This Is How Huawei Shocked America With a Smartphone

This, at first glance, is just a

smartphone

. But once you know what's inside, it becomes clear that it's much more than that. What really changed everyone's view of

this

device was its core, the microprocessor designed and manufactured in China. It is at the center of tensions between the world's two largest economies. The phone, made by Chinese tech giant Huawei, represents a major breakthrough for Beijing as it seeks to escape Washington's controls on its access to technology and establish a self-sufficient chip industry. If those American controls had been successful, then a

smartphone

as advanced as

this

simply should not be possible without importing key components.

China is now more capable than ever of developing advanced technologies. And it worried U.S. officials, who are more concerned about the use of advanced chips in military equipment than smartphones. He left them wondering how exactly China did it. US Commerce Secretary Gina Raimondo's visit to Beijing in late August was supposed to defuse a standoff that has pitted China and the United States against each other on many issues, from geopolitics to trade. Her department has spent the last few years making it difficult for China to buy or manufacture the advanced semiconductors needed to power the next technological revolutions.

American hawks say this is about restricting China's military capabilities. The Chinese side says it has more to do with restricting the nation's economic growth. There is no room for negotiation when it comes to protecting Americans' national security. Her visit was quickly overshadowed by this. The Mate 60 is made to compete with Apple's iPhone. But unlike the iPhone, the Mate 60 didn't have a flashy launch event. Instead, it was quietly released for sale online. Even so, it managed to sell out in a matter of hours. What made it seem like the moment for that device was that Beijing was trying to send a meaningful signal to the US to say, “Hey, look, you've taken all these measures, you've tried to stop us, but here we are, this is what we can do.” My colleagues in Asia commissioned what is called a dismantling.

You literally take the phone apart and then point a microscope and other pieces of technology at the inside of the phone. During the process, we discovered that the new smartphone. from Huawei runs on a self-designed chip made by SMIC. SMIC is China's largest chipmaker, a contract manufacturer that makes semiconductors designed by other companies like Huawei. And this shows that the two companies are making some progress in their. semiconductor capabilities. The chip industry distinguishes chips by referring to them in nanometers or billionths of a meter. That's about half the diameter of a DNA double helix. Basically, the smaller a transistor, the better the capabilities of a chip.

If you're looking at Samsung's latest Galaxy or, obviously, Apple's iPhone, these devices will be based on chips using three-nanometer technology. US export controls were aimed at keeping China's technological capabilities 8 to 10 years behind those of the United States. But the Kirin 9000s chip found in the Mate 60 Pro showed that it may only be four or five years behind the world's most advanced technology. This chip was made at a seven-nanometer production rate and that's much closer to where the state-of-the-art industry is than the United States expected. So how did Huawei and SMIC achieve this? In recent years, most of the world's most advanced chips come from here, Taiwan.

And there is only one company that makes most of them. TSMC. In the past, Huawei's unit HiSilicon was able to design chips that it delegated to TSMC to manufacture and import. American sanctions prevented this. China seems to be able to find alternatives when there is a lack of available Western technologies. The most important equipment for making the most advanced chips is what is known as extreme ultraviolet lithography or EUV machine. They took decades to develop and each cost more than $100 million. They are capable of etching patterns on chips of up to three nanometers. Only one company in the world manufactures them, the Dutch company ASML.

ASML has not been allowed to export its EUV machines to China. Never. You've been allowed to export something called DUV, a different type of technology, an older type of technology. It was thought that by basically limiting them to that type of technology they would never go beyond a certain stage. What we have found, and this chip seems to indicate, is that they were actually able to squeeze the capabilities of this DUV machinery to get much more advanced lines in those pieces of silicon than the United States expected. Bloomberg reports found that SMIC actually used some of these older DUV machines from ASML.

But the key question is whether you can produce the component at scale and with enough efficiency to make it profitable. In fact, the reason the phones went out of stock may have had more to do with supply, a lack of chips, than demand. It also means that it may be more difficult to move to the next stage, below seven nanometers. Obviously, I don't know what the right word is, I got angry when I saw Huawei's ad. The only good news, if there is any, is that we have no evidence that they can make seven nanometers at scale.

On what is called the China hawk side of the equation, this is the last chance the United States has to deny China access to advanced technology. Some Republican lawmakers are now calling on the Biden administration to completely isolate Huawei and SMIC from American technologies. In the short term, there is likely to be a degradation of their capabilities. But if you look at this from a long-term perspective, you've given them all the incentive in the world to go out and do it themselves. China remains the largest consumer of semiconductors, and if companies like Intel and Nvidia lose this important market, that means they could generate significantly less revenue and hurt their ability to continue innovating and keep the United States ahead of China.

It has been widely reported that Chinese spending plans on semiconductors exceed $100 billion. That's three or four times the annual spending of a major chipmaker like TSMC. Given that kind of capital, given that kind of patience, there is a chance that over time they will reach advanced capabilities.