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Briefing
Jul 9, 2020 · reuters
Briefing
Jul 8, 2020 · Cailianshe
News EO
Jul 8, 2020
report
News EO
Jul 8, 2020

Huawei and ZTE Secure Nearly Half of the Global 5G Equipment Market

According to the data provided by Dell'Oro, an independent market research firm, Huawei took the first position in the 5G telecommunication equipment market in the first quarter of 2020, with a share of 35.7%, overrunning Ericsson's 24.6%, followed by Nokia, ZTE and Samsung.  Even under the sanction of the United States, Huawei still grew steadily, even surpassing Samsung in the second quarter of 2019, to rank No.1. Based on the data disclosed by the management of Huawei in February 2020, the contract number for 5G commercialization recorded 91, while the consignment number of 5G Massive MIMO Active Antenna Units (AAU) exceeded 600,000. Another Chinese Telecom equipment manufacturer – ZTE – expanded rapidly in 2019 and continued performing well this year. The company ate up 9.7% of the 5G telecom equipment market in the third quarter of 2019, even with almost no shares in the first three months last year. In 2020, ZTE surpassed Samsung, taking 13.2% of the pie, ranking fourth globally. At the end of the first quarter, the Chinese Telecom equipment companies, Huawei and ZTE, snapped up nearly half of the entire 5G telecom equipment market.  As for the entire global telecom equipment market, the five largest suppliers took up 76% of market share. Huawei accounted for 29%, Nokia for 16%, Ericsson for 14%, ZTE for 10% and Cisco for 7%. In the first quarter of 2020, these five companies took up 74% in total, with Huawei counting for 28%, Nokia for 15%, Ericsson for 14%, ZTE for 11% and Cisco for 6%.

