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5G first in China’s investments

Four ministries issued September “Guiding Opinions on Expanding Investment in Strategic Emerging Industries and Cultivating Strengthened New Growth Points and Growth Poles.” As you can see below, 5G was the top recommendation.

The National Development and Reform Commission, Ministry of Science and Technology, Ministry of Industry and Information Technology, and the Ministry of Finance came together to suggest priorities for the 14th Five-Year Plan.

No surprise here. The Chinese press has been overwhelmed for months with the economic stimulus that will be provided by 5G. Western commentators often make the same claim, based on Qualcomm claims of a $13 trillion boost. This is of course nonsense, but everyone in telecom is happy to see the support.

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Year+ parts inventory, ?$20 billion

Huawei has been chartering planes to bring chips to China. They’ve ordered so much most plants, including TSMC & the Koreans, have been at capacity for months. Memory chip prices are stubbornly high because of the added demand. MediaTek, NeoPhotonics, and many more are having record quarters.

The Mate 40 with Huawei’s 5 nm chip is about to be announced. The rumor is 10M are being produced with parts on hand. It’s the first 5 nm chip to the market, soon matched by the Apple A14.

Ren has committed to $20 billion in R & D. Huawei cut back in India and Australia for political reasons, but is increasing hiring in Russia and China.

Huawei will survive and thrive, I said last year before the unprecedented (and probably illegal) US blockade on chips. The US sanctions are costing Japan, Taiwan, and Korea ~$26 billion/year, per Nikkei. The long run cost to America is an order of magnitude greater.

Companies around the world are actively designing out US components because of the uncertainty of future American demands. That’s particularly true in Germany, I believe, where the US is sanctioning people because of the Germany-Russia Nord Stream pipeline.

Wars are very expensive. Economist Gardner Ackley told a US President, “You want your effing war, you raise your effing taxes.”

Someone always has to pay.

First U.S. layoffs due to Huawei blockade

NeoPhotonics has lost $40M in quarterly sales to Huawei, a brutal blow to a company with quarterly sales of ~$100 million. They promise “appropriate expense adjustments and structural actions to mitigate the impact of revenue declines.” That almost definitely means they will fire a lot of people.

NeoPhotonics makes some of the best optical components in the world, important for 400 gigabit transmission. Huawei makes most of its own optical parts and will probably soon develop an alternative.

I suspect Huawei’s purchases were especially high as they stock up to withstand the U.S. blockade.

Here’s the official announcement

NeoPhotonics preps for life without Huawei

SAN JOSE, Calif. – NeoPhotonics Corporation, a leading developer of silicon photonics and advanced hybrid photonic integrated circuit-based lasers, modules and subsystems for bandwidth-intensive, high speed communications networks, today provided a business update following the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) updated actions on August 17, 2020.

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Huawei’s cloud expanding worldwide

Huawei has some of the fastest server and AI chips in the world.

The chips power a cloud IAAS system that #3 in China and the fastest growing in the world. As you can see from the map at left, Huawei is expanding across the Southern hemisphere, including Johannesburg. Instead of fighting in the larger markets, it is seeking out markets not as well served.

Germany isn’t on this map but actually has a very large Huawei cloud system. It belongs to Deutsche Telekom, but is primarily built by Huawei. DT has been aggressively promoting its European cloud, including in an alliance endorsed by Merkel and Macron.

The Financial Times reports that Huawei’s cloud is growing, especially in the government and state-owned enterprise market. FT believes that Intel has a license to continue shipping processors to Huawei dating to before August 17th that is not affected by the blockade. I am not able to confirm that.

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Huawei’s? really cute AI dog

Forbes reports this as a Huawei story and it certainly has the AI capabilities to do very interesting things with a robotic dog. But the name on the video is Unitree/Yushu, a spinoff of Shanghai University.

The first word from Huawei is, “CBG said they were not involved in this project, and that the product is made by one of our ecosystem partners, not Huawei.” But Huawei is now so large it’s certainly possible that another division is involved.

Huawei has dedicated AI chips and advanced AI software, as well as many AI researchers. (100’s?) Like Google, it makes all the AI tools available through the Huawei cloud.

