Huawei Smartphone Output Hit, As Demand Soars For AI Chips

Strong demand for artificial intelligence (AI) chips has created a production bottleneck at Huawei’s semiconductor facility.

The Chinese tech giant has had prioritize AI chips over production of semiconductors for its premium Mate 60 phones, sources say.

Huawei uses one facility to make both its Ascend AI chips and the Kirin chips that power its smartphone, that became a popular rival to Apple’s iPhone, three people said. Two of the sources said output has been hamstrung by a low yield rate – production quality.

But the global race for AI functionality amid a Sino-US technological standoff has forced Huawei ‘downgrade’ the chips for its handsets just as the firm tops Chinese smartphone sales for the first time in more than three years.

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The revelation offers a rare glimpse of Huawei’s challenges as it works to rebuild since US sanctions in 2019 cut access to advanced chipmaking tools on national security grounds and crippled its smartphone unit. Huawei denies it is a security risk, and it declined to comment on these latest claims.

It also illustrates the impact of US restrictions on sales of AI processing chips to China, a market that was 90% controlled by US giant Nvidia before the latest curbs in October pushed Chinese customers to domestic alternatives.

The government has launched an initiative to improve China’s position in computing power. That has spurred local authorities to announce data centre projects while bolstering public and private demand for Huawei’s Ascend series in particular, according to two of the people and public tenders.

The Ascend 910B is widely considered the most competitive non-Nvidia AI chip available in China.

Huawei has prioritised production of Ascend chips over Kirin chips and so has slowed manufacturing for Mate 60 smartphones, the people said, without disclosing when the arrangement began.

The firm is also working to improve its yield rate – the number of usable chips per wafer – and hoping their production arrangement is short term, the people said, declining to be identified as they were not authorised to speak with media.

Kirin phone chips made via laborious process

Huawei has been low-key on its chip manufacturing capability and ambition, and there is little public information on its progress or how it has managed to produce advanced chips.

Its advancements became apparent after it surprised market watchers with an unflagged August launch of the Mate 60 series during US Commerce Secretary Gina Raimondo’s visit to China.

Online tear-downs found the phones to possess a Chinese-made chip capable of fifth-generation (5G) telecommunication speeds. Analysts said Huawei may have been able to achieve this together with know-how from China’s largest contract chipmaker, SMIC, by tweaking deep ultraviolet lithography machines.

Such a process is more laborious, expensive and likely less productive than using the more advanced extreme ultraviolet machines that the United States has prevented third countries from selling to China, analysts said.

Mate 60 handsets have been consistently out of stock, with would-be buyers complaining online of month-long waiting times for pre-orders to be fulfilled.

Even so, the series was largely responsible for Huawei regaining its status as China’s top smartphone seller in the first two weeks of 2024, said data provider Counterpoint – the first time since the end of 2020.

Other Huawei products affected by the production bottleneck include Ascend-equipped computing unit MDC 810, which powers advanced driver assistance systems, two other sources said.

Chinese automakers had to delay delivery of flagship models due to production issues with the MDC 810, Reuters reported last week.