Briefing
Jul 6, 2020 · Bloomberg
Briefing
Jul 6, 2020 · Bloomberg

UK Poised to Ban Huawei

Analysis EO
Jul 3, 2020
report
Analysis EO
Jul 3, 2020

Will Smartwatches Become the Next Smartphones? The Chinese Perspective

► Smart wearables, especially smartwatches, have the potential to shape the next stage of communication technology development. ► Global shipments have tripled over the past four years and the market is still far from saturated. ► Smartwatches are becoming people’s new coveted item: even in the pandemic days, as smartphone shipments declined, watches kept shipping at rising double-digit rates. ► Huawei has surpassed Samsung, securing the second-largest global smartwatch market share in the first quarter of 2020 – but it’s still trailing Apple. ► In China, Huawei dominates the market,  while Xiaomi boasts the most significant growth. ► Users’ needs for smartwatches are broad, requiring vendors to be accurately positioned and focused on either fitness / health or portability. If you were to name the ten most thrilling things in 2019, the rollout of 5G technology should have a place on the list. With faster speed, lower latency and broader connections, 5G seems promising as a way to spur the development of new gadgets and applications, just as 3G/4G networks served as curtain-raisers for the smartphone era. Smart wearables, exemplified by smartwatches, could be one of the beloved offspring of 5G technology and come to live on everybody’s wrist, becoming the next portable tech necessity. At the current stage, smartwatches are considered as accessories adjacent to phones. The more intimate connection between the device and the human body is where the smartwatches could cultivate new user habits around functions such as health monitoring and instantaneous data transmissions. Still, there is much more to expect with technology rollouts and service designs on the way. Consequently, considerable investment opportunities are emerging from smartwatch vendors and companies along the industry chain such as chipmakers and display solution providers. From 2013, when the first so-called smartwatch greeted the world, to the year of 2019, the shipments of this subtle device saw great growth. The one that truly ignited users’ excitement in this type of product was the Apple Watch (AAPL:NASDAQ) which was first released in 2015.  Although its Korean peer Samsung (005930:KS) presented the Samsung Gear two years earlier than Apple, there was not initially huge hype around this kind of device. From a global perspective, the smartwatch market grew by a staggering 10% year-on-year in the first quarter of 2020. By comparison, smartphone shipments declined by 13% in the same period. The smartwatch demand was surprisingly higher in the pandemic-hit quarter. Apple tops the list, with a 10% higher market share than the next-best vendor. Apple seems to have secured an absolute predominance in smartwatch sales, with a volume larger than the sum of Huawei, Samsung and Fitbit (FIT:NYSE). However, the growth rate is not that optimistic, since the 2.2% decline is quite disappointing compared with Huawei’s aggressive 118% year-on-year growth. Furthermore, if we shift the perspective to a China-focused one, Apple will somehow lose its ‘sense of superiority’ and Huawei will be in Apple’s shoes. Xiaomi and Huami Apart from Huawei’s handsome domestic performance, Xiaomi (01810:HKEX) and Huami (HMI:NYSE), which have been providing mutual support, have both maintained slots in the top 5 in terms of market share in China. Compared with Xiaomi smartwatch’s soaring growth, it is worrying that Huami is not performing as good as last year.  