Spare no effort to stock up key components and parts Huaweis $700 million emergency order of Jidian

category:Finance
 Spare no effort to stock up key components and parts Huaweis $700 million emergency order of Jidian


According to the latest report of Everbright Securities, Liu Kai and Geng, Huaweis key components are short-term focus, big country game in the medium term and domestic substitution in the long term.

On May 15, 2020, the United States announced to extend the temporary license of Huawei communication industry for another 90 days, but the statement was the last extension. Therefore, Everbright Securities said that it is reasonable to speculate that before August 13, 2020, Huawei still has sufficient time to stock some key components and parts, further improving the inventory level.

Taking TSMC and SMIC as examples, almost all of Huaweis high-end chips are manufactured by TSMC and SMIC on a commission basis, the report said. Considering the impact of the new regulations of the United States, Huawei may actively pull goods from representative factories such as TSMC and SMIC within 120 days, thus affecting the production planning and progress of upstream supply chain manufacturers such as TSMC and SMIC.

The following is an excerpt from Everbright Securities report:

1. The United States picks Huawei again

On May 15, 2020, the U.S. Department of Commerce published two consecutive messages on its official website:

First, it announced the renewal of Huaweis temporary general license for the communications industry for another 90 days, but the announcement was the last extension. The 90 day extension provides an opportunity for users of Huawei equipment and telecom operators, especially those in rural areas of the United States, to continue to use Huawei equipment and accelerate the switch to other suppliers.

(i) Huawei and its affiliates on the entity list (for example, Hisilicon semiconductor) use the software and technology on the U.S. Commerce control list to produce products such as semiconductor design.

(II) chipsets produced outside the United States using semiconductor manufacturing equipment on the CCL list, in accordance with the design specifications of Huawei or its affiliates on the entity list (for example, Hisilicon semiconductor).

The above category of foreign products are re exported (re exports are re export trade, such as export from Taiwan to Hongkong, and then exported to mainland China). Licenses are required for HUAWEI or any affiliated company from China or abroad.

1.2. Event review: Huaweis adverse development under US pressure

On May 15, 2019, trump signed an administrative order to require the United States to enter a state of emergency. Under this state of emergency, U.S. enterprises shall not use telecommunication equipment produced by enterprises that pose risks to national security. The U.S. Department of Commerce included Huawei in the entity list on the basis of national security.

On May 20, 2019, the official website of the U.S. Department of Commerce issued a 90 day temporary license to Huawei and its partners. The arrangement is to give relevant departments and companies time to make adjustments, the release said.

Since then, the United States announced to extend Huaweis temporary license in August, November, February, March and may of 2019, respectively.

2. Short term spare tire stock, supply chain rhythm or disruption

Start the spare wheel plan and accelerate the replacement of domestic products. After the US ban, Huawei Hisilicon launched the spare tire plan, and accelerated the introduction of domestic suppliers to achieve domestic substitution. According to the dismantling analysis of Huawei mate 30 by Fomalhaut technosolutions, a Japanese professional investigation company, the usage rate of Chinese parts has increased from about 25% to about 42% in terms of amount since the US ban. At the same time, American parts dropped from about 11% to about 1%.

Actively prepare goods and improve inventory level. After the U.S. ban in 2019, within the time limit of temporary licensing, Huawei actively prepared for some key components that need to be imported from the U.S. and improved the inventory level. On May 15, 2020, the United States announced to extend the temporary license of Huawei communication industry for another 90 days, but the statement was the last extension. Therefore, it is reasonable to speculate that before August 13, 2020, Huawei still has enough time to stock up some key components and parts to further improve the inventory level.

2.2 supply chain rhythm or disruption

On May 15, 2020, the U.S. amended the export control regulations (ear) to restrict Huaweis upgrading, from EDA software, semiconductor equipment to wafer foundry. The U.S. chose to block the supply of global semiconductor suppliers to China in a drastic way, but gave a buffer period of 120 days.

3. The game between big powers in the medium term is inseparable under Globalization

3.1. Reverse the list of unreliable entities

Global Times pointed out that if the United States further sticks its neck on Huawei and prevents TSMC and other companies from supplying chips to China, the Chinese side may give a strong counterattack, including including including including relevant American companies in the list of unreliable entities, restricting or investigating American companies such as Qualcomm, Cisco and apple in accordance with laws and regulations, suspending the purchase of Boeing aircraft, etc.

Zhi Lushun, director of the security and Control Bureau of the Ministry of Commerce, further explained this on June 1, 2019. The Chinese government will take four factors into consideration when deciding whether to include an entity in the list of unreliable entities:

Second, whether the entity acts against the market rules and the spirit of contract based on non-commercial purposes;

Fourth, whether the acts of the entity pose a threat or potential threat to national security.

