Chinese mainland chipmaker Semiconductor Manufacturing International Corp (SMIC) has successfully mass-produced a smartphone processor for Huawei Technologies, marking a breakthrough in the mainland’s push to boost its chipmaking industry, experts said. Huawei’s chipset, the Kirin 710A, was produced through an advanced, 14-nanometer manufacturing process by the Shanghai-based chipmaker, marking the first time that a Chinese mainland semiconductor company has used that technology to mass-produce smartphone processors. The process produces more efficient chips. The move also confirms that Huawei is shifting partial production of its self-designed chips to SMIC.

Meanwhile, the U.S. has further restricted the supply of chips incorporating U.S. technology to Huawei. Under new rules, foreign semiconductor makers must obtain a U.S. license to ship Huawei-designed semiconductors to the Chinese company that were produced using U.S. technology. The rule went into effect on May 16, with a 120-day grace period for chips already in production.

Taiwan Semiconductor Manufacturing (TSMC) announced it would no longer accept chip orders from Huawei. Guo Ping, rotating Chairman of Huawei, warned that the U.S. restrictions “will also affect communications services for the more than three billion people who use Huawei products and services worldwide.” To cope with restrictions, Huawei’s research and development spending grew 29.8% to CNY131.7 billion in 2019, while inventories surged 73.4% on a yearly basis, the China Daily reports.

China’s state-backed funds pumped USD2.25 billion into SMIC to raise its registered capital from USD3.5 billion to USD6.5 billion. Meanwhile, U.S. President Donald Trump extended with another year an order signed last May that prohibited U.S. companies from using telecoms equipment made by firms deemed a national security threat – a ban that includes Huawei and ZTE. At the same time, a waiver allows Huawei to still sell certain equipment to U.S. telecom carriers.

Xiang Ligang, Director General of the Information Consumption Alliance, said that the Kirin 710A chip’s design, manufacturing, testing and packaging are now all done by Chinese mainland companies, which is a breakthrough for the industry. The comments came after employees of SMIC Shanghai received Huawei smartphones last week with “Powered by SMIC” printed on the back.

Huawei said earlier that it would expand its production capacity in 14 nm manufacturing to 15,000 wafers per month by the end of 2020. The company said in its first-quarter financial report that its revenue in the three months was USD905 million, up 35% year-on-year and marking a record high. Huawei is also beefing up its own chip research and development capabilities. HiSilicon, Huawei’s semiconductor arm, became the first Chinese mainland company to enter the Top 10 global chip rankings, taking the 10th position in the first quarter of 2020, according to market research company IC Insights, the China Daily reports.

As the U.S. announced it would block shipments of semiconductors to Huawei, China is preparing countermeasures, including putting U.S. companies on an “unreliable entity list,” launching investigations, imposing restrictions on U.S. companies, and suspending purchase of American products, a source close to the Chinese government told the Global Times. The U.S. companies mentioned, including Apple, Qualcomm, Cisco and Boeing, are all highly dependent on the Chinese market. Boston Consulting Group (BCG) warned that if shipments of U.S. chips and chipmaking equipment to China were stopped, and China were to ban imports of U.S. electronics and software, it could cost the affected U.S. companies 37% of their annual sales. BCG found that the top U.S. semiconductor makers have reported a median revenue decline of between 4% and 9% in each of the three quarters following the ban on Huawei buying U.S. chip technologies in May 2019.

Smartphone shipments in China rose by 17.2% in April on a yearly basis, the first such expansion in the past four months. Data from the China Academy of Information and Communications Technology (CAICT) showed that 40.8 million smartphones were shipped from factories to retailers in April, with 32 new models being launched. Shipments of 5G smartphones stood at 16.38 million units, a 164% growth on a monthly basis, and accounted for 39.3% of total shipments, the report said. Strong consumer demand for cutting-edge devices prompted retailers to shore up stocks. With the virus outbreak still rampant in many overseas countries, Chinese smartphone firms like Huawei, Xiaomi, Oppo and Vivo are now focusing more on the domestic market, thereby intensifying competition. In April, 22 new 5G smartphone models were launched in China, according to CAICT.