The company’s downslope is partly caused by Xiaomi releasing its own smartwatches, Mi Watch and Mi Watch Color, which outcompeted Huami’s Amazfit series. Previously Huami was standing on the shoulders of the ‘giant’ Xiaomi (pushing its luck one might argue) using the established brand and efficient sales channels to drive sales. Some people even reckon Amazfit to be a product name under Xiaomi’s operation. Consequently, when Xiaomi launched its own smartwatch, the sales volume of the younger brand, Huami, stumbled. Garmin Huami is not alone in facing a decline in shipments. Garmin (GRMN:NASDAQ), the Kansas-based GPS and wearables technology company, also suffered from diminishing market shares in China for the first quarter of 2020. In this case COVID-19 is to blame, as Garmin’s smartwatches are specialized in fitness and accurate physical data monitoring. Under nationwide quarantine policies, the need for outdoor sports was reduced to the lowest degree. In addition, Garmin targets the high-end, including luxuries; thus the economic regression caused by the pandemic has not tended to favor these categories. Though, in the global market, Garmin gained a steady growth of market share from 5.3% to 7.5%, the next quarter’s performance in the global market is likely to repeat what happened in China’s market in the first quarter as the pandemic spreads further and negative effects reverberate. Taking a glance at China’s smartwatch market mix, it is obvious that though the market is still niche, with only one-third of the shipments figures of smartphones, the price range and users’ needs are quite widely differentiated. The lowest price is presented by Huami, which did inherit its angel investor’s spirit on price-effectiveness. Garmin’s Forerunner 945 is the highest in price, at around six times Amazfit’s selling price. Though the range is comparatively large, the selling prices are mostly concentrated in the interval from USD 200 to 300 except for the American brands – Apple and Garmin. Apple in this case benefits from the brand premium and Garmin is out of the unique product positioning – focused on professional fitness service. Three major selling points: Medical monitoring, smartphone proxies and fitness Chinese brands have covered almost every customer group segmented by age, from the children’s electronic watches to the senior’s health monitoring watches and the young and business-focused areas in between. Smartwatches for seniors are expected to show physiological indexes such as ECG, blood pressure and respiration indicators. Lifesense (300562:SZ), as a listed medical equipment provider, has almost monopolized the smartwatch market for the seniors in China, just as imoo watch has achieved dominance in the children’s smartwatch market. China dominated the global market for kids’ smartwatches in 2019, accounting for more than three out of every five devices sold. Brands such as imoo (backed by the BBK Electronics) and Huawei were leading in market shares. As for smartwatches for working professionals and the younger consumer group, Huawei and Xiaomi watches, as accessories for phones, are leading. In this sector, the design, lasting time (can be reflected by the battery and display mode) and the communication capacity are the most important elements, where, if Huawei Watch could add the e-SIM so that the watch could be more independent from the phone, it will have the opportunity to take away Huami and Xiaomi’s sales.  If that is what is going to happen, Xiaomi will not be as upset as Huami, since the former has its Mi band as a killer product while for Huami the whole company has been counting on a quite singular product mix – Amazfit series. If Huami fails in capturing the healthcare and fitness-focused consumer group with its Huangshan-2 chip development, the future may be lackluster for this company.  Overall, China’s smartwatch market is still in a growing phase as it attempts to embrace significant changes in terms of market share. The total volume compared with smartphones also indicates a growth potential. Based on the three major selling points, local vendors have not yet covered the fitness-focused segment, leaving an alternative for the falling Huami to adjust its strategies. As for the middle-and-high-end smartwatches used as smartphone proxies, Apple and Huawei dominate,  establishing their brand images and sales channels. Xiaomi somehow lost its interest in the smartwatch category, since no further moves or promotions have come since the Mi Watch was released last year. It is possible that Xiaomi is taking a strategic step back and letting its investee make a successful specialization in smartwatches. With the 5G rollout and the completion of BeiDou navigation system, China’s smartwatch market is in a favorable uptrend.

