Surging demand for artificial intelligence chips coupled with manufacturing constraints has forced the Chinese smartphone manufacturing firm Huawei to prioritize cutting-edge AI chips, resulting in a decline in its smartphone production rate. According to a new Canalys research report, Huawei shipped 10.4 million smartphones in the fourth quarter of 2023, securing fourth place with a 14 percent share of the Chinese telecom industry. Huawei, which came in sixth place, saw a rise in its full-year market share in China from eight percent in 2022 to 12 percent in 2023.
This situation offers a unique look at Huawei's challenges since 2019, when the US stopped granting it access to chip-making instruments for security reasons, causing serious damage to the company's smartphone division. Huawei disputes the existence of security risks in spite of these obstacles.
China's market, which was previously dominated by the US powerhouse Nvidia to the tune of 90 percent, clearly felt the effects of the US limits on sales of AI processing chips to that country when the company implemented curbs in October. Demand for Huawei's Ascend series has surged as a result of the Chinese government's drive to improve processing power, particularly in data center projects and open tenders.
The Intention of the Semiconductor Sanctions
The US administration imposed semiconductor sanctions a year ago with the intention of hampering China's progress toward the development of strong artificial intelligence. However, there were gaps in the sanctions that permitted Chinese companies to continue acquiring and producing the chips needed to train some of the most sophisticated AI algorithms in existence.
The Controls Barred the World’s Largest Chip Maker from Selling its AI Training Chips
The 2022 regulations forbade companies from offering potent AI training chips that could share data at the quickest possible speeds with one another, which is a requirement for creating the strongest computer clusters. The two strongest AI training chips in the world, the H100 and A100, could not be sold to Chinese companies by Nvidia, the biggest chipmaker in the world, due to the controls.
Nvidia’s Substitute Product Evaded the Sanctions
But Nvidia soon created a substitute product, the H800 and A800, that evaded US regulations by interacting with other processors in a cluster at 400 gigabytes per second as opposed to 600 gigabytes per second, which was the speed limit established by earlier regulations. Building strong AI applications is still possible with the H800 and A800, despite their disadvantaged speed compared to the most sophisticated chips.
Once more, the US declared that it is attempting to close those gaps by strengthening controls in its latest sanctions last year.
Another Attempt by the US in Administering Semiconductor Sanctions
The Commerce Department announced the new restrictions, which include statutes to stop Chinese companies from obtaining chips through foreign subsidiaries, new controls on sales of advanced chip making equipment and design software, and new rules for reporting the sales of other types of advanced chips.
Measures Necessary to Restrain China Using AI for Military Purposes
Beijing and Washington entered a new phase of technological competition with the introduction of the limits a year ago. According to the Biden administration, these measures are necessary to stop China from using AI for military purposes. China has charged that the US is attempting to impede its advancement in both technology and the economy.
The new regulations prohibit chip manufacturers from marketing their products based on a chip's compute speed or power density—the quantity of processing capacity crammed into a unit of area. The H800 chip was not given a name by the US government, but it is generally believed that it will be affected by the new regulations.
The Latest Sanctions Proved Advantageous to Some Chinese Domestic Chip Makers
China's domestic chip sector, which is said to lag behind that of the US, Taiwan, and South Korea by many years, may have benefited from US chip limitations. September saw the release of the Mate 60 smartphone, which has a 7-nanometer chip made by Semiconductor Manufacturing International Corporation, China's most advanced chipmaker. Given the relative sophistication of the 7-nanometer production process, it is possible that SMIC has outpaced expectations in terms of technological advancement or has managed to evade export regulations.
The US government is working to strengthen ties with China, so the stricter limitations coincide with a delicate diplomatic moment. In recent months, members of the Biden administration have visited Beijing for meetings with Chinese authorities.
Surging Global Demand for AI Capabilities became Overwhelming for Huawei
However, a worldwide competition for artificial intelligence capabilities amidst a Sino-US technical impasse has seen Huawei slide to the second position for its devices, even as the company leads China's smartphone sales for the first time in over three years.
Huawei’s Focus Shifted to Ascend Series
China's standing when it comes to computing capacity has improved thanks to a government initiative. This has increased demand from the public and business sectors for Huawei's Ascend series in particular and prompted local authorities to declare plans for data centers.
Ascend Series Considered Equal Opponent to Nvidia
In China, the Ascend 910B is regarded by many as the most competitive AI chip, giving tough competition to Nvidia. Mate 60 smartphone manufacturing has slowed down as a result of the company giving Ascend chip production priority over Kirin chip production in response to increased demand. In the hopes that this manufacturing shift will only last temporarily, Huawei is trying to increase the yield rate.
Huawei’s Silent Progress in Chip Making Screamed Loud When Launching Mate 60 Series
Huawei has been very quiet about its ambitions and capabilities for chip manufacturing, and the public knows not much about the company's development or how it has produced cutting-edge processors.
Its innovations were made clear when, in August, during US Commerce Secretary Gina Raimondo's visit to China, it shocked market observers by launching the Mate 60 series without a flag.
The Processor is Capable of Supporting 5G
The phones have a Chinese-made processor that could support fifth-generation (5G) telecommunication speeds, according to online teardowns. Experts speculated that Huawei may have accomplished this by modifying deep ultraviolet lithography equipment with assistance from SMIC, the biggest contract chipmaker in China.
Analysts noted that this procedure is more time-consuming, costly, and probably less effective than employing the more sophisticated extreme UV devices that the US has banned other nations from supplying to China.
With Ascend Series, Huawei Could be China’s Top Smartphone Seller
Mate 60 smartphones have been systematically out of stock, and prospective customers have been complaining online about months-long wait times for their pre-orders to be filled.
Nevertheless, according to data source Counterpoint, the series had a major role in Huawei becoming the country's top smartphone seller in the first two weeks of 2024—a position it had held since the end of 2020.