Chinese telecom firm Huawei Technologies is working with French-Italian chipmaker STMicroelectronics (STMicro) to design chips for mobile devices and autonomous vehicles, a move industry analysts said will help secure its global supply chain as the U.S. tightens export controls on the company. The collaboration with STMicro, which began in 2019, will accelerate Huawei’s autonomy from U.S. suppliers. “It’s a good thing for both sides as many European semiconductor manufacturers have been battered by the fallout from Covid-19. Some of them have lost competitiveness in the global market, so forming a partnership with Huawei will ameliorate their financial woes,” said Telecom Industry Analyst Xiang Ligang.

Geng Bo, Vice Secretary General of the China Solid State Lighting Alliance, a semiconductor industry association, said self-driving automotive chips will be the next battleground for Huawei. STMicro has advantages in making automobile chips and it is the supplier for key chipsets to clients like Tesla. Huawei is gradually shifting parts of its chip production from Taiwan-based TSMC to the Shanghai-based SMIC as part of broad efforts to get ready for a more relentless U.S. crackdown. The Trump Administration is considering changing U.S. regulations to allow it to block shipments of TSMC-made chips to Huawei. The U.S. said it will impose new restrictions on exports to China from non-U.S. companies that use products based on U.S.-developed chipmaking equipment to keep semiconductor production equipment and other technologies away from China’s military. “The new rules will require licenses for U.S. companies to sell certain items to companies in China that support the military, even if the products are for civilian use,” the Global Times reports.

HiSilicon, Huawei Technologies’ semiconductor and integrated circuit design subsidiary, has surpassed Qualcomm in terms of smartphone processor shipments in China for the first time amid coronavirus-linked disruptions that have hit most major players, according to a report by Chinese research firm CINNO. In the first quarter of 2020, HiSilicon shipped 22.21 million smartphone processors. Although HiSilicon’s shipments only increased slightly from the 22.17 million units it shipped in the first quarter of last year, it was the only major company that did not see a year-on-year decline in the quarter, CINNO said. As a result, the Huawei subsidiary’s market share surged to 43.9%, from 36.5% during the same period last year. HiSilicon’s steady performance comes at a time when the Chinese smartphone industry is being battered by delayed product launches and dampened consumer sentiment linked to the coronavirus pandemic. Smartphone shipments in the country slumped by 34.7% to 47.7 million units in the first quarter of 2020, according to the China Academy of Information and Communications Technology. CINNO’s report showed that smartphone processor shipments in the country dropping by 44.5% in the first three months of 2020, compared to the same period last year. Over 90% of Huawei phones in China now use HiSilicon processors, according to CINNO. However, Huawei Founder Ren Zhengfei said in an interview with Yahoo Finance last year that the company would continue using chips from U.S. vendors such as Intel and Qualcomm as long as it is still allowed by U.S. regulators. U.S.-based Qualcomm, the long-time market leader, fell to second place in the latest quarter with a year-on-year decline in market share from 37.8% to 32.8%. Taiwan’s Mediatek maintained its third-place position, the South China Morning Post reports.

Huawei announced in Paris that it will build a factory in France to make equipment for 4G and 5G mobile networks. The automated and intelligent facility will mainly produce supplies for European customers. Huawei plans to invest more than USD220 million in the first phase on land, construction, and equipment. The new plant will add to Huawei’s integrated value chain in Europe, and will include a demonstration center to showcase wireless base station production, software loading, and testing processes. Huawei said it will be able to cover every link along its value chain and drive forward local industries, in both upstream and downstream segments. It is estimated that the project will produce USD1.1 billion worth of products annually and directly create 500 jobs. Huawei has had a presence in Europe for 20 years, employing more than 12,000 workers. The total number of jobs it has created directly and indirectly in Europe is estimated at around 170,000, the China Daily reports. Huawei said it has secured 91 commercial 5G contracts worldwide, of which 47 are from European telecoms operators.

Huawei announced a series of new 5G products and strategies through a virtual launch in Barcelona, Spain, expanding its footprint in Europe. Key products announced included the 5G foldable phone Mate Xs featuring its self-developed 5G Kirin 990 chipset, with a starting price from €2,499, a flagship 5G tablet MatePad Pro and two Wi-Fi 6+ enabled connectivity solutions. The company has been building up its proprietary software to replace Google’s Android system in the face of the U.S. ban. The firm unveiled the Huawei AppGallery store during the event in a bid to support its devices shipments in Europe without Google’s software. “The HMS ecosystem, together with its self-developed HarmonyOS, is a critical step for Huawei to boost sales in the European market,” Jiang Junmu, Chief Writer at telecom industry news website c114.com.cn, told the Global Times.