In the electronic industry, especially in the semiconductor industry, the global division of labor is very significant. China is the worlds largest chip consumer, Chinas huge consumer market, so that foreign semiconductor, technology companies rush. According to Bloomberg statistics, 71% of its annual revenue depends on the Chinese market, while chip giants Qualcomm and Broadcom account for more than 50% of their annual revenue in China.

4. Looking at domestic substitution for a long time, fully independent and controllable

In the Research Report the short-term impact of Huawei ban in the United States is controllable and it is expected to drive the rise of Chinas science and technology industry in the long term released on May 22, 2019, we pointed out that the domestic substitution of Huawei or the science and technology industry chain needs to be divided into three categories for discussion: (1) parts supply chain: high-end chips still have a large degree of external dependence on the United States, so it is necessary to support domestic chip suppliers and improve the localization rate; u2461 Chip industry chain: the chip industry has a high degree of division of labor, and the upstream EDA, IP, OEM and equipment may have an impact, so it is necessary to vigorously support the upstream domestic manufacturers to realize the domestic substitution; u2462 operating system: electronic products are the application ecology with a high degree of software and hardware integration, so it is necessary to vigorously develop the operating system and establish the domestic software application ecology.

4.1. Parts supply chain: support domestic suppliers

Huaweis hardware products mainly include three major products: communication base stations and optical communication equipment (operator business), consumer electronics (consumer market) such as mobile phones, and servers (enterprise business). In addition to the disk storage business that needs to rely on imported hard disks and disk arrays from Seagate, western data and other companies, there are domestic substitutes for the imported parts of other product lines, but the performance of most domestic products cannot meet the requirements of Huaweis existing products for the time being, and a small number of products can only be replaced in the low-end market or in some links. Kirin and solar of Hisilicon Series of NP and Tiangang base station chips have been basically replaced.

The U.S. entity list may also restrict companies from other countries that use U.S. technology, in addition to restricting U.S. companies. Therefore, Huaweis self-developed chip needs to run through the chip manufacturing process, mainly including design, manufacturing and sealing test, etc., while EDA, IP, TSMC and equipment may have a huge impact.

The high-end chips designed by Huawei mainly include Kirin series of SOC chips for mobile phones, Kunpeng series of server chips, shengteng series of artificial intelligence chips, Tiangang and Baron series of baseband chips, etc. Chip design requires EDA (Electronic Design Automation) software and some ready-made intellectual property modules (IP cores).

If EDA can not be updated, it will affect the advanced process design. The global EDA industry is mainly monopolized by three EDA manufacturers: Synopsys, cadence, and mentor graphics, which was acquired by Siemens in 2016. At present, Huada Jiutian, the largest EDA company in China, can only provide about 1 / 3 of the EDA solutions needed by the industry, and cannot realize domestic substitution in a short period of time. EDA manufacturers are authorized to design companies by selling license certificates, and EDA tools are highly related to the chip process, which will be updated and upgraded with the progress of the process. If the EDA manufacturer stops supplying, Huaweis EDA tools can still be used within the validity period of the license, but they cannot be updated and upgraded with the support of the EDA manufacturer. In other words, Huaweis current 7Nm design is not affected, but the 5nm design may be affected in the future.

On May 1, 2020, according to the report of science and technology innovation board daily, Huawei Hisilicon cooperated with Italian French semiconductor to develop EDA design technology. Huawei Hisilicons chip design is subject to the US technical ban, so it bypasses STM joint design. For example, STM uses EDA chip design tools to do the preliminary circuit design, later Hisilicon takes over, and then completes the design through a representative factory.

Arm architecture of IP core needs independent development. Taking Huaweis SOC Kirin chip for mobile phones as an example, it adopts arm architecture, and integrates CPU, GPU, NPU, ISP, DSP, memory and other IP cores. Arm authorization can be divided into use layer authorization, kernel layer authorization, architecture authorization and instruction set authorization. At present, apple, Qualcomm and Samsung are authorized by the instruction set, which can carry out self-developed architecture based on the public version architecture; while Huawei is authorized by the architecture, which has permanent authorization of the latest commercial architecture armv8 architecture. If arm stops service, Huawei can still use armv8 and the previous public version architecture to design and independently develop and improve its own arm architecture.

Xinyuan, a domestic IP manufacturer, has five types of processor IP, more than 1400 mixed digital analog IP and radio frequency IP. Xinyuan has excellent design capabilities in traditional CMOS, advanced FinFET, fd-soi and other global mainstream semiconductor process nodes. In terms of advanced semiconductor process nodes, the company has the successful experience of 14nm / 10nm / 7Nm FinFET and 28nm / 22nm fd-soi process node chips, and has started the design pre research of new generation FinFET and fd-soi process node chips. According to IPnest statistics, the core of Chinas mainland ranked first in 2018, the worlds sixth ranked semiconductor IP authorized service provider.

