With Huawei’s former smartphone brand under the scrutiny of U.S. lawmakers, it might have long term implications for China’s semiconductor industry as well as the global smartphone chipset competitive landscape.
According to Michael McCaul, a member of the House Foreign Affairs Committee, and also one of the 14 Republican lawmakers asking U.S. Commerce Department to blacklist Honor, Huawei’s move to spin off the brand was an attempt to “evade U.S. export control policies meant to keep U.S. technology and software out of the hands of the Chinese Communist Party.” In response, the Commerce Department has started to review Honor, currently owned by Shenzhen Zhixin New Information Technology Co.
Currently, Honor has been cooperating with leading chip design companies such as Intel, Qualcomm and MediaTek. The Honor V40 5G-enabled phone released in early 2021, for example, uses MediaTek’s Dimensity 1000 series of SoCs. The Chinese market has been vital to MediaTek’s growth strategy, as it fills in the vacuum left by HiSilicon, Huawei’s chip subsidiary under U.S. sanctions.
According to CINNO Research, HiSilicon’s shipments in 2020 fell by 17.5%. In contrast, MediaTek saw itself rising to be China’s largest provider of smartphone chipsets in 2020: in the second half of 2020, the Taiwanese chip designer accounted for 31.7% of smartphone chip shipments in China. Some estimations even predict that MediaTek’s share of 5G chipset might reach 50% in China, an upward growth backed by the wide-scale adoption of the Dimensity platform by mainstream Chinese phone brands such as OPPO, Vivo, Xiaomi and Honor. As the world’s largest 5G smartphone market, China is also key to MediaTek’s global competition with Qualcomm. If Honor, currently the third largest smartphone vendor in China with a market share of 14.4%, got blacklisted, the implications would be significant for both MediaTek and Qualcomm, which also supplies Honor.
Another factor adds to the complication. The demise of Huawei/HiSilicon also left the gap open for other vertically integrated smartphone vendors, such as Xiaomi. After surpassing Apple to become the world’s second largest smartphone brand in Q2, with a market share of 17%, Xiaomi made no secret of its ambition to be the top one. Crucial to the effort is the ability to develop in-house chips, a consensus within China’s smartphone industry as OPPO and Vivo have also undertaken efforts to develop chips, beginning with Image Signal Processors (ISP). Eventually, Chinese smartphone makers aim to produce in-house SoCs, a direction also supported by China’s semiconductor policy as it searches for the next mobile chip champion.
Xiaomi, previously hit by U.S. sanctions, is particularly wary of geopolitical dynamics, and has recently revived its chip-making project. As early as 2014, Xiaomi established a subsidiary named Beijing Songguo Electronics (AKA Pinecone Electronics) and released an ARM-based SoC named Surge S1 in 2017. At the time, S1 made Xiaomi the 4th smartphone company in the world that had developed in-house chip design capability, following Apple, Samsung and Huawei. The project was later derailed by various complications, and instead of the long-awaited Surge S2, Xiaomi only released an ISP named C1 in early 2021. Xiaomi founder Lei Jin, however, stated that the company would continue to develop ICs, and has reportedly reorganized its chip development team.