Huawei also vowed to invest a total of USD1 billion and host more than 100 events to attract global software developers to help accelerate its HMS ecosystem. “But building a new ecosystem to replace Google is not easy – it’s tough and takes much time, and it’s not clear whether its localization efforts in Europe could finally pay off before the U.S. ban takes effect,” Telecom Analyst Xiang Ligang told the Global Times. Huawei’s global shipments grew 16.8% year-on-year in 2019, securing its position as the world’s second-largest handset manufacturer with a total of 240 million phone sales. Shipment of its 5G handsets surpassed 10 million as of January 2020.

Chinese telecom operators and internet companies are ramping up efforts to explore new opportunities for 5G promotion despite the Covid-19 epidemic. China Mobile, Alipay and Ali Health collectively launched the first 5G package to include medical and health benefits, such as unlimited medical consultations with renowned physicians and medical specialists, video consultations, early screening tests for bowel cancer, and routine physical examinations. Users can apply for the China Mobile 5G health package through the Alipay app. The new package is just one example of the country’s recent 5G promotions. In support of epidemic prevention and control, operators have ramped up promotion of telemedicine and teleconferencing. China Mobile and a third-party enterprise have developed a “5G cloud epidemic-resistant robot” that works in hospitals for 24 hours a day and can replace medical staff to perform a number of tasks including disinfection and drug delivery. The efforts have further pushed 5G commercialization in 2020, which is known as the year of 5G.

China Mobile had 6.736 million 5G package users by the end of January. Industry Analyst Ma Jihua told the Global Times that the country’s pace of 5G construction is not likely to be severely affected, and that the impact of the epidemic will only be temporary. “Currently, some construction work has been delayed due to the extended holidays and lockdowns of some villages and cities. But after the epidemic is over, operators will definitely strive to complete their whole-year tasks,” Ma said. China Unicom announced that it would complete the construction of 100,000 5G base stations with China Telecom in the first half of the year, and move on to complete 250,000 base stations nationwide in the third quarter. On February 22, China’s Ministry of Industry and Information Technology (MIIT) said that the pace of 5G commercial use should be accelerated, and China will strive to complete its development goals and tasks for the whole year, the Global Times reports.

The U.S. government announced that it would extend by 45 days a temporary license that allows U.S. businesses to buy equipment from and sell to Huawei. It is half the length of previous extensions. This is the fourth extension since May, when Washington put Huawei on its Entity List, which bans the company from buying U.S. components without special permission. But the Trump administration also launched a number of new accusations against the company, including racketeering and conspiracy to steal trade secrets. Analysts said the moves indicate that the U.S. government is intensifying its campaign to stifle Huawei’s business. The Chinese company has been accused of stealing trade secrets and lying to U.S. federal investigators and having been engaged in a decades long effort to steal intellectual property, giving it an unfair advantage over competitors. The new indictment also alleges that Huawei engaged in covert efforts to ship its goods and services to Iran and North Korea, in violation of U.S., European and UN sanctions. Racketeering, obstruction of justice and money laundering have been added to the criminal case, unsealed in January last year, accusing Huawei of financial fraud due to misrepresentation to HSBC bank of its links to Starcom.

“The indictment paints a damning portrait of an illegitimate organization that lacks any regard for the law,” said U.S. Intelligence Committee Chairman Richard Burr and Vice Chairman Mark Warner in a joint statement. The Senators said the latest indictment is “an important step in combating Huawei’s state-directed and criminal enterprise.” In a statement responding to the new accusations, Huawei said: “This new indictment is part of the Justice Department’s attempt to irrevocably damage Huawei’s reputation and its business for reasons related to competition rather than law enforcement. These new charges are without merit and are based largely on recycled civil disputes from the last 20 years that have been previously settled, litigated and in some cases, rejected by federal judges and juries”. Huawei added that the indictment was “unfounded and unfair”.

