Dancing in chains: HUAWEI’s comeback to the stage backed up by the Chinese semiconductor industry (Part III)

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As mentioned at the end of Part II, regardless of how policies, capital, and industries align, achieving a business loop and sustained industrial development still requires the stage of the consumer market. End products/services are akin to the acts performed on stage, and whether they can attract the audience to buy tickets and enter is the primary concern both inside and outside the theater.

In this final Part III, we might as well enter into the theater and observe the stage of the terminal market, not from the front seat but from the above. Here, we will see how Huawei managed to work with others to break through the door of the backstage lounge locked with chains, burst out from backstage, squeezed out of the other dancers, and strode into the center of the spotlight.

The world within the palm

Fundamentally, market demand drives industrial development, and the semiconductor industry is no exception. Before the 1970s, devices used for data storage in computers were manually assembled electronic devices known as “magnetic cores,” with limited precision and storage efficiency. To meet the demand for faster and more efficient data storage, Intel invented the first commercial Dynamic Random-Access Memory (DRAM) made from semiconductor materials, which has since become a core component for storing and retrieving data in smart devices.

Another typical example is Nvidia. Amid the successive waves of the Web3 and AI gold rush, Nvidia’s high-performance graphics cards quickly gained popularity, transforming from playthings favored by a small group of hardcore gamers into the most sought-after mining tools of the new era.

In 2007, Steve Jobs unveiled the first iPhone from his pocket, marking the beginning of the era of smartphones. Between 2009 and 2018, the global semiconductor industry’s overall growth rate was three times that of global GDP growth. This growth was driven by the gradual replacement of personal computers (PCs) by smartphones as the primary growth engine of the global semiconductor industry (as shown below).

Source: SEMI

Smartphones, with their user-friendly interfaces and rich functionality, rapidly became the mainstream personal mobile communication and information processing devices. Their versatility and high performance are the result of integrating various integrated circuits (ICs) and other semiconductor components. These components include SoCs, cameras, baseband and radio frequency chips (which determine the quality of communication signals), power ICs, DRAM, NAND (used for data storage and retrieval), various sensors, and even the screen’s backlight, which relies on numerous semiconductor LEDs beneath the glass, controlled by dedicated driver ICs to enable video playback rather than becoming a traffic signal light.

Inside of iPhones. Photo by Bloomberg

Today, this electronic Swiss army knife has become a quintessential and crucial market within the semiconductor industry. It serves as the primary personal mobile communication and computing terminal, connecting the majority of individuals in the information age. In 2022, semiconductor revenue from smartphones accounted for approximately 23% of the industry’s total income, with all other types of personal computing devices collectively comprising 19%.

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In the octagonal cage

In China’s smartphone stage, Huawei is neither the exclusive nor the earliest dancer. Xiaomi’s CEO, Lei Jun, was among the first in China to envision a novel business model similar to the birth of the iPhone. It combined high-end smartphones with an operating system and an application ecosystem. The introduction of Google’s open-source Android system meant that other manufacturers could also leverage this OS and application ecosystem infrastructure to embark on the smartphone business. Lei Jun’s focus was not the 30% “Apple tax” in Apple’s App Store but the high profitability in smartphone hardware itself.

Leveraging online e-commerce channels and internet marketing (Lei Jun likely spent as much time on Weibo then as Elon Musk does on X today), Xiaomi saved on the operational costs of traditional offline distribution channels and marketing expenses. They successfully reduced the prices of high-end smartphones to below 2,000 Chinese yuan, pioneering the “internet smartphone” model. With a deeply optimized MIUI OS, remarkable cost-effectiveness, and a vibrant style, they achieved a leading experience among Android smartphones, quickly becoming popular among the younger generation. Xiaomi launched its first smartphone in 2011, and in less than five years, it became a company valued at billions of US dollars. Moreover, Xiaomi’s success led to the emergence and ascent of similar internet smartphone brands like Meizu, Smartisan, OnePlus, and others.

Xiaomi M1

OPPO and VIVO took a discreet approach to find their own opportunities. Both these brands originated from the BBK Electronics Corporation, a giant in the educational computer business with years of marketing experience and an extensive offline sales channel network. OPPO and VIVO (“OV“) inherited these advantages. The market for internet smartphones initially focused on young consumers in developed first and second-tier cities. However, OV, leveraging their offline distribution channels in third and fourth-tier cities and using traditional media (TV, magazines, offline advertising) to reach consumers in these markets, dominated areas where e-commerce penetration was still relatively low. At their peak, OPPO and VIVO had at least 250,000 offline stores. They have become stars in the smartphone industry since 2015 and remain a significant market appeal to this day.

