And it’s about to get worse, as the implications of those restrictions start to pay a heavy toll in the market. That impact looks like it will hit rapidly, along with an unexpected security issue that could be worse.
Huawei has spent billions in R&D to build a patented ecosystem of innovative tech that it can hone in China & export. Not just phones & 5G, but AI in cars, cloud platforms, smart city programs & smart consumer devices. The US has just ruined billions of Huawei’s investments.
Huawei can’t dig itself out of this one. It doesn't even know where to start. Does it water down its flagships with off-the-shelf silicon from non-US suppliers? Does it adapt to go head-to-head with smaller domestic rivals? How will maintain its 5G network lock?
US’s expansion of sanctions, cutting off access to those custom chips on which it has staked its future is a clever but brutal move, one driving a wedge into Huawei’s psyche. Huawei’s own chip maker, HiSilicon, was at the heart of its defense, “un-Americanize” its supply chain.
But its homemade chips rely on US tech in the design process & the manufacturing houses that actually machine the chips use US tech as well. All that now ends. Now Huawei will be cut off from the chips that drive most of its meaningful products as well as its future strategy.
Huawei can simply go to the market for existing chips that don’t fall foul of the new regs, Samsung maybe, but that instantly puts Huawei into a different bracket and removes the advantage garnered from the billions it has pumped into R&D.
Before last week, Huawei had a grand plan. An Apple-like ecosystem of consumer devices, AI & cloud platforms, even automotive, all stitched together on that common chipset & a cross-platform OS. Can also add surveillance and smart-city automation, and its 5G equipment of course.
Now this strategy is in tatters. Cutting off its silicon supply chain affects all areas of its business, certainly those on which it has staked its future. Millions of hard-won consumers outside China will be lost, turning to Apple and Samsung. This is a devastating blow.
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