become a leading global enterprise. But confronted with the options of change or die, it has seemingly chosen to live on without that part of its business.