4.2.2 OEM and equipment are high-performance guarantee and need to be controlled independently

TSMC is a high-performance guarantee, followed by SMIC. The chips designed by Huawei are mainly manufactured by TSMC and SMIC. TSMC has the most advanced manufacturing process. Apple and Qualcomms SOC chips are mainly manufactured by TSMC. Huaweis mobile SOC chip can compete with apple Qualcomm without the support of TSMCs advanced manufacturing process. If TSMC does not provide OEM to Huawei in the future, Huawei chips can only rely on domestic and international manufacturers, and lag behind in the manufacturing process.

The 14 nm process of SMIC has been mass produced at the end of 2019. The 14 nm process of SMIC has been adopted by Qilin 710A, the mid-range chip of Huawei glory play4t. After 14nm, SMIC also has more advanced n + 1 and N + 2 processes, among which n + 1 process has completed the flow sheet in 2019q4, which is currently in the product verification stage of customers, and is expected to produce in 2020q4. Compared with 14nm, the performance of N + 1 process is improved by 20%, power consumption is reduced by 57%, logic area is reduced by 63%, SOC area is reduced by 55%, and the performance and cost of N + 2 process are higher.

The equipment may cut off the lifeline, and the domestic equipment will accelerate its development. Whether TSMC or SMIC, semiconductor devices are needed in the chip process. American semiconductor equipment manufacturers Amat, Lam, KLA and Tera occupy a very high share in many subdivisions. However, at present, there is no way to build a production line composed of domestic equipment in China, so it is difficult to avoid American equipment to produce chips.

4.3 operating system: Huawei builds HMS and Kunpeng ecology

Huawei launched its own HMS service for the world, and launched HMSCore4.0 Services, improve the framework, while granting more rights to developers. In addition, Huawei also launched Huawei search, Huawei maps, Huawei appgallery app store, etc. in order to attract more developers to access Huawei HMS services and upload them to the app Gallery app store.

According to the current official plan of Huawei, Huawei will not only invest up to 3 billion yuan to develop and support the Kunpeng industry ecology, but also invite national enterprises to build the Kunpeng computer industry ecology. As the safest and most reliable software and hardware development platform of Huawei at present, Kunpeng cloud of Huawei not only adopts self-developed Kunpeng processor as the core, but also takes the lead in the development of computing industry system in the era of diversified computing, providing powerful computing support for cloud computing, big data, Internet of things, artificial intelligence, edge computing, etc. it can be said that Kunpeng cloud of Huawei has adopted self-developed Kunpeng processor as its core Kunpeng ecology is an industry wide platform that Huawei is striving to build.

4.3.3 Huawei self developed Hongmeng OS is expected to open all product lines

In March 2019, Yu Chengdong revealed in an interview that Huawei has developed its own operating system and can cover smartphones and PCs. In addition, Ren Zhengfei revealed the news in an interview. Huawei does have a self-developed operating system, but this system is PlanB, which is designed to prevent Huawei from using Google Android or Microsoft Windows in the future. Huaweis self-developed OS is expected to open the product lines of mobile phones, computers, tablets, televisions, automobiles, smart wear, etc., and unify into an operating system.

Its not difficult to develop a new operating system, but its difficult to gather many developers to develop apps for it to form an ecosystem. The tizen operating system developed by Samsung has not been widely recognized in the market, and can only support a small number of applications. Therefore, if Huawei uses the new system, how to build an application ecosystem in the future will be a challenge. For the mobile application ecology, in April 2019, Huawei launched a product called ark compiler, which is known to bring a revolutionary breakthrough to Android system. Ark compiler can help developers realize the rapid migration of android app to China as a tool for independent operating system, making Huaweis independent operating system become the second Android. In terms of communication base station system, because communication equipment does not need complex software ecology, generally all communication equipment manufacturers have the ability to develop based on open source system Linux. Huawei has its own VRP (versatile routing platform), which is a general routing platform operating system platform. Source: Wall Street editor in charge: Yang bin_nf4368

Its not difficult to develop a new operating system, but its difficult to gather many developers to develop apps for it to form an ecosystem. The tizen operating system developed by Samsung has not been widely recognized in the market, and can only support a small number of applications. Therefore, if Huawei uses the new system, how to build an application ecosystem in the future will be a challenge.

In terms of communication base station system, because communication equipment does not need complex software ecology, generally all communication equipment manufacturers have the ability to develop based on open source system Linux. Huawei has its own VRP (versatile routing platform), which is a general routing platform operating system platform.