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Huawei crackdown

Huawei's base station teardown shows dependence on US-made parts

American products account for nearly 30% of the Chinese group's baseband unit

TSMC chips are at the heart of a key component, known as the baseband, of Huawei's 5G base stations.

TOKYO -- Huawei Technologies still remains heavily dependent on U.S.-made chips and components for manufacturing equipment for 5G telecom base stations, a leading revenue source for the Chinese tech giant, while being battered by the fierce fight between America and China over who controls the technologies of the future.

A breakdown by Nikkei of Huawei's core base station unit for fifth generation wireless networks has revealed that parts from U.S. suppliers make up nearly 30% of the product in value terms. The dissection has also shown that the main semiconductor device in the unit was supplied by a Taiwanese contract manufacturer.

The findings indicate that Huawei is struggling to wean itself from dependence on overseas suppliers but currently needs to make do with stockpiled inventories.

A code, "Hi1382 TAIWAN," is printed on a key semiconductor device embedded on the circuit board of Huawei's baseband unit for 5G networks. Hi represents HiSilicon, a chip design subsidiary of the Chinese company. The code as a whole indicates that production of the central processing unit for the equipment, developed by HiSilicon, has been outsourced to Taiwan Semiconductor Manufacturing Co. (TSMC), the world's biggest contract chipmaker and also a key Apple supplier.

Washington's third wave of Huawei restrictions went into effect after midnight on Sept. 14. Now, all supplies to Huawei using nonlicensed U.S. technologies are banned. TSMC told investors in July that it will suspend shipments to Huawei after the deadline, while China's Semiconductor International Manufacturing Co., the country's leading contract chipmaker, said on Tuesday it "has already submitted export license applications covering several Huawei products" and is committed to compliance with all applicable U.S. export regulations.

Meanwhile, MediaTek, the world's second-largest mobile chipmaker after Qualcomm, also confirmed that it has applied for a license to resume some business with Huawei. It is not clear whether Washington will approve the request.

The Huawei baseband unit we have taken apart is 48 cm by 9 cm by 34 cm in size and weighs about 10 kg. A baseband unit is usually placed on the roof of a building and processes voice signals for transmission to and from mobile phones and also processes and encodes radio signals for mobile communication.

With the help of Fomalhaut Techno Solutions, a teardown lab in Tokyo, we identified the manufacturers of the components and estimated their market prices. We tallied up the total value of the components for each of the countries where they originated and computed the shares of the countries.

The estimated production cost is $1,320, of which Chinese-made components account for 48.2%, higher than the comparative figure for the 5G model of Huawei's top-of-the-line smartphone, the Mate30, which is 41.8%.

But a closer look reveals a different picture. HiSilicon processors constitute a large chunk of the total value of Chinese components. The main processor, manufactured by TSMC, handles such key tasks as cryptography processing. HiSilicon uses U.S. technologies and software in the process of designing and manufacturing its devices. Excluding these parts, which could become unavailable to Huawei due to the new U.S. restrictions, less than 10% of the components have originated in China.

U.S.-made chips and other components account for a large 27.2% of the total cost, while the share of U.S. devices for Huawei's latest 5G smartphone is only 1%, down from 10% for the previous model.

The field-programmable gate array (FPGA) devices used in the equipment, for instance, are supplied by U.S. manufacturers Lattice Semiconductor and Xilinx. FPGAs are semiconductor devices that are based around a matrix of configurable logic blocks and can be reprogrammed to desired application or functionality requirements after manufacturing. In base station equipment, these devices are used to update the internal telecommunication modes for software control.

The semiconductor devices to control power sources, vital for base stations, come from Texas Instruments and ON Semiconductor of the U.S.

Other U.S.-made components include memory components made by Cypress Semiconductor, telecommunication switches by Broadcom and amplifiers by Analog Devices.

Circuits on the board are studded with many Texas Instruments electronic parts. "While the key parts have been supplied by Chinese makers, they account for less than 1% in terms of the number of items," says an executive at Fomalhaut. The equipment is still "heavily dependent on U.S.-made parts."

After the U.S.-made components, parts made in South Korea have the second largest share. Memory chips are supplied by Samsung Electronics.

Japanese-made components do not feature prominently, with TDK, Seiko Epson and Nichicon being about the only Japanese suppliers detected.

Huawei has built on the foothold it gained in the global market for 3G and 4G network technologies to grow into the world's leading supplier of equipment for telecommunications infrastructure. The company has gained a nearly 30% share in the global market for equipment for mobile base stations, overtaking Finland's Nokia and Sweden's Ericsson.

Huawei has leveraged its cost competitiveness to beat rivals by offering products priced 40% lower than its competitors. In addition to China, the company has established a solid presence in Africa and other areas.

The U.S. sanctions are likely to deliver a devastating blow to Huawei's base station business as well as its smartphone operations. One Huawei supplier says the company has been purchasing massive amounts of parts since the spring but has presented no plan for production from Sept. 15 onward.

Huawei has been stockpiling inventories and key parts from U.S. and other suppliers for both its base station and smartphone businesses since its Chief Financial Officer Meng Wanzhou, daughter of Huawei founder Ren Zhengfei, was arrested in Canada in late 2018, the Nikkei Asian Review reported earlier. To secure some of its most important supplies, Huawei has built up chip inventories for its vital telecom equipment business, while also securing up to a two-year reserve for critical U.S. chips, such as server CPUs from Intel and programmable FPGA chips from Xilinx.

The expected decline in the availability of Huawei's products in the market would provide tail winds for its competitors. But any fall in the Chinese group's dominance could also affect the plans of many countries to develop 5G networks, by making its low-priced devices hard to obtain.

Some Japanese companies, meanwhile, are trying to reduce their business relationship with Huawei, with others looking to exploit the market vacuum.

Mobile carrier SoftBank, which has used Huawei products to develop networks at lower costs, will not use the Chinese company's equipment for base stations it is now building. Rakuten plans to use base stations from NEC, U.S. partner Altiostar Networks and other suppliers.

NEC, a big Japanese telecommunications equipment maker that has been regarded as globally uncompetitive, is also looking to expand sales of base stations, particularly in Japan, through an alliance with Nippon Telegraph & Telephone.

Additional reporting by Cheng Ting-Fang and Lauly Li in Taipei.

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