According to news reports and press and social media announcements by high-ranking members of US government, the US government has put Huawei on its so-called "Entity List" of the Bureau of Industry and Security (BIS). Our read on this is it similar to what happened with ZTE during C2Q18 last year, a move that severely curtailed ZTE's shipments and revenue until ZTE made concessions and was removed from the list. Many, but not all, Huawei products use technology only available from US suppliers. US-made semiconductors are the most significant Entity List target that Huawei needs to ship its products. Significant US semiconductor suppliers to Huawei include Intel, Xilinx, and Broadcom.
Huawei is such a significant vendor in many of our coverage areas, including Mobile Radio Access Networks (RAN), Ethernet Switching, and Servers, for instance, that we feel it is a good time to point out that 2019 market-level estimates may be at risk. Additionally, since Chinese cloud services players, like Baidu, Alibaba and Tencent cannot delay their capital infrastructure build-outs, alternate suppliers may benefit.
We think it comes as no surprise to Huawei that the US is putting it under pressure. Just over a year ago, we attended the Huawei analyst summit (April 16, 2018) and its then-chairman said in response to the question "Will Huawei find alternate suppliers for data center products, "Today, Intel is the dominant player. Our point of view, we look forward to a more diversified landscape; but we work with Intel mainly now." Additionally, at Huawei's most recent analyst summit (mid-April 2019), the three main keynote speakers, all high-ranking executives of the company spoke about how much progress Huawei has made in developing in-house semiconductors and what its plans are to continue developing more. We do, however, think that despite Huawei's diversification efforts that it still has significant reliance upon key US chip companies.
Huawei hosted 700 analysts and media participants in Shenzhen China last week to attend its annual analyst summit, nick-named HAS2019. The company's high-level message was simple - the company is an innovator and is moving down the stack into semiconductors and is partnering with and funding university projects to develop basic research. This year’s message was different from than the prior-year meeting, but several transformative events have occurred between this meeting and the prior year's, most notably the 2Q18 shipment ban on ZTE, the US / China trade dispute and US efforts to thwart Huawei’s participation in the 5G infrastructure of its allies. Interestingly, during HAS2019, the Apple and Qualcomm announced their chip-supply and patent settlement, Samsung announced its foldable phone (which has been met with criticism), and Ericsson & Swisscom announced that the operator went live with its 5G network. All three of non-Huawei events highlighted the importance of Huawei’s chips and innovation announcements.
The company made announcements in its main keynote presentations on day one about seven different chip projects delivered recently or planned shortly. Chip-level is unusual for what are typically high-level presentations from a keynote-level presentation. These chips (seen in accompanying pictures) are:
The company shared more details about other chips in breakout sessions on the second and third days of the conference, as well. The point we are making, though, is that upper-level management provided significant detail about semiconductor developments at Huawei. Another relevant semiconductor-related point to make is that the company is de-emphasizing its reliance on Intel-based architecture and instead is focusing on devices such as ARM-based processors, as well as GPU, FPGA and NPU semiconductors.
We would be remiss if we did not mention some of the system-level announcements and observations related to 5G that were made at the HAS2019 conference, which include:
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