Huawei Features Advanced Chip in Newest Smartphone Despite U.S. Curbs

Representative Mike Gallagher, chair of the U.S. House Select Committee on Strategic Competition between the United States and the Chinese Communist Party.

The Lede: China's Huawei released its latest flagship smartphone model, the Mate 60 Pro, prompting concern in Washington that western sanctions have failed to slow China’s technological progress.

What We Know:

The phone was released last week during U.S. Commerce Secretary Gina Raimondo's visit to China. This comes as the government prepares to implement a new $40-billion investment fund to bolster its developing chip sector in the wake of tightening U.S. restrictions on the industry.
The Mate 60 Pro is powered by its proprietary chip Kirin 9000s manufactured by China's top contract chipmaker Semiconductor Manufacturing International Corp. (SMIC) using an advanced 7-nanometre (nm) chip, according to a dismantling of the device by the Ottawa-headquartered consultancy TechInsights.
U.S. national security adviser Jake Sullivan said at a press conference on Tuesday that the White House is seeking “more information” on the precise “character and composition” of the chip.
China also announced on Tuesday that it is set to launch a new state-backed investment fund to provide $40 billion for its chip sector in a bid to catch up with other rivals.

The Background: Huawei, a partially state-owned Chinese chipmaker, became subject to export restrictions in 2019 when the U.S. Commerce Department cited risks and potential military applications of its products. U.S. measures blocked the company from dealing in chips, equipment, and software related to 5G technology. Chips with 7-nm electric circuits are the minimum requirement for the latest smartphones. Apple sources its chips from the contract manufacturer Taiwan Semiconductor Manufacturing Company (TSMC). The current iPhone 14 uses chips at the 4-nm level and the iPhone 15, due to be launched next week, is expected to come with the announcement of 3-nm chips.

Likely Outcomes:

SMIC had previously been able to achieve the 14-nm level with restrictions on the export of extreme ultraviolet (EUV) lithography machines from the Dutch company ASML, but TechInsights believes that these more advanced chips have been made through modifications to machines using the less advanced deep ultraviolet (DUV) lithography. The surprise advance of China’s technological progress in the chips space will likely lead to a greater desire by the U.S. and its Western allies to ramp industry restrictions even higher.
While Chinese firms may be able to produce these advanced chips, they do not seem able to produce them at scale for a competitive price yet. This may remain a hindrance to the Chinese chip industry that will continue the production gap with the U.S. and its allies. But if production can reach scale and pricing, at least for older generation chips, then SMIC and other Chinese companies may capture a significant enough market share to worry Western companies like Intel and Qualcomm.
China’s new investment fund to boost its chip sector will be an escalation in the competition with Western efforts to maintain its lead. New methods in China’s domestic chip industry could emerge to challenge Western dominance, but it is still early to determine those trajectories.

Quotables:

“This shows that Chinese companies like Huawei still have plenty of capability to innovate. I think it will also probably intensify debate in Washington on whether restrictions are to be tightened…It’s hard to catch up because chips are the most complex manufactured good humans have ever produced,” Miller said. “There’s nothing more complicated that humans make … this is really hard stuff.” – Chris Miller, a professor at Tufts University and author of the book “Chip War”

"They have just demonstrated that they are willing to accept much higher costs than are normally considered worthwhile ... It is only the combination of Huawei’s own large financial resources and generous government subsidies that could allow it to sell phones using these chips at normal market prices.” – Tilly Zhang, analyst at Gavekal Dragonomics

Good Reads:

Huawei's new chip breakthrough likely to trigger closer US scrutiny, analysts say (Reuters)

New phone sparks worry China has found a way around U.S. tech limits (Washington Post)

US to check on chips used in Huawei’s ‘Made in China’ smartphone (FT)

Exclusive: China to launch $40 billion state fund to boost chip industry (Reuters)