ZTE and Huawei, both with rich experience in the telecommunications equipment business, didn’t want to miss out on the smartphone trend. They were not only long-time rivals in the telecom industry but had also entered the mobile phone market early on.

ZTE had its moments of glory in the 2G and 3G eras. In 1998, ZTE became one of the first manufacturers to obtain a mobile phone production license. In early 1999, China Telecom, which didn’t have a mobile communications license, entered the 2G market by introducing Japanese PHS (Personal Handy-phone System) technology. PHS allowed terminal devices to wirelessly connect to fixed-line telephone networks. ZTE collaborated with China Telecom to produce PHS phones, known as “Xiaolingtong(小灵通).” Despite limited signal coverage and instability due to technology constraints, Xiaolingtong quickly captured the mobile phone market because of its cheap price and free incoming calls, making call costs significantly lower than other telecom operators. This cooperation earned ZTE billions of Chinese yuan, and at that time, you could buy a house within Beijing’s Second Ring Road for just about 3,000 yuan. In 2002, ZTE achieved a 40% market share in the PHS phone market. By 2003, ZTE’s revenue reached 16.036 billion RMB, with the Xiaolingtong business contributing one-third of that.

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These two successes in the mobile phone business allowed ZTE to navigate through the telecommunication industry’s challenges during the early 2000s and significantly narrow the revenue gap with Huawei, China’s top telecommunications equipment provider. Huawei couldn’t afford to ignore this emerging terminal device business. In 2003, Huawei established a terminal department to develop and produce mobile phones and swiftly gained a 25% market share in the same year.

However, before the 4G era and the advent of the internet smartphone model, ZTE and Huawei primarily focused on telecom operator mobile phone businesses. This entailed manufacturing 3G mobile phones for telecom operators, who then labeled the phones with their brands and sold them through their offline channels, which is called the Original Design Manufacturer (ODM) model. These feature phones had limited technical complexity and began to decline in significance as smartphones gained prominence. Moreover, this model allowed the telecom operators to earn the majority of the profits due to their sales channel advantage, leaving the manufacturers with a small portion (approximately 5%) and profits were even decreasing. In 2010, Huawei made the internal decision to shift resources away from carrier ODM phones and fully concentrate on the R&D of smartphones under their own brand.

While Huawei possessed hardware expertise and brand reputation from its telecommunications business, its initial few smartphone models didn’t receive a positive response from the market. The first Huawei smartphone, the Ascend P1, ultimately sold fewer than one million units. According to Richard Yu’s recollection, in an internal meeting in 2011, he asked how many people in the audience used Huawei smartphones, and only two people raised their hands, and they were using them as backup devices. After marketing research and reflection, he concluded that Huawei, which had its origins in B2B operations, lacked a deep understanding of C-end users. Consequently, Huawei conducted market research and decided on a “consumer-centric” strategic shift, aiming to learn from both customers and competitors.

Between 2013 and 2014, Huawei faced internal controversy but boldly eliminated 80% of its lower-end phone models, which mainly followed the ODM model. Instead, they shifted their focus entirely to the development and market positioning of mid-to-high-end products:

  • On one hand, Huawei entered the high-terminal market dominated by Apple and Samsung by positioning its Mate series towards business users.
  • On the other hand, in 2011, Huawei introduced an internet smartphone sub-brand called “Honor(荣耀)” to challenge its internet smartphone competitors and compete in the mid-to-low-terminal market. While other internet smartphone brands were being overshadowed by Xiaomi, Xiaomi itself found Honor’s strategy of “shadow imitation” quite vexing. Honor also initiated interactive marketing with users through social media platforms, in simple terms, Honor and Xiaomi’s marketing departments diss each other on Weibo.

In 2014, after two generations of iterations, the Mate 7, introduced in the same year, gained traction and received praise from business users due to its flagship-level specifications, large screen, long battery life, narrow bezels, metal casing design, and secure fingerprint recognition. It achieved sales of 7 million units and firmly established its presence in the high-end smartphone market in the price range of CNY 2,500 to 4,000. In the same year, Honor, which was operating independently by then, released several models, including the Honor 3X and Honor 6. These contributed to an annual sales volume of 20 million units, $2.4 billion in revenue, and $200 million in profits. Even Xiaomi, which was China’s No.1 and the world’s third-largest smartphone manufacturer at its peak during that time, had to acknowledge Honor’s success and impact.

