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Huawei crackdown

Huawei's chipmaking ambitions at risk after Arm cuts ties

Move by key UK chip designer chokes off crucial intellectual property rights

Arm's chip designs form a crucial part of the global mobile device supply chain. (Photo courtesy of Arm)

TAIPEI -- The decision by U.K.-based chip designer Arm Holdings, which provides intellectual property used in 90% of the world's mobile processors, to suspend business with Huawei Technologies raises a cloud of uncertainty over the Chinese company's long-term aim of becoming a bigger force in semiconductors.

Arm, which is owned by Japan's SoftBank Group, holds chip designs crucial to Huawei's semiconductor program. Arm told the Nikkei Asian Review that it "is complying with all the laws and regulations set forth by the U.S. government."

The BBC reported that Arm had told employees to stop "all active contracts, support entitlements and any pending engagements" with Huawei to comply with recently introduced U.S. export controls on the Chinese company.

The chip designer's move adds to the pressure on Huawei, which just surpassed Apple to become the world's second-largest smartphone maker. It comes as a growing list of non-U.S. wireless carriers and suppliers restrict their business with the Chinese group in the wake of Washington's de facto ban on providing American technology to Huawei.

Though Huawei owns China's top chip designer, HiSilicon Technologies, and designs the high-end Kirin mobile processors for its smartphones, the company still needs Arm's designs to provide the layout of those chips.

Huawei's self-designed server processor, Kunpeng 920 -- unveiled in January as an alternative to Intel processors -- also requires Arm's design infrastructure.

But Huawei appears to have been prepared for Arm's decision, having already secured an advanced deal by signing contracts to obtain a more complete portfolio of the designer's intellectual properties, industry sources familiar with the matter told the Nikkei Asian Review.

Apple and Qualcomm have similarly wide access to Arm's IP portfolio so that they can build more customized chips than others, sources said.

"We don't think it will be an immediate blow to Huawei at this moment, as they have likely secured the source code for their current design and might have also obtained blueprints for their next-generation designs," a chip design industry executive said. "But it would still become a problem for Huawei's future chip design in about one to two years if they could not get Arm's support."

"That also means Huawei needs to pour in a lot of extra engineering efforts, and we don't know how fast Huawei could build such things without any new access to Arm's source codes," the executive said.

Jonah Cheng, chief investment officer at J&J Investment and a former veteran tech analyst at UBS, agreed that the impact on Huawei's "existing products" will be limited, as the Chinese company has bought many of Arm's intellectual properties.

"However, the Chinese companies [including Huawei] will have to be self-reliant to develop the cores of next-generation CPUs [central processor units] going forward," Cheng told the Nikkei Asian Review.

Meanwhile, SoftBank's sale of Arm's China business in April 2018 to a local joint venture 51% owned by Chinese investors, including state-controlled entities, could become a lifeline for Huawei's future chip program, sources said.

The goals of the spun-off unit include helping China secure access to the most critical chip designs as well as surpassing its British parent in sales by 2025, the Nikkei Asian Review first reported last year.

Rene Haas, Arm's executive vice president, told the Nikkei Asian Review in May 2017 that the joint venture would be the first for his company to engage in the transfer of technologies to other entities. Haas added that it would provide access to a market previously closed to Western companies.

But it is unclear how many intellectual properties have already been transferred to the local joint venture since it went into operation, and whether Arm -- which has only a 49% share in the unit -- retains control over the use of those properties and their licensing to Huawei.

The Cambridge-based chip designer, founded in 1990, was acquired by Japan's SoftBank in 2016 a deal worth $32 billion.

Japanese mobile carriers SoftBank Corp. and KDDI, Taiwan's Chunghwa Telecom, British Telecom's EE and Vodafone UK on Wednesday decided to delay or suspend plans to sell new Huawei smartphones following the U.S. blacklisting. Japan's Panasonic will halt supplies of certain components to Huawei.

On Monday, German chipmaker Infineon became the first non-U.S. supplier to confirm it needed to halt American-origin shipments to Huawei to comply with U.S. laws, Nikkei Asian Review reported.

Huawei said that it valued the close relationships with partners, but recognized the pressure some of them are under as a result of politically motivated decisions.

"We are confident this regrettable situation can be resolved, and our priority remains to continue to deliver world-class technology and products to our customers around the world," the company said.

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