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The
move towards Shanghai-based Semiconductor Manufacturing
International Corp (SMIC) comes as Washington readies new rules
which would require foreign companies using U.S. chipmaking
equipment to obtain a license before supplying chips to Huawei -
rules that would directly affect TSMC.
It also highlights how U.S. restrictions against Huawei can act
as an impetus for Chinese companies to accelerate the
development of homegrown technology.
The U.S. government alleges Huawei, the world's biggest maker of
telecom network equipment and a major smartphone manufacturer,
is a national security risk as its equipment could be used by
Beijing to spy, and has barred U.S. firms from selling to the
Chinese firm without a licence. Huawei has repeatedly denied its
products pose a security threat.
Huawei's chip unit, HiSilicon, began to direct some of its
engineers towards designing for SMIC rather than TSMC in late
2019, said one of the sources, who was not authorised to speak
to the media and declined to be identified.
"Before, Huawei wanted to work with top notch manufacturers, and
SMIC was just second-tier," the person said. "We are now moving
resources to SMIC to speed up our help to them."
A Huawei spokesman called the shift "common industry practice"
in a statement to Reuters. "Huawei considers carefully issues
such as capacity, technology and delivery when choosing
semiconductor fabrication plants," it said.
TSMC, the world's top contract manufacturer of semiconductors,
said it does not comment on individual customers. SMIC declined
to comment.
It was not immediately clear how much more production is being
outsourced to SMIC. Huawei has also said it would look at South
Korean firms, other Taiwanese and mainland Chinese firms as
alternative sources for chips.
KNOW-HOW GAP
While SMIC is seen as the strongest mainland China alternative
to TSMC, it remains well behind TSMC in its technological
expertise and U.S. authorities have already taken measures to
prevent it from acquiring the most advanced chip-making
equipment.
TSMC does not reveal how much revenue each customer provides but
analysts estimate that by late 2019 Huawei accounted for 13% to
15% of TSMC's sales. Chip production that could be shifted to
SMIC likely only accounts for 1 to 3 percentage points of that,
they said.
"Right now, there's a still sizeable gap between TSMC and SMIC
in terms of skills, stability, and reliability," said Gu Wenjun,
senior analyst at Shanghai-based consultancy ICWise.
TSMC, for example, is currently perfecting its 5 nanometre
process node technology. SMIC recently introduced 14nm
technology in late 2019, which TSMC rolled out officially years
earlier.
Experts say HiSilicon's latest Kirin processors, used
exclusively in Huawei mobile phones, can only be made by TSMC at
the moment, although they add that earlier Kirin processors
could be outsourced to SMIC.
Other chips produced by HiSilicon, such as those for so-called
IOT devices, power management, or set-top boxes, could be sent
to SMIC, they said.
Gaining more business from Huawei would also help SMIC improve
its processes as Huawei would be able to pass on valuable
knowledge gained in working with TSMC, the analysts added.
(Reporting by Josh Horwitz; Additional reporting by Stephen
Nellis; Editing by Jonathan Weber and Edwina Gibbs)
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