Briefing
Jul 3, 2020 · NBD
Briefing
Jul 3, 2020 · eWiseTech
Briefing
Jul 2, 2020 · Huawei
Briefing
Jul 2, 2020 · CNBC
Briefing
Jul 1, 2020 · Huawei News
Analysis EO
Jun 25, 2020
report
Analysis EO
Jun 25, 2020

India and China after the Border Dispute: Implications for Huawei and Xiaomi

► China has been India’s main trade partner for decades and the biggest sourcing country for India’s trade deficit. Any trade disputes with India could drag down Chinese electronics vendors’ total sales by 10%. ► The Indian government plans to ban state-owned telecom operators from buying Chinese equipment, leading to anticipated sales losses for Huawei and ZTE. ► The financial recession of India is casting shadows for Chinese companies that rely on the Indian market to drive their revenues.  ► Due to previously established local factories, the rising import duties may not be affected as much as other importing sectors such as raw materials. ► Chinese investment in India is under severe scrutiny from the Indian government and more cost may be needed to invest in the future and carry out projects successfully. India and China, as geographical neighbors, have been closely linked for thousands of years culturally and commercially. Though political relations between the two countries have been tricky for decades, trade relations have shown an overwhelming development since the 2000s, and China has maintained its status as India’s largest importing partner for over 10 years. In 2019, the import volume in India from China reached USD 68.37 billion, accounting for 14.1% of total imports. Approximately half of the import volume comes from purchasing Chinese electric machinery and products, amounting to USD 33.83 billion. As on June 17, the most violent border clash caused 20 casualties of Indian soldiers, consequently pushed the ties between the two Asian giants to a new low since 1962 the Sino-Indian war. Triggered by this deadly encounter, the Indian government is quite likely to accelerate the imposition of trade and investment restrictions, which have been long premeditated, on China. As electronic products have taken the largest part of India’s import volume from China, this sector has turned out to be the very first target of India’s sanctions. Chinese vendors have profited from the enormous demand in the Indian market. This includes names such as telecom equipment providers ZTE (00763:HKEX) and Huawei and smartphone vendors like OPPO and Xiaomi (01810:HKEX). The following part will discuss how some of India’s anticipated reactions towards China-based companies are going to change the landscape of Chinese business operating in India and add investment risks. Falling demand From the Chinese point of view, the demand from the Indian market will definitely shrink. Three major factors have led to this projected shrinkage – government policies, local consumption decline and market sentiment. India’s fastest response towards the border skirmish with China came from the telecommunication department, who have decided to ban state-own telecom operators Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) from using 4G equipment supplied by Huawei and ZTE. Private operators are also taking the risk of being banned from buying equipment from Chinese vendors.   As the world’s leading telecom equipment providers, Huawei and ZTE are both leveraged heavily on the Indian market. One of the traits in the state is the extreme competitiveness of the space as the world's top telecom equipment producers such as Ericsson and Samsung all have been working to profit from the vast market, which has been pushing vendors to be efficient cost-wise – that has pushed Huawei and ZTE to struggle for their places for over a decade. If Huawei and ZTE suddenly quit the game, the left player could have chances to lift prices for governement purchase orders. The trade-off is still for the Indian government to contemplate. Heavily populated India is currently the world’s second-largest telecommunications market. If ZTE and Huawei are going to lose their carrier business market shares in India, the loss caused will be possibly in the millions of dollars. Other operational issues related to account receivables and inventory management will happen accordingly. However, it is not the first time that ZTE has faced sanctions from the Indian government. Back in 2006 and 2008, ZTE lost the bid initiated by BSNL for similar reasons. The later restored agreements of ZTE and Indian operators depicted the cooperation as mutually beneficial. Similar policy-related issues could possibly bother Chinese handset maker OPPO and its peers. The ban of Chinese telecom equipment has been implemented out of two considerations. First, the Indian government believes its security systems and critical infrastructure cannot be run by the Chinese state. The second purpose is to boost local production and to be self-reliant, reducing dependence upon China. The first concern does not have many links to handset vendors as the terminals are mainly for sending back data rather than gathering and analyzing it. But for the second concern, it is likely that the Indian government will lavishly support some of the local brands to be the domestic champions. The local consumption decline caused by the globally spread COVID-19 and the corresponding lockdown policies also cast a threat on the handset vendors’ Q2 and Q3 performance. According to IHS Markit, India’s PMI (Purchasing Managers’ Index) in April fell at 27.4 (a PMI reading under 50 represents a business activity contraction), reflecting a collapse of business activity with a record low in the 14-year survey history. For Xiaomi and OV (OPPO and vivo), which consider the Indian market one of their ‘cash cow’ businesses, they will face a steep downhill shift in the following months. A feasible counterplan is to drive revenue from their Internet service businesses and release promotions for highly cost-effective specs. Though this has never been a truly decent measure to boost sales, as it somehow harms the brand image and inventory smoothness, survival in the severe situation is even more important. As a consequence of the border conflict, boycotts of Chinese product activities have taken place both on the Internet and in the streets. OPPO’s offline stores and Xiaomi’s official Instagram page were under attack due to the market aversion. The market sentiment will bring Xiaomi a greater threat since it has been selling the ‘Mi fan culture.’ How to make a more localized and ‘China-less’ brand is one of the key issues to fix for Chinese handset vendors. Stable supply Soon after the ban of Huawei and ZTE’s telecom equipment, Reuters revealed that India would impose extra tariffs on 300 imported products. Though did not mention the name, China, as the biggest sourcing country of India trade deficits, is apparently the main target of this rising tariff wall. After the ever-increasing import duty on finished smartphones, several original equipment manufacturers – including Xiaomi, Samsung and Apple – started assembling their phones in the country instead of importing a finished unit. Thus, the same old ‘Made in India’ criterion does not seem to be fatal for Chinese handset vendors as Xiaomi, and OPPO is following the plan that deems 99% of their smartphones should be assembled locally. Setting up factories locally turns out to be a good way to reduce political risks and drive up the production capacity. However, for other Chinese finished electronics and components providers, such as Nokia Shanghai Bell and DTT (600198:SHEX), there will be an instant effect regarding order decrease. Investment restriction In April 2020, India announced a revised version of its FDI (Foreign Direct Investment) policy that would efficiently restrain the investment volume from neighboring countries (when talking about investment, the only one left is China) since it requires certain approval from the government first. Chinese companies will face challenges in getting their approvals to invest, given that this could have national security implications for India in the wake of the recent border hostilities. Like Huawei, ZTE and smartphone vendors all need to invest in local factories to expand production, the decline of direct or indirect investment transactions could be a serious problem. For Chinese firms that are running PE/VC investment in India, to pursue a larger volume of investments looks increasingly complicated. Over the past five years, Indian technology companies have been favored by Chinese investors. Nearly USD 4 million PE/VC has been poured into Indian unicorn companies such as Flipkart and Zomato. Yet most of the emerging excellent startups are in angel round; thus the investment barriers truly impede Chinese giants from staking their claims in the Indian Internet market.

