Huawei’s new phone ratchets up rivalry with US and Apple

The iPhone has become a status symbol among the youth in China. That has been a driving force behind the sales growth of Apple’s smartphone in the country.

Huawei’s new flagship phone seemed to be the homemade answer to Beijing’s growing concerns over this trend. But longer term, taking on Apple will come at a steep cost.

The latest figures are encouraging for Huawei. The Chinese tech group’s net profit for the September quarter, which included early sales of its flagship Mate 60 Pro smartphone series, more than doubled. The phones, priced at about $1,200, have become a sellout success in China, with sales reaching 1.6mn units in the first six weeks of its launch in late August.  

Huawei’s local market share increase of 4 percentage points to 13 per cent in the third quarter is a feat in the country’s hypercompetitive smartphone market. A 37 per cent increase in phone sales for Huawei, whose smartphone business had been written off as doomed since it was battered by US sanctions in 2019, is a victory for Beijing as well.

Official concerns about the iPhone’s increasing dominance in China are on the rise. Beijing has expanded a ban on iPhone use in some agencies and state-owned enterprises. Central government bodies have long recommended employees use locally made devices. 

But young Apple fans and the lack of local smartphone models in the premium segment made it difficult to prevent the iPhone’s rise to its position as the second-largest market share holder in China, despite being pricier than its local counterparts. In the second quarter, China was the largest market for iPhones, according to research group TechInsights.

The biggest challenge for Chinese smartphone makers wanting to become a serious contender in the global high-end phone market is stable access to advanced chips — which are in increasingly short supply because of US export bans. Even before US export controls went into effect last year, Taiwan’s TSMC had stopped producing advanced 7nm chips for Huawei in 2020 in response to US sanctions. 

What differentiates Huawei’s Mate 60 Pro models from local peers is that it is equipped with advanced 7nm chips that use homemade designs and manufacturing. That suggests a breakthrough in China’s semiconductor industry, producing advanced chips using existing older machines.  

The latest chip industry trends are now stacked in Huawei’s favour. Growing demand for higher computing speeds from the artificial intelligence sector amid a global shortage of advanced chips has led to the rapid development of new chip packaging technologies. This allows chips to be stacked three-dimensionally in a high-density package offering higher performance while using existing chips.

In the present environment though, such breakthroughs come with a cost: tighter US sanctions. Relatively few chips are used for military applications — which is the area of most concern for Washington. Just 2 per cent of the global supply is for government use, compared with almost three-quarters for communication and consumer devices. Having enough advanced chips for millions of smartphones would imply there is more than enough for government needs. 

This month, the US Commerce Department unexpectedly tightened existing export curbs, further restricting China’s access to critical chip technologies. That would explain why Huawei, which is also China’s top chip designer, has been uncharacteristically low-key about recent achievements, vigorously denying rumours of a breakthrough in chip packaging technology earlier this year.

The latest iPhones use the most cutting-edge 3nm chips. To keep up, Huawei will have to continue to use its latest technologies in its new smartphone models. On the flipside, because smartphones are consumer devices, anyone can buy one. A breakdown analysis of its parts quickly exposes the technology being used, showing the US exactly how far China has come in terms of technological advances.

Huawei is caught in a bind. It is finally seeing signs of recovery for what was once its most lucrative business, which brought in $48bn in annual sales before US sanctions hit. But each new model launch now carries a political cost if it introduces new chip technology. It must carefully weigh its ambitions to take on the iPhone against the risk of setbacks to chip development from further US action.

june.yoon@ft.com