Demand for AI chips impacts Huawei’s smartphone production

Huawei, the Chinese tech giant, has scaled back the production of its high-end ‘Mate 60’ phones due to the surging demand for its artificial intelligence (AI) chips.

Huawei utilizes a single facility for manufacturing both its Ascend AI chips and Kirin chips, which directly compete with the ones powering Apple’s iPhone.

In the midst of a Sino-U.S. technological standoff and a worldwide race for AI functionality, Huawei finds itself in the challenging position of securing second place for its handsets, despite achieving the top spot in Chinese smartphone sales for the first time in over three years.

The situation offers a rare glimpse of Huawei’s challenges as it works to rebuild since U.S. sanctions in 2019 cut access to advanced chip making tools on national security grounds and crippled its Smartphone unit.

The Ascend 910B is widely considered the most competitive non-Nvidia AI chip available in China.

The firm is also working to improve its yield rate – the number of usable chips per wafer – so is hoping this production arrangement is short term.

Huawei has been low-key on its chip manufacturing capability and ambition, and there is little public information on its progress or how it has managed to produce advanced chips.

Its advancements became apparent after it surprised market watchers with an unflagged August launch of the Mate 60 series during U.S. Commerce Secretary Gina Raimondo’s visit to China.

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Through online tear-downs, it was discovered that the phones feature a Chinese-made chip capable of fifth-generation (5G) telecommunication speeds.

Analysts suggest that Huawei’s success in this aspect may be attributed to leveraging expertise from China’s largest contract chipmaker, SMIC, potentially involving adjustments to deep ultraviolet lithography machines.

This method is considered more labor-intensive, costly, and probably less efficient compared to utilizing the more advanced extreme ultraviolet machines. The United States has restricted the sale of such machines to China, as noted by analysts.

Mate 60 handsets have been consistently out of stock, with would-be buyers complaining online of month-long waiting times for pre-orders to be fulfilled.

Even so, the series was largely responsible for Huawei regaining its status as China’s top smartphone seller in the first two weeks of 2024, said data provider Counterpoint – the first time since the end of 2020.

Additional Huawei products impacted by the production bottleneck include the Ascend-equipped computing unit MDC 810, crucial for powering advanced driver assistance systems.

Reuters/Jane