Huawei and four of its subsidiaries are accused of stealing intellectual property from six U.S. companies, thereby obtaining IP about robotics, cellular antenna technology and internet router source code, prosecutors said. The new charges came on the same day as new regulations took effect that tighten Washington’s oversight of foreign investment in the U.S. on national security grounds. The new rules give the Committee on Foreign Investment in the United States (CFIUS) broader powers to review and block any transactions in critical infrastructure, technology and personal data that are considered a potential threat to the U.S.

Concerning the license extension, Bai Ming, Senior Research Fellow at the Chinese Academy of International Trade and Economic Cooperation, said Washington’s multiple extensions underline how rural U.S. telecom carriers rely heavily on Huawei equipment for network coverage and how U.S. consumers are hurt more when normal business links are severed for political reasons.

The new accusations are also expected to complicate relations between the U.S. and the UK as a few weeks ago UK Prime Minister Boris Johnson announced that Huawei would be allowed to supply equipment for non-core parts of the UK’s 5G network, although it also designated the Chinese company as a “high-risk vendor”. Huawei’s involvement would also be limited to 35% of equipment supplies to the peripheral networks and exclusion from the core network. The U.S. had urged its allies to totally block Huawei from supplying equipment and U.S. President Donald Trump was reported to be angry at Johnson for not following U.S. advice.

Meanwhile, the Chinese Embassy in Paris urged France to establish “transparent criteria and treat all companies in a similar way”. It warned France against treating Huawei differently from European competitors when it comes to future 5G network equipment contracts. The Chinese Embassy said that a difference in treatment based on the country of origin would be considered “blatant discrimination” and “disguised protectionism.” The statement further warned: “We do not wish to see the development” in China of Finland’s Nokia and Sweden’s Ericsson being “impacted because of discrimination and protectionism” against Huawei by France and other European countries.

Huawei said that it is going to establish manufacturing units to produce 5G equipment in Europe, to further allay security concerns after the EU declined to impose a blanket ban on the use of Huawei’s equipment in its telecom networks. The news was announced in Brussels by Abraham Liu, Huawei’s Chief Representative to the EU Institutions, as the firm celebrated the 20th year of its operations in Europe. “We are looking forward to the next 20 years here. That’s why we have decided we want to set up manufacturing bases in Europe – so that we can truly have 5G for Europe, made in Europe,” said Liu. “Huawei is more committed to Europe than ever before,” he added. “The bases are expected to be used for assembly, and scale will not be big,” Xiang Ligang, a telecoms industry expert who closely follows Huawei, told the Global Times. In fact, the company does not have to build manufacturing bases in Europe as it could domestically produce all 5G-related products and later export to the region, which would be even more efficient and cheaper, Xiang said.

The EU has struggled to find a middle way to balance Huawei’s huge dominance in the 5G sector with security concerns pressed by Washington. A ban on Huawei will now ultimately be up to member states, but the European Commission’s middle road recommendations give cover to European capitals to resist pleas from Washington. Huawei employs over 13,000 staff and runs two regional centers and 23 research centers in 12 EU countries.

U.S. President Donald Trump was reported to be furious at British Prime Minister Boris Johnson for allowing Huawei to deliver equipment to the UK’s non-core peripheral networks, but the office of the PM said the row was “overblown”. However, U.S. Vice President Mike Pence said the Trump administration had made its disappointment at the UK decision “very clear to them”.

Huawei’s plan is anticipated to minimize concerns of many over the so-called security threat, and paves the way for the company’s development in the continent, Telecom Expert Xiang added. The U.S. are working hard to try to come up with an alternative to Huawei. But Xiang said that “the U.S. has to accept the fact that it has already lagged behind in this next-generation technology race, and that all efforts against Huawei will be in vain”.

The Mobile World Congress (MWC) in Barcelona, to be held from February 24 to 27, announced that visitors from Hubei province would not be admitted and all visitors must provide proof that they have not been in China in the past 14 days, and certify that they have not been in contact with an infected person. Several companies, including Amazon, LG and Ericsson, have already pulled out of the event. A reduced delegation from Huawei has traveled to Spain well in advance of the event and put itself into a 14-day quarantine before attending the event, which is expected to attract 109,000 visitors. The GSM Association, which organizes MWC Barcelona, said in a statement that cleaning and disinfecting of the exhibition areas will be stepped up. It will also encourage a “no handshake” policy among the event’s attendees.