Analysis EO
Jun 19, 2020
report
Analysis EO
Jun 19, 2020

How Huawei Can Work around US Chip Ban

A US ban on foreign companies’ sales of chips to Huawei Technologies if American equipment or software is involved will undermine America’s already-weakened position in the global semiconductor equipment market, industry sources say. Chip fabricators will remove American equipment from production lines in order to maintain market share in China, the world’s largest purchaser of semiconductors. Samsung, the world’s biggest fabricator of memory as well as logic chips after Taiwan Semiconductor Manufacturing Corporation, already has set up a small production line for top-of-the-line 7-nanometer chips using only Japanese and European chip-making equipment, according to Electrical Engineering Times.  The Dutch firm ASML is the only provider of the Extreme Ultra-Violet (EUV) etching machines required to produce the tiny transistors on 7-nanometer chips, which can hold 10 billion transistors on a silicon wafer the size of a fingernail. Chip testing machines by Japan’s Lasertec sell for US$40 million apiece and are rated the best on the market. Samsung and Huawei are considering a deal under which the South Korean giant would fabricate advanced chips for Huawei’s 5G equipment, and Huawei would in effect cede a substantial amount of its smartphone market share to Samsung, I reported in Asia Times May 20. Mobile phones are Samsung’s flagship business, but they are a relatively small contributor to profits at Huawei, whose core business remains telecommunications equipment. Ban ‘unacceptable’ South Korea exports almost twice as much to China as it does to the United States, and it relies on China to restrain the erratic North Korean regime. Seoul told Washington that the ban on sales of chips made with American equipment to Huawei and other Chinese companies was “unacceptable,” according to industry sources. A deal with Samsung offers one way for Huawei to work around the Commerce Department ban, details of which are expected to be announced in mid-July. Another workaround – already in progress – is a set of “Manhattan Projects” to improve China’s domestic semiconductor equipment industry, now a fourth-place player after the US, Europe and Japan. Huawei has contracts to install 600,000 5G mobile broadband base stations, powered by dedicated chips designed by its HiSilicon subsidiary and fabricated in Taiwan by TSMC. The Chinese firm probably has a year and a half of chip inventory. It might be able to fill the gap for its base stations with domestically produced chips. China lacks the capacity to produce the most-advanced 7-nanometer and smaller chips, although its flagship fabricator, Semiconductor Manufacturing International Corp (SMIC), promises to have 7-nanometer production running by the end of this year. If SMIC sells chips to Huawei made with American equipment, presumably it would be subject to American sanctions, including a shutoff of further equipment sales. The critical issue is the speed at which China can build up its domestic chip fabrication capacity. When the Trump administration cut off sales of Qualcomm chips to Chinese mobile phone maker ZTE in April 2018, ZTE effectively shut down. How long will it take? By the following December, though, Huawei had announced its own Kirin chipset for high-end mobile phones and its Ascend chips for high-performance servers. Both are fabricated by TSMC. The speed at which Huawei rolled out its own designs surprised Washington, and the question that dominates every semiconductor chat room on the internet is how long it will take China to do the same for semiconductor manufacturing equipment. American firms like LAM Research and Applied Materials still have the largest market share in several parts of the complex production process, but in every phase of fabrication, Japanese, European and Chinese equipment manufacturers offer serviceable substitutes. Holland’s ASML has the only real monopoly left in the chip fabrication business, in EUV lithography machines. An EE Times report ranks the leading equipment providers at each of the 11 stages of the chip fabrication process. “Although it is theoretically feasible to build a semiconductor production line without American equipment, Japanese, European and even domestic [Chinese] equipment doesn’t lead in many of these areas.” Chinese domestic semiconductor equipment companies trail their American rivals because China hasn’t taken the trouble to build out the sector. Applied Materials, a leader in plasma etching machines, expects to spend $360 million this year in CapEx. Its closest Chinese competitor, Advanced Micro-Fabrication Equipment (ticker 688012 CH), will spend exactly one-tenth as much. China’s “Made in 2025” drive for domestic semiconductor fabrication assigned low priority to domestic equipment because it was cheaper to buy American, Japanese and European machines than to invest heavily in domestic substitutes. Recruiting the experts The Commerce Department’s