ZTE, on the other hand, fell behind rapidly. Even though they launched the Nubia brand in 2012 to target the Internet smartphone market, they didn’t transition to the To-C sector successfully. Before 2016, 90% of ZTE’s shipments came from carriers, with only a 10% share in the open market channels, and had been always not adequately prepared for entering the consumer market. According to media reports, in 2016, ZTE’s consumer business revenue was 33.449 billion CNY, with a year-on-year growth of 3.02%, but the smartphone sales figures were not disclosed in their financial reports. The IDC report for 2016 global smartphone shipments mentioned, “ZTE’s global smartphone shipments in 2016 decreased by 36.5% compared to 2015.”

In this world’s most complex and largest single market, intense competition hasn’t deterred major players from learning from each other.

  • Xiaomi borrowed a page from its rival’s playbook by creating and separating the Redmi brand to dogfight with Honor in the low-terminal market, allowing Xiaomi’s main brand to focus its efforts on the mid-to-high-end battleground above ¥2000.
  • Both Xiaomi and Huawei also took a leaf out of OPPO and Vivo’s book by strengthening their offline channels in third- and fourth-tier cities. Xiaomi opened its first offline store, “Mi Home,” in 2016, and by 2018, the number of Mi Home stores reached 586. As of December 2018, Huawei had established over 4,000 global offline retail experience stores.
  • Xiaomi recognized the trends in smart hardware and IoT (Internet of Things) in 2013, pioneering the AIoT strategy (AI+IoT) and venturing into the realm of smart home appliances, carving out a new blue ocean for Xiaomi. Starting in 2016, Xiaomi’s IoT and lifestyle consumer goods revenue maintained a growth rate of over 50%. Huawei also drew inspiration from this and utilized its technology and positioning to introduce products such as televisions, routers, and smart speakers, building its own product store.
  • Xiaomi and OPPO also followed Huawei’s path regarding overseas market channel capabilities. Leveraging their cooperation with local carriers in numerous countries over the years, Huawei’s Consumer BG derived 52% of its total revenue from overseas markets in 2014, with 60% of smartphone product income coming from international markets. This formed the foundation for Huawei’s challenge to Samsung and Apple in the global smartphone market. In 2014, Xiaomi began laying the groundwork for overseas markets, starting in India. VIVO and OPPO also embarked on their international expansion into Southeast Asian countries like the Philippines and Thailand.

In addition to marketing strategies, the more crucial aspect is that Xiaomi and OPPO are also learning from Huawei in terms of emphasizing R&D investment and technology accumulation – a widely recognized key to Huawei’s rapid breakthrough in the high-end product market. In 2014, Huawei introduced three flagship models, all of which featured the Kirin chip products developed by Huawei’s IC design subsidiary HiSilicon (海思), known for their low power consumption, high compatibility, and high integration. According to comprehensive media reports on Huawei’s annual report, in 2018, Huawei’s R&D expenditure reached 101.5 billion Chinese Yuan, accounting for 14.1% of its sales revenue, ranking fifth in the European Union’s 2018 industrial R&D investment ranking. Over the period from 2008 to 2018, Huawei invested more than 480 billion Chinese Yuan (approximately 73 billion US dollars) in research and development.

Starting in 2015, OPPO began researching foldable screen technology, and VIVO established a 5G research and development center in 2016, focusing on 5G technology.

During this period, Lei Jun also realized the importance of developing in-house chips. In addition to Huawei’s influence, this was also directly related to the failure of Qualcomm’s Snapdragon 810 processor in 2014. This chip suffered from severe overheating issues, causing significant damage to the reputation and sales of devices that used it, contributing to the decline of smartphone businesses like LG, Sony, and Motorola. Xiaomi’s flagship phones were also affected. In 2014, Xiaomi established the subsidiary Pinecone Electronics (松果电子), and in less than three years, successfully developed its in-house R&D SoC Surge S1, which was used in the Xiaomi 5C. Although this chip had shortcomings in terms of power consumption and signal performance, it marked the beginning of Xiaomi’s increased emphasis on R&D investment. From 2016 to 2019, Xiaomi’s annual R&D investment increased from 2.1 billion Chinese Yuan to 7.5 billion Chinese Yuan. While the percentage of R&D investment to total revenue didn’t exceed 4%, when considering R&D profitability (Net Operating Income/R&D Spending), Xiaomi’s R&D profitability in 2019 was 1.53, which was in close proximity to Samsung (1.39) and Intel (1.65) during the same period. (Huawei’s R&D profitability was 2.1)

