The Shenzhen-based company has not explained exactly how
seven-nanometer chips ended up in the new Mate 60 Pro smartphone series.
However, a teardown by analysts at TechInsights showed the device’s Kirin 9000s
processors were made in China. The researchers hailed a milestone: their
observations suggest Semiconductor Manufacturing International Corp (0981.HK)
produced these without the sophisticated extreme ultraviolet lithography tools
of Dutch equipment maker ASML (ASML.AS), which Washington has put off limits.
Some other components were sourced from non-domestic suppliers, despite U.S.
sanctions. All the memory chips appear to come from a legacy range by SK Hynix,
even though the company said it has not done business with Huawei since before
the rules were introduced.
Gleeful netizens and state media lost no time trumpeting
those achievement, while patriotic consumers fueled sales. Huawei is now
jacking up shipment targets for the Mate series by 20% to 40 million, local
media reported on Tuesday. Analysts estimate deliveries of the Mate 60 Pro
could top 5 million this year.
What remains unclear is how accurately SMIC can print
designs onto miniscule wafers; any flaw in the famously sensitive technology
could decrease the yield of chips. The manufacturer has less experience with
this technology than rival TSMC (2330.TW), which has been producing similar
products at scale since around 2018. News that the Mate 60 Pro had sold out
days after its launch raises the question of whether volumes were capped by the
quantity of chips available.
SMIC is already under pressure. The $28 billion company,
whose top investors include a state-owned fund, said gross margin halved in the
first six months of the year. To keep hitting major milestones it needs to
spend vast sums: research and development costs increased two percentage points
from a year earlier to $345 million or 11.4% of revenue, higher than the 8.7%
reported by TSMC in its most recent quarter.
State support is generous and may yet grow. SMIC reported
$111 million in government grants in the first half, and Beijing is launching a
$40 billion fund to generate more cash for the industry. But the pace of
progress depends on both how much and how effectively chipmakers invest.
Huawei’s flashy phones have hogged the limelight: SMIC’s shrinking margins
deserve the same scrutiny.
Huawei started preselling its Mate 60 Pro+ smartphone
alongside a new foldable phone in September. The Chinese company started
selling its high-end smartphones Mate 60 and Mate 60 Pro at the end of August.
The Huawei Mate 60 Pro contained a 7-nanometer processor
that was made in China by Semiconductor Manufacturing International Corp,
according to analysts at TechInsights. The researchers noted this was a
“manufacturing milestone” for the company, which it considers to be China’s
most advanced chipmaker.
The phone also uses memory chips from SK Hynix, TechInsights
also found. The SK Hynix chips have been available since at least 2021. The
South Korean company says it has not done business with Huawei since before
U.S. sanctions were imposed, Bloomberg reported on Sept. 15. - Reuters