ban on foreign fabricators’ sales of chips to Huawei – if they are made with American equipment – changes everything. In 2019 the US government persuaded the Netherlands to block ASML from selling a new top-of-the-line lithography machine to China’s SMIC, with a reported price tag of $130 million. China may not be able to buy Western equipment, but it can hire anyone it wants. Anticipating restrictions on US chip sales, China has recruited nearly a tenth of Taiwan’s chip engineers. Nikkei reported on December 3, 2019: “More than 3,000 semiconductor engineers have departed Taiwan for positions at mainland companies, the island’s Business Weekly reports. Analysts at the Taiwan Institute of Economic Research say this figure appears to be accurate. That amounts to nearly one-tenth of Taiwan’s roughly 40,000 engineers involved in semiconductor research and development.” The learning curve for building world-class semiconductor equipment is likely to steepen dramatically due to the application of Artificial Intelligence to the production process, an area which China has a strong and perhaps leading position. Intellectual property is not the obstacle to chip fabrication; the problem, rather, is that hundreds of different processes are involved, and each of them requires extreme precision. But AI can speed things along. According to David Fried, chief technology officer of Coventor, a subsidiary of LAM, said: “The equipment has sensors that are analyzing data from operations of the tool and monitoring of the wafer process. For instance, sensors and data logs are picking up information about which wafer went to which chamber, where the robot arm is at any point in time, etc. “All that data has to go into a system where it can be harvested and analyzed in real-time. And that’s just from one piece of equipment. In a fab, you have fleets of that kind of equipment, and then you have all sorts of other equipment and different processes. This is a massive big-data challenge, and what you really want to start doing is learning on that data.” Already obsolete It is not known how fast China can create domestic substitutes for US equipment, but it has access to the world’s best chip engineers from Taiwan as well as expertise in the most advanced industrial research methods. Big data simulation can increase the speed and reduce the cost of industrial experimentation by a factor of 100. TSMC is the world’s most advanced chip fabricator, and the US government hailed the announcement of TSMC’s plan to build a $12 billion fabrication plant in Arizona as an important step in re-shoring American high-tech production. TSMC’s commitment to chip fabrication in the US is tentative at best, industry analysts believe. The new plant will produce only 20,000 wafers a month, barely half of Apple’s requirements, and not enough to challenge Taiwan’s home-based industry. The 5-nanometer chips that TSMC will produce starting in 2024, moreover, will already be obsolete when the plant opens. TSMC is investing in 3-nanometer capacity in Taiwan. From an American national security vantage point, a Taiwanese chip fabricator for sensitive military uses is less than secure. The close contact between Taiwan and the mainland creates extensive opportunities for Chinese infiltration of any TSMC facility. The consensus in the United States holds that the Trump administration’s assertion of extraterritorial control over the use of chips made with American equipment will succeed at least temporarily. The Wall Street Journal editors wrote this week: “Other countries may face a more difficult choice. Foundries in Southeast Asia that rely on Huawei’s business may resent being subject to extraterritorial U.S. rules, and one risk is that those governments are pushed closer to Beijing. Huawei will also accelerate its efforts to make chips using its own know-how and take a faster technological leap. “Some question whether the U.S. can enforce the sale ban in a complex industry scattered worldwide. Yet the success of U.S. sanctions against Iran highlights Washington’s ability to monitor global transactions when it is a high priority. Thanks to America’s leading position in semiconductors going back to the 20th century, U.S. law is still a gatekeeper to the most sophisticated microchips, and Washington can likely block China from achieving technological parity with the U.S. – for now.” Earlier this year the Defense Department intervened to block the same Commerce Department proposal that the administration adopted in May. The risks to American pre-eminence are enormous. American leadership in semiconductor manufacturing is already a thing of the past in lithography, the most difficult part of the production process, and it is slipping elsewhere. The chip ban gives the world an enormous incentive to circumvent the US, raising the risk that the US rather than China will be left without a chair when the music stops. This article was originally published in Asia Times Financial and written by David P. Goldman

