One full year after the U.S. added Huawei to the "entity list", the U.S. sanctions against Huawei have escalated again.
On May 15, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) issued a notice requiring that chips manufactured using U.S. technology and equipment must also be approved by the U.S. before they can be sold to Huawei.
The escalation of U.S. sanctions focuses on the upstream of Huawei's chip production and manufacturing supply chain, including foundry, and is intended to force major suppliers not to provide foundry services for Huawei.
And Huawei responded at yesterday's Global Analyst Conference, "Despite the difficulties, we will do our best to find solutions."
How far is China's chip manufacturing from the level of international suppliers? This topic, which has been repeatedly tortured since 2018, is once again in the spotlight.
In his latest report, Guotai Junan analyzes which Chinese companies can be helpers on Huawei's path to survival.
Huawei supply chain
According to public information and annual reports of listed companies, Huawei has a total of 164 suppliers.
After deducting companies providing ancillary services such as real estate and transportation, there are 149 Chinese and foreign suppliers in the electronics, communications and computer industries.
Huawei is highly dependent on global suppliers for chip foundry and optical communication devices.
The outbreak of the US-China turmoil in 2018 has made Huawei more deeply realize that supporting Chinese suppliers is a sure way to guarantee supply chain security, and in the past year or so, Huawei has basically achieved the self-research alternative or non-US supplier switch at the chip design end.
However, as Huawei Chairman-in-Office Guo Ping said yesterday at the 17th Huawei Global Analyst Conference.
"Huawei doesn't have chip manufacturing capabilities beyond chip design, and we're still trying to find solutions, Survival is Huawei's theme word right now."
Huawei is still highly dependent on TSMC in chip manufacturing, and upstream semiconductor devices and EDA software are still monopolized by US manufacturers. And these two areas have, unsurprisingly, been the focus of the current US restrictions.
To further cushion the impact, Huawei has now urgently added $700 million in orders to TSMC, including 5nm and 7nm chips.
The market expects the order, if delivered smoothly, to meet at least one quarter of Huawei's chip demand.
Status of chip manufacturing in China
In contrast, in China, who can replace TSMC in chip manufacturing?
One fact that we have to get right is that for a long time in the past, although China's semiconductor industry has been growing rapidly, it has always exhibited a pattern of strong packaging and design and weak manufacturing.
This structure, related to the technical difficulty required for the different segments -
(b) The more rapidly developing packaging segments with low technological barriers and significant labour cost advantages.
This is closely followed by design, and a number of design vendors such as Hays chips are rapidly emerging.
And the relatively weak chip manufacturing industry is getting more and more attention.
On October 22, 2019, the second phase of the National Integrated Circuit Industry Investment Fund was established. According to the plan, its investment direction will focus on chip manufacturing areas such as etching machines, thin film equipment, test equipment and cleaning equipment.
Compared with the first phase of the National Integrated Circuit Industry Investment Fund established five years ago, the size of the second phase more than doubled, exceeding market expectations, and from these real money, we can see the determination of the state to support the semiconductor industry.
On Friday, the significance of the State Integrated Circuit Industry Investment Fund II's announcement of nearly 20 billion yuan of additional capital to chip foundry Semiconductor Manufacturing International Corporation (SMIC), following the announcement of sanctions against Huawei in the United States, is self-evident.
SMIC also immediately said that due to the expected continued surge in demand for advanced processes, SMIC South plans to increase its production capacity from 6,000 to 35,000 wafers per month to meet future IC foundry production needs.
A good opportunity to switch to Made in China
The breakout of China's manufacturing chip production should be from the two dimensions of Chinese manufacturing equipment and internal asset line to find a way out.
For example, the highest investment in lithography equipment is still the highest proportion in Japan, and the advanced lithography machine is still monopolized by the Dutch ASML.
The lithography equipment made in China is only glue-coated development equipment, not the core lithography machine with high technical difficulty.
The measurement equipment is also manufactured in China at a rate of less than 2%, and the main supplier is the US company with the highest share.
In addition, 23% of the investment in film-forming equipment is less than 10% of the manufacturing rate in China.
