Huawei Shifts Focus to Production of AI Chips Impacting Smartphone Business

Huawei, the Chinese tech giant, is navigating manufacturing constraints and a surging demand for its artificial intelligence (AI) chips, prompting the company to prioritize AI production over its premium Mate 60 smartphones, Reuters news report said.
Huawei @ MWC Shanghai 2023
In China telecom market, Huawei had shipped 10.4 million smartphones during the fourth quarter of 2023, grabbing 14 percent share securing fourth position, according to Canalys research report released recently. In 2023, Huawei, ranking sixth, witnessed its full-year market share jump to 12 percent from 8 percent in 2022 in China.

Reuters news report said the issue stems from Huawei’s utilization of a single facility for producing both its Ascend AI chips and Kirin chips, which power its smartphones, including the Mate 60 smartphone series. Insiders reveal that output has been hindered by a low yield rate, serving as an indicator of production quality.

This scenario provides a rare glimpse into Huawei’s struggles since 2019, when U.S. sanctions severed its access to chipmaking tools on security grounds, significantly impacting its smartphone unit. Despite these challenges, Huawei denies being a security risk.

The impact of U.S. restrictions on AI processing chip sales to China is evident, as the market, once 90 percent controlled by U.S. giant Nvidia, shifted to domestic alternatives after October’s imposed curbs. The Chinese government’s initiative to enhance computing power has led to increased demand for Huawei’s Ascend series, especially in data center projects and public tenders.

The Ascend 910B, considered the most competitive non-Nvidia AI chip in China, has become a focal point for Huawei. In response to heightened demand, the company has prioritized Ascend chip production over Kirin chips, resulting in the slowdown of Mate 60 smartphone manufacturing. Huawei is working to improve the yield rate, hoping that this production adjustment is temporary.

Huawei’s chip manufacturing capabilities have been relatively low-key, with limited public information on its progress. However, the company’s August launch of the Mate 60 series, featuring a Chinese-made chip capable of 5G speeds, showcased its advancements in the field. Analysts speculate that Huawei may have collaborated with China’s largest contract chipmaker, SMIC, to achieve this feat using alternative lithography machines.

Despite production bottlenecks causing Mate 60 handsets to be consistently out of stock, the series played a pivotal role in Huawei reclaiming its position as China’s top smartphone seller in the initial weeks of 2024, as reported by data provider Counterpoint. Other Huawei products, including the Ascend-equipped computing unit MDC 810, have also been affected by the production challenges, leading to delays in delivering flagship models for Chinese automakers.