Analysis EO
Jun 18, 2020
report
Analysis EO
Jun 18, 2020

Life after TSMC: Is SMIC Able to Serve Huawei and Co.?

► Semiconductor Manufacturing International Corporation (SMIC) is one of China’s biggest bets in the global semiconductor race. ► Lavishly invested in by the government over recent years, the foundry has been getting technologically advanced, but is still lacking in talents. ► The global economic turbulence is presenting both risks and opportunities. The Integrated Circuit (IC) manufacturing process can be divided into three major steps: IC design, foundry, packaging and testing. The specific traits of the semiconductor industry typically require companies to spend capital on research and development and maintain vast production capacities. It is almost impossible for players other than enormous chip giants to follow the traditional ‘Integrated Device Manufacturer’ (IDM) model. As Moore's law accelerated in the second half of the 20th century, unmet demand from the industry upstream was the reason for the establishment of TSMC, the world’s first company to specialize in completing manufacturing orders from IC designers, in 1987. The company pioneered a fundamentally new business model in the field – the semiconductor foundry.  Lured in by this new type of low-cost, asset-light chipmaking, many companies have started to pursue the fabless model. Foundries have mushroomed around the world, becoming the key links in the global electronics supply chain. As one of the largest foundries globally, SMIC’s (00981:HKEX) income from its main business segment (chip manufacturing at 0.35 µm to 14 nm), accounted for 90.81% of its total revenues in 2019. It also provides one-stop support services, including design and IP support, photomask manufacturing, bump processing and testing, to name a few. Last year, SMIC became the first Chinese mainland foundry to achieve mass production of 14 nm FinFET. According to its newest prospectus, compared to the first generation, second-generation 14 nm FinFET technology is expected to improve performance by approximately 20% and reduce power consumption by approximately 60%. However, around the globe, not only SMIC but also GLOBALFOUNDRIES and UMC (2303:TWSE) have realized the mass-production of 14 nm in 2015 and 2017 respectively. TSMC has meanwhile been capable of 7 nm production since 2018. SMIC is almost two generations behind TSMC. According to data from Trendforce, we can see that, in 2Q20, TSMC’s market share was 51.5%, which was the highest among all foundries in the world. And the second place was occupied by Samsung, the market share of which was 18.8% in the same period. Among the top five foundries, only SMIC is a China mainland company, with a 4.5% market share ranking it fifth. After browsing the information above, we find that TSMC is absolutely the leader in the foundry market. As an important partner of Huawei, it is currently caught in the crossfire between the two largest economies, and Huawei has transferred some of its 14 nm orders to SMIC.  However, though SMIC can produce 14nm, it has lagged behind TSMC in many aspects, including R&D investment, revenue and gross profit margin, for years. For instance, in 2019, TSMC invested TWD 91.4 billion (CNY 21.1 billion) in R&D – the number of SMIC was CNY 4.7 billion. Though TSMC spent over 4 times more than SMIC, the proportion of its R&D investment was 9%, 13% lower than that of SMIC. In addition, the gross profit margin of SMIC was less than half of TSMC’s. As shown in the graph below, the margins of TSMC and SMIC are downward, but comparing the exact numbers, we can see that, in 2019, the gross profit margin of SMIC was 21%, while TSMC achieved 46%. Apart from those parts, there are some other disadvantages of SMIC compared to TSMC. For example, SMIC ordered an Extreme Ultraviolet Lithography (EUV) from ASML two years ago, but it hasn’t received the results yet. EUV is a piece of crucial equipment for making chips under 7 nm. Considering this, on the supply side, it’s hard for SMIC to be competitive with TSMC. By comparison, on the demand side, there are opportunities for SMIC. Under the bans released by the US government, HiSilicon needs to turn to domestic semiconductor companies for the supply chain. As the best local player among foundries, SMIC is set to be the crucial partner of HiSilicon and Huawei. Another thing is that, on May 15, SMIC announced that National Integrated Circuit Industry Investment Fund and Shanghai Integrated Circuit Industry Investment Fund agreed to make a capital contribution of USD 1.5 billion and USD 750 million respectively into the registered capital of Semiconductor Manufacturing South China Corporation (SMSC). 50.1% is indirectly owned by SMIC. This is not only capital that matters in the microelectronics world: experienced talents are vital for the development of the domestic chip industry. The company can buy equipment, but if no one is capable of using it, no matter how powerful the machines are, it will be no more than just iron-scrapping. Quite possibly, triggered by the recent geopolitical uncertainty, more Chinese nationals majoring in engineering and graduating from prominent US schools will be returning to the country in the following years. Some of them will join China’s top chipmakers, while others will start their own fabless firms. In the short term, Chinese chipmakers are likely to face profound difficulties, as the international supply chain is getting disrupted in many ways. In the long run, as usual, challenges and opportunities coexist. In league with global economic uncertainties, ubiquitous competition in the domain will shape the strategies of up-and-coming Chinese semiconductor companies. Representing the country in one of the principal subsectors, SMIC, seemingly, has no margin for error.

