D2D China: What has Huawei become?
Huawei has engaged a PR blitz announcing its return, but what is it returning to.
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Semis and Deep Tech
Earlier this year, handset maker Oppo made big news by shutting down its internal chip division. They are reversing that decision. A few years ago, it was fashionable to hold up Chinese companies’ management style as a model for others to emulate, and many Valley start-up CEOs talked about permanent disruption to their own org charts. We do not know if that works for Internet companies, but it does not work for semis companies.
This is a handy (if hard to read) list of the portfolio companies in China’s first two Big IC funds. There are a lot of manufacturing names on here.
Qualcomm announced deals with Baidu for AR/VR/XR and Tencent for streaming music. Interesting timing, as the company has been in the Chinese press a lot recently for rumors that it is drastically shrinking its workforce in China. Like many other US companies, they are struggling to reduce the reliance of their operations on China while at the same time maintaining their revenue potential there.
Stewart Randall on Huawei’s Kirin 9000s chip. He is not surprised but also cautions not to read too much into it.
A senior team from Arm China has moved to a new start-up. Couple this with former Arm China CEO Allen Wu’s new start-up building RISC V processors, and we have an intriguing spin-off from the Arm China soap opera of the past few years.
AI software start-up Kunlun Technology lead a $93 million acquisition for a controlling stake of AI semis start-up Aijie Kejie. Worth noting that a big player in this deal is the Chinese Academy of Sciences a government entity which is part Think Tank, part regulator. Also worth noting for the valuation on the deal for a company that as far as we can tell has no revenues.
Chinese consumer electronics companies like Hai’er, TCL and HiSense are all reportedly jumping into the field of roll-your-own semis. Our sense is that these deals do not make sense on purely commercial terms, but they likely enjoy easy access to capital, which shifts the calculation.
After the first round of sanctions hit Huawei in 2019, the company spun off its mid-range smartphone line Honor into a totally independent company with no connection to Huawei at all, nothing to see here. Honor recently made a massive investment in its internal chip design team. We have so many questions.
With the global surge in semis investment many people are starting to worry that there is insufficient engineering talent to meet demand. This analyst claims that China has recently moved into surplus semis engineering capacity. If true, we will likely see China export one more surplus to the rest of the world. Also, it is hard to judge the quality of all this new talent coming on stream now.
A good profile of Chinese AI semis leader Cambricon. The company continues to burn immense amounts of cash, but retains access to ample capital. Most interesting is the focus on the current sources of the company’s revenue - a lot of government-backed “smart cities” and compute cluster initiatives, as well as several research institutions’ HPC projects. Also, again note the heavy influence of the Chinese Academy of Sciences, which plays a big role in allocating design wins among the many government-backed compute initiatives.
An overview of China’s FPGA market. The first half is a basic FPGA primer, but the second half dives into domestic PRC vendors. They are steadily working their way up the value chain and will likely emerge as competitive to the global players in the not-too-distant future.
China’s Premier, Li Qiang, visited Tasson, a maker of WFE equipment. These kinds of publicized visits are an important signal the government sends to show favored companies and sectors. Background on Tasson.
There is a lot of news about Huawei lately and so we are going to try pulling this into a separate section to see if we can tease some sense out of the many conflicting accounts of what is going on there. One theme that emerges is that the company has launched a publicity offensive, with multiple executives giving public speeches or interviews to the press in recent weeks. They clearly see the success of their Kirin 9000 chip and re-entry into the 5G handset market as a turning point for the company’s ambitions and want everyone to know that they are not hiding.
Huawei founder, and likely still the leader of the company, Ren Zhongfei, gave a lengthy interview touching on many topics. He extols the progress of Huawei of course, and waves the flag for China’s advancement. He also talks his own book calling for free Internet access for rural China (wonder who will build out that network…). And like any billionaire he has a lot of big picture ideas. Most surprising is the degree to which he is very realistic (some would say critical) of China’s current position. He calls for better education, including in English and laments China’s lack of progress on many fronts.
Their current chairman, Xu Jizhun, gave a speech recently where he called for the creation of a new ecosystem for all of compute. Their motivation for doing so should be lost on no one, but it is worth noting that they have made similar proposals in the past. Notably, a few years ago they proposed a new architecture for the Internet, which essentially gave nation states much stronger control of networks. There are a lot of reasons why neither of those are likely to ever see wide adoption, and we see this instead as an indication of the kinds of things Huawei is working on.
Outgoing rotating Huawei chairman Meng Wangzhou, daughter of found Ren Zhengfei and long-term guest of the Canadian government, gave a speech extolling a vision of an “Intelligent Future” with lots of commentary about AI.
Huawei and Xiaomi announce an IP cross-licensing agreement. Huawei has gotten very aggressive in recent years with its IP portfolio. Don’t hate the player, hate the game.
An examination of Huawei’s supply chain, but from an investment perspective. Ways to invest in companies poised to benefit from Huawei’s return.
CSIS provides a good analysis of what Huawei’s Kirin 9000s means for US policy goals. Super-summary: some good, some bad, room for improvement, but not a complete failure.
Automotive, Industrial and Macro-Economics
Foxconn is reportedly doubling the size of its plans for manufacturing in India. Reuters implies this is for Apple, and is one more clue in Apple’s planning for diversifying away from its heavy reliance on China.
An overview (in Chinese) of PRC electronics/semis distributors. These companies’ results all reflect the difficulties of the semis market today, especially in consumer products. But it is worth noting how big these companies have gotten and how important they are now to the supply chain.
Chinese wind turbine maker has moved its supply chain fully on shore, with no reliance on foreign parts. China has a big lead in this market, so it is not surprising, but is likely a sign of more re-shoring there.
And a broad look at reforms and improvements to China’s energy market, which often looks much more sensible than whatever it is the US is doing.
For Paid Subscribers below we take a look at what people in China are saying about Huawei.