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The path to survival

In 2017, China’s smartphone shipments totaled 491 million units, marking the first overall decline with a more than 12% year-on-year reduction compared to 2016. This indicates that the Chinese smartphone market has transformed into a mature market with intense competition, shifting from incremental growth to competing for existing customers. Consumers have become more rational, extending the replacement cycle for their devices. OnePlus’s General Manager, Li Jie, once mentioned, “At this stage, users understand the products, which features are genuinely useful, and which phones are worth buying; they know better than anyone.”

In the mid to low-end segment, the market is characterized by profit-for-market share trade-offs, leading to fierce price competition. Several budget smartphone brands with profit margins below 10% have struggled and faced extinction. On the other hand, the high-end segment promises higher profits and more room for growth and sustainability. Almost everyone recognizes that swimming upstream is essential.

However, the high-end segment also entails higher barriers. Lei Jun’s insight is that the high-end segment implies the absence of weaknesses, necessitating leadership in specifications and a focus on user experience with deep integration of hardware and software. For Huawei, everything is progressing smoothly, thanks to its flagship Mate series for business, P series for photography enthusiasts, and mid-range Nova series. Huawei’s smartphone shipments have been steadily and rapidly increasing. By 2018, Huawei had surpassed 200 million units in smartphone shipments, making it the third-largest smartphone manufacturer globally, trailing Apple by only 2 million units.

Huawei smartphone shipments from 2010 to 2018 (in millions of units)
Worldwide Shipments of Top 5 Smartphone Companies in 2018

The sanctions in 2019 aimed to reverse this situation. In 2019, when Huawei faced sanctions, it was not only the world’s second-largest smartphone manufacturer but had also surpassed Ericsson to become the world’s largest telecommunications equipment manufacturer. Huawei was on its way to becoming one of the leaders in the 5G communication standard. Huawei had the highest number of 5G patents globally and had developed the world’s first 5G SoC, the Kirin 990, with a market share of 31.8% in the 5G telecommunications equipment market.

In the 2G era, mobile phones could make calls and send text messages; in the 3G era, they could engage in instant messaging and receive images; in the 4G era, they could stream online videos and play network games. The iterative progress in communication technology signified a significant leap in real-time wireless data transmission. 5G technology forms the foundation for the IoT and larger-scale data transmission and analysis, making it a crucial component. Restricting the leading role of Chinese companies in communication technology was one of the main objectives behind the sanctions.

The sanctions made Huawei unable to use Google’s Android system and GMS. This significantly impacted its long-established overseas markets. The even worse issue was that Huawei’s 5G chips could no longer be manufactured by foundries, and all components containing U.S. technology were cut off. Huawei’s consumer end business quickly faced a crisis, pushing it to the brink of survival.

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Blood bags

  • Although the consumer end business has suffered a setback, Huawei is still supported by a robust pillar, which is the ICT infrastructure business. According to Huawei’s 2022 annual report, this core business contributes to over half of Huawei’s total revenue, enabling Huawei to maintain its leadership position in the global telecommunications equipment market. It also ensures that Huawei’s health bar doesn’t drop to zero. Huawei also sustains itself through To B businesses such as cloud computing, intelligent in-car solutions, artificial intelligence, and more.
  • In 2020, Huawei sold its subsidiary brand, Honor, for 100 billion CNY (approximately 1.52 billion USD). As an independent entity, Honor was able to continue procuring chips from Qualcomm, safeguarding its brand, as well as its suppliers and distributors. Within the domestic market, Huawei continued to introduce smartphone models using Qualcomm Snapdragon 4G chips to maintain brand exposure and market confidence. Huawei reduced the cost of post-sale service repairs to be even lower than third-party providers, with the aim of extending the replacement cycle for users and retaining Huawei smartphone customers. By committing to future profit margins for distributors, Huawei authorized third parties to produce phones using Huawei’s authorized technology and sell them through Huawei’s distribution channels, thereby ensuring the vitality of its distribution network.