News EO
Jun 14, 2020
report
News EO
Jun 14, 2020

Samsung to Help Huawei with 5G Chip Production

According to iTWire, two of the world's largest mobile phone vendors, Samsung and Huawei, are discussing a possible agreement in which Samsung will assist Huawei by providing advanced chips required by 5G networks. In return, Samsung will take some of Huawei's global mobile phone market share. With about 600,000 5G base station contracts, it is evident that Huawei is more focused on its telecommunications equipment business. In contrast, Samsung is dependent on its mobile phone business; the deal, therefore, makes sense and benefits both parties. The US has announced a new set of restrictions (details of which are to be announced in mid-July) on doing business with Huawei, which aims to dent the firm’s 5G ambitions, as TSMC and Samsung are the only companies advanced enough to produce 7nm chips. According to an article recently published by the EE Times, ‘Chip Equipment Becomes Trade War's Latest Battlefield,’ Samsung has already established a small production line using only Japanese and European chip manufacturing equipment to produce 7nm chips. Being included in the ‘Black List’ prevents Huawei from obtaining authorization for Google Mobile Services. Although this is not a big deal in China, its global users may not be able to use the Google App Store, Google Maps, Google Search, Gmail, or, YouTube. Huawei is working hard to build up its ecosystem and debuted its P40 series this year. The company has even launched its ‘petal’ search engine. If a particular application cannot be downloaded on Huawei AppGallery, this search tool can jump to a third-party web application store that supports the App. However, despite the ongoing global tensions, the tech behemoth saw its business grow steadily in 2019. Its smartphone shipments reached 240 million last year, surpassing Apple and second only to Samsung.  The newly added strict imposition of the Foreign Direct Product Rule, which prevents a company from buying goods that are produced using American technology or equipment, would make it impossible for Huawei to obtain chips from TSMC, the world's biggest contract chip manufacturer. “The revised rules are arrogant and destructive to the industry,” Huawei's media statement on the new US regulations stated. The company asserts that this rule change does not only harm Huawei but will also have a severe impact on related industries around the world.

News
Jun 14, 2020 · itwire
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