How is Huawei vulnerable?

I tend not to write about my day job here, but given Huawei is, err, somewhat in the news, and I have not seen a good explainer about how the firm might be vulnerable to a possible US Department of Commerce Denial Order, I thought this short note might be useful.

The DoC issued a Denial Order on ZTE back in April 2018, after DoC found the firm to have broken the commitments it made after having broken US law over dealing with Iran. That effectively banned any US firm selling kit or licensing IP to ZTE - and that basically shut the Shenzhen-based firm down. If Huawei went down similarly (and who knows how to handicap that probability), then here are some of US-firm technologies that would be not be available anymore, across Huawei’s three main businesses; smartphones, network equipment and servers.

While Huawei is indeed a better-run, way-larger, tech-savvier, patent-heavier, more international firm than ZTE, I don’t think its true to say its any less vulnerable to a denial order than ZTE. Its business is wider-ranging and operates more at the tech-frontier, meaning its just, if not more, reliant on US components and IP for some core parts of its business. Often so much IP is shared and embedded in systems that unless you made it yourself and have a good lawyer, its incredibly hard to know if any US firm IP is involved in the kit in hand. And often missing one small critical piece of IP makes your whole product defective.

This brief note likely misses some stuff, but it should cover the basics.

Smartphones Huawei’s Kirin 980 mobile SoC is indeed impressive, on a par with Qualcomm’s Snapdragon and Apple’s own A12 SoC. Here’s a quick review. Joy Ma at the Paulson Institute has written a great mini-history of Qualcomm and China here. Huawei licenses the core CPU design IP from ARM (the UK-based firm owned by Japan’s Softbank), and (I think) buys in the memory component (LPDDR4X) from Micron. The wireless and GPU components appear to be Huawei’s own.

Despite its leadership in China’s smartphone space, Huawei does not have its own reliable Radio Frequency (RF) chipset, the (mostly-still) analogue kit that extracts, filters, amplifies and translates electrical signals into the radiowaves that communicate with the network (and vice versa). Its a critical bit of the phone. American firms Qorvo and Skyworks make RF modules as discretes, and are big suppliers to Huawei (and so does Mediatek, from Taiwan, but I’m not clear on whether there is US-owned IP in those). Qualcomm has also become a lot more competitive in the RF front-end space in recent years (see here.

A lot of the IP in 4G LTE networks is owned by Qualcomm, so Huawei pays out mucho cash each year to them for the IP embedded in their phones, though increasingly (and especially with in-coming 5G), Huawei is more independent, and able to ‘swap’ IP with its big American brother. But any denial order would eliminate that IP access - and be a huge problem for Qualcomm too. Now Huawei has its own 5G 7nm chipset (which it won’t be selling to other China smartphone vendors), it is even more independent of Qualcomm.

Networks Huawei is a world-leader in telco equipment - and in contrast to say, Ericsson, provides a one-stop shop. So while its not as price competitive as it once was, many telco operators, particularly in developing countries, prefer to just pay Huawei to provide and install everything, the fibre-optic cable, the base stations, etc. More developed market operators are generally happier to shop around and integrate the kit themselves. (And, of course, in recent months, apparent security concerns around Huawei are pushing more operators down the later route.) A lot of this kit is made for Huawei by Flex (formerly Flextronics).

But Huawei currently lacks at least three varieties of chipset for its fibre optic solutions - so it has to buy these components in. It lacks high-end switch chipsets (which tell the signal which route to use over the network), though it already has its own in-house low-frequency versions. Second, it lacks the laser diode chips which encode/send the signal. Broadcom makes a bunch of these two types of chip. And, third, Huawei also needs to buy in the chips which sit in the box at the end of the fibre to clean up and and amplify the signal. Here Inphi is a world-leader in so-called data interconnects here.

Servers Huawei also builds servers in China (for government clients, and for enterprise), which require CPUs, memory (DRAM & NAND) as well as GPUs etc. A quick look down Huawei’s US suppliers list reveals Intel (CPUs), Micron (memory, mostly DRAM), Seagate (SSDs), etc., all of which are needed when building server centers.

Of course, the reason Huawei is where it is today is partly because of its massive R&D spend and aggressive culture of learning from its competitors (including, for instance, Cisco). One can rest assures that HiSilicon, Huawei’s in-house silicon design house, the best in China, is working 996 x n to design its own versions of these critical chips. But this stuff is hard - and the pioneers have battalions of lawyers whose life’s mission was to file IP patents that made re-creation impossible. And while Huawei have proven wins with digital, analog chips (like RF modules) are very different, and even trickier.