Huawei Shrugs off US Trade Restrictions, But Are Their AI Chips Commercially Viable?

Key Takeaways

• Huawei is on course to deliver its latest AI chip in the first quarter of 2025.
• However, U.S. trade restrictions mean the company has to make do with older manufacturing equipment.
• The low yields delivered by old equipment threaten the commercial viability of Huawei’s chips.

Throughout 2024, the U.S. has imposed a string of trade restrictions on Huawei, curbing its ability to procure chips and chipmaking equipment.

Despite American sanctions, the Chinese firm is on track to deliver its latest AI chip—the Ascend 910C—in the first quarter of 2025, Reuters reported on Thursday, Nov. 21.

However, without the most advanced lithography equipment used by Samsung and the Taiwan Semiconductor Manufacturing Company (TSMC), Huawei will struggle to manufacture commercially viable chips.

Huawei Stuck With Old Manufacturing Technology

Essentially cut off from the world’s leading semiconductor fabs in Taiwan and South Korea, Huawei must rely on the Chinese Semiconductor Manufacturing International Corporation (SMIC) to produce its chips.

That’s fine when it comes to components made using the seven-nanometer process or larger, but for anything smaller, SMIC is a poor substitute for Samsung or TSMC.

While the most cutting-edge semiconductor manufacturing processes use Extreme Ultraviolet (EUV) lithography, American sanctions have prevented Chinese firms from getting their hands on the necessary equipment, which is sold by the Dutch company ASML.

Nevertheless, reports suggest SMIC has developed a new technique that lets it manufacture five-nanometer chips using older Deep Ultraviolet (DUV) technology. However, the novel technique seems to suffer from low yields, limiting its commercial viability.

Catering to Domestic Demand

Ultimately, Huawei’s latest AI chip doesn’t have to compete with rival platforms from Nvidia and other American firms, which are already prohibited from shipping their most advanced devices to China.

Instead, the Ascend 910C is aimed at plugging the gap in the domestic market created by U.S. sanctions.

What’s more, even if Huawei makes a loss on each unit, the new chip represents an important strategic victory for the long-term goal of building a self-sufficient Chinese semiconductor supply chain.

Building Semiconductor Self-Sufficiency

China faces significant challenges in making GPUs like Nvidia or lithography equipment like ASML.

Nevertheless, if it can get even halfway there while burdened by Western trade restrictions, it will help the country’s AI industry remain competitive.

Historically, China has always been at least a step behind the bleeding edge of American innovation. That being said, its greatest strength is in mass production. And once they do master a new manufacturing technology, Chinese firms have a strong track record of doing it cheaper than anyone else.

If Huawei/SMIC can resolve the yield problem, future AI chips could find a market outside of China. And with some customers waiting over a year for Nvidia deliveries, mid-range models at a lower price point offer a compelling alternative to meet the high demand.