At the same time, however, we have seen breakthroughs in some segments, such as Advanced Micro's CCP etchers, which have a 25% market share in mainland fabs, and NAURA Technology Group, which has about 22% of its IC devices line validated.
In addition, etching equipment, doping equipment and CMP equipment has also seen the dawn of China's manufacturing of the three Chinese manufacturing rate is currently around 15%, while the cleaning equipment manufacturing rate in China has reached 30%.
Overall, the semiconductor equipment manufacturing in China has a long way to go, but the Chinese manufacturing equipment in the gradual entry into the mainland production line after the proportion continues to rise, domestic enterprises have opened to accelerate catch-up mode, the future has a greater potential for breakthrough.
For the downstream production lines, according to the semiconductor industry observation and the official website of each company, the total equipment investment planned for 2018-2020 for Yangtze Memory, ChangXin, SMIC 14 nm, SMIC 65/55 nm, GTA Semiconductor, Huahong Wuxi, Huahong FaB6, Hangzhou Silan, and Cansemi Tech is about 79.16 billion yuan.
If Yangtze Memory, Huahong Wuxi and Huali Microelectronics are selected as the statistical samples, it is estimated that the overall manufacturing rate in China can reach 25% after the construction of the production line.
Therefore, the total demand for Chinese manufacturing equipment in 2018-2020 will be about 1979 billion yuan, of which 9.48 billion yuan can be reached in 2020, an increase of 69% year-on-year.
Similar to the Chinese manufacturing equipment, the rate of Chinese manufacturing in the inner asset line is also showing a gradual upward trend.
At present, the penetration rate of Chinese manufacturing equipment manufacturers is still insufficient, and the asset line of the Chinese manufacturing rate shows a good trend of gradual increase, etching, film forming and cleaning equipment has a large potential for breakthrough.
Looking at the actual situation at each production line, the actual investment in 2018 and 2019 is less than the planned investment amount, and we expect a big year for semiconductor equipment to come after 2023.
From chips to ecology, Huawei's "Kunpeng Project"
The firm belief that technology must be Huawei's most important core competency can also be verified by Huawei's R&D investment over the years.
In 2019, Huawei invested 131.7 billion yuan in R&D, with an R&D expense rate of 15.33%. The company continues to increase future-oriented research and development expenses for 5G, cloud, artificial intelligence and smart terminals, high R&D investment is the basis for the company to explore theoretical breakthroughs and basic innovation.
In September 2019, Huawei jointly released the "Kunpeng Computing Industry Development White Paper" from its industry partners, setting out the blueprint, key challenges and initiatives for the development of the Kunpeng computing industry, adhering to the strategy of openness, cooperation and win-win to build the computing ecology.
Huawei Kunpeng processor based on ARM architecture has the technical advantage of multi-core high concurrency, which can effectively solve the problems of high concurrency of massive data and high energy consumption of data center in industry digitalization upgrade.
With the explosion of AI and 5G, the power consumption, response time and size of edge computing chips can provide the optimal solution for industry digitalization.
This processor, and thus the base of the Kunpeng computing industry.
Huawei reports that the Kunpeng upstream and downstream industry chain includes PCs, servers, storage, operating systems, middleware, virtualization, databases, cloud services, industry applications and consulting management services.
As of May 2020, the Huawei Kunpeng Eco has attracted many partners.
1. Server and PC vendors: Digital China, DHC Software, Changhong, Talkweb, Tsinghua Tongfang, Yellow River Technology Group, Shanxi Baixin, Powerleader Science & Tech, etc.
2. Basic software vendors: China Standard Software, Beijing Tongtech Co, Beijing Baolande Software, Inforbus, iSoft Infrastructure Software, Beijing National People's Congress Jincang Information Technology, Dameng Database, Sangfor Technologies.
3. Application software vendors: WPS, Xiamen Meiya Pico, Kingdee, Yonyou, Shenzhen Sunline Tech Co, Yusys Technologies, Client Service International Inc, Fujian Boss Software, Linewell Software, BeiJing Seeyon Internet Software, Beijing Orient Ntl Comn Sc & Tch Co Ltd, SuperMap, Servyou Group, GRG Banking, PCI-Suntek Technology.