Top 16 Huawei managers have worked together since 1997

All 16 of Huawei’s top managers have worked together since 1997, the longest-serving management team in technology. Their ability to work together is a strength of the company.

They have nine men who share the “rotating Chairmanship,” a unique management style that would be impossible if they did not have such close connections.

Ren started the company with almost nothing in 1987. The early years were hard, sometimes without the ability to meet the payroll. Guo Ping joined in 1988 and Hu Houkun in 1990. The rest joined by 1997.

Liang Hua 1995
Guo Ping 1988
Xu Zhijun 1993
Hu Houkun 1990
Meng Wanzhou 1993
Ding Yun 1996
Yu Chengdong 1993
Wang Tao 1997
Xu Wenwei 1991
Chen Lifang 1995
Peng Zhongyang 1997
He Tingbo 1996
Li Yingtao 1997
Yao Fuhai 1997
Tao Jingwen 1996
Yan Lida 1997

Scenarios

Huawei is a $120 billion company with 200,000 employees and the unlimited backing of the Chinese state. It will survive.

The U.S. President and Secretary of State are attacking with everything short of actual bombing raids. Huawei sales went up this year despite the blockade. But sales will be affected by cutting off chips from TSMC, the only practical source for the 5 nm and 7 nm chips essential for the best cell phones.

It has stockpiled enough chips to last past the U.S. election into 2021 and maybe longer. Nikkei in May reported Huawei has two years’ worth of some chips in inventory, such as Intel CPUs. The U.S. can’t win the tech war against China without prohibitive losses, but no one in D.C. will admit that before the election.

Half of Huawei’s sales are phones, many of which require chips only possible from TSMC or Samsung.

Donald Trump will make almost any compromise to win reelection. It’s possible but not likely that he will end the blockade in return for China buying U.S. crops.

TSMC also has some leverage. Trump wants TSMC to go ahead with a $12B plant in Arizona. He trails in the state after winning it in 2016. Although the NY Times reported a done deal, TSMC has made clear it will not go forward without $billions in government giveaways. TSMC has applied for an exemption from the blockade, but will probably concentrate on a bigger subsidy.

I see four plausible scenarios:

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Smart Move: License a second source for Kunpeng

Huawei’s Kunpeng CPU benchmarks better than Intel. It’s based on ARM RISC cores and relatively inexpensive to produce. Microsoft supports Windows on ARM, although for now the Huawei PC’s run a Chinese version of Linux. It’s a hot chip and at the heart of numerous Huawei products.

Kunpeng does not have a rich ecosystem, however. Customers are uncomfortable. The natural way to build support is to license the design to other chipmakers. That will enlarge the market and third parties will see opportunity.

In the past, no one would buy a chip that only had one source. Intel licensed the 8086 to AMD by customer demand, one reason it became dominant. A smart customer knows a monopoly manufacturer could have a plant fire, a business problem, or even a political blockade. A second source gives the buyer some insurance against a problem with a single manufacturer.

Chinese chipmakers like Ziguang Zhanrui have the design and production skills needed. ZZ is shipping the 5G Tiger T7510 chip, manufactured at SMIC’s 12 nm fab. It has strong state43 backing through Tsinghua Unigroup and is well-funded.

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Huawei will survive, of course

Huawei people have an unbreakable spirit and dedication. If that isn’t enough, the Chinese government will do whatever it takes to protect Huawei. It’s a $120 billion company with almost 200,000 employees. Imagine what the U.S. would do if China decided to destroy Facebook, where so much hate spreads. We would protect it, although Facebook is 40% smaller than Huawei. Germany would never let Daimler disappear.

I’m doing the research and it’s becoming clear China will be able to produce the needed chips and components. The next two or three years could be very hard, especially on Huawei’s mobile phone sales, but the improved Chinese chip and software industries will be a major economic asset.

Hongmeng/Harmony is catching up to Google’s Android system. Software is not the problem. Google’s system is mostly 10 years old. It’s hard to implement the latest software advances into old code. With fresh code, Hongmeng has faster file operations and other improvements.

Replacing Taiwanese chips will be more challenging.

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My Government’s evil claims about China

China Must Go

The 1886 Chinese Exclusion Act is a blot on U.S. history. In the future, Sec. Pompeo’s claims about Chinese technology will be equally discredited.