Spare tires

  • On the second day of Huawei’s inclusion in the BIS Entity List, the president of HiSilicon informed employees in an internal letter that Huawei had, many years ago, in the event of extreme circumstances where advanced U.S. chips and technology were unavailable, made arrangements with HiSilicon to develop “backup” solutions. These alternative technical solutions are now being used since the ban was imposed. HiSilicon, the invisible champion, is responsible for the development and delivery of all semiconductors and core components for Huawei, serving as Huawei’s ace in the hole. HiSilicon, along with Huawei’s partners are believed to have played an essential role in the joint research and development for the breakthrough in domestic substitution of EDA tools for 14nm and above, as well as the RF chips.
  • Backup solutions are not limited to hardware. In an interview with CNN in December 2019, when asked what would happen if Google did not get a license to cooperate with Huawei, Ren Zhengfei replied, “We have a very ambitious Plan B.” After Google ceased providing services, Huawei replaced the GMS ecosystem and the Android-based EMUI with its in-house developed HMS (Huawei Mobile Services) and HarmonyOS. HarmonyOS was initially developed internally starting in 2016, not initially designed for smartphones, but rather aimed at the IoT market for smart homes and IoT products. The 2019 sanctions forced Huawei to quickly adapt HarmonyOS for mobile devices and launch it in 2020, primarily to ensure that users would not be lost. After iterations, some industry experts pointed out that HarmonyOS has high compatibility with cross-communication protocols, allowing for seamless integration at the device level and solving connectivity issues across different product types. HarmonyOS 4.0 has also improved the user experience on smartphones, with a 20% improvement in smooth scrolling and a 30-minute increase in battery life. According to Counterpoint Research‘s Q1 2023 report, Huawei’s HarmonyOS has achieved an 8% market share in China and a 2% global market share.

Despite Huawei’s own research and analysis, which indicate that in the development history of the PC and mobile industrial ecosystem over the past two decades, an ecosystem needs to capture a market share of 16% to avoid elimination, there is still some way to go. However, with the recovery of Huawei’s consumer terminal business and the support of Huawei and its partner networks, it is expected that more software developers and hardware manufacturers will join this ecosystem. Wang Chenglu, the head of HarmonyOS, mentioned that in his over 20 years in the software industry, China’s software industry, despite appearing prosperous, could wither in an instant due to a lack of independent operating systems and middleware, much like a tree without roots. Now, the restrictions from the United States have provided an opportunity for domestic operating systems to take root and have also accelerated industry innovation. In 2022, Wang Chenglu left Huawei to join a company jointly established by the Shenzhen State-owned Assets Supervision and Administration Commission and Huawei’s wholly-owned strategic investment company, Hubble Investment. Industry insiders understand that this company will provide support for HarmonyOS to other enterprises, accelerating the promotion of HarmonyOS in the enterprise sector.

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Silicon chains

  • In 2019, Huawei established Hubble Investment to invest in the semiconductor field, with the main focus on domestic supply chain companies. According to media statistics as of June 2023, Hubble Investment has invested in over 100 semiconductor companies, primarily in areas related to semiconductor equipment and materials, IC design, EDA, third-generation semiconductors, and more. The investment approach is largely strategic, with a relatively small ownership stake taken by Hubble Investment. Industry insiders have summarized its investment direction into four categories: a) products that couldn’t be developed by Huawei itself; b) current or future business layouts; c) securing production capacity; d) actively requesting or assisting invested companies in improving their technological capabilities based on orders. Hubble Investment has also invested in non-semiconductor areas related to smartphones, such as a specialized glass company in Chongqing. Huawei, in collaboration with this company, established a specialized glass laboratory, resulting in the development of Kunlun glass, which is ten times more impact-resistant than regular glass and has been used in the Mate60 series models.
  • After the U.S. sanctions, Huawei increased the proportion of local suppliers and prioritized the purchase of domestic components. In 2020, Huawei’s rotating chairman stated that they would make every effort to assist the supply chain, help suppliers grow, and share profits, as it would also benefit Huawei itself. A fund partner revealed to the media that Huawei used to not pay much attention to domestic companies, but after the ZTE incident, Huawei’s attitude significantly changed. Some companies not only received orders but also received on-site guidance from Huawei-assigned technical teams. According to media statistics as of April 2023, Huawei had over 500 A-share supplier companies, with over 100 related to the smartphone industry. Core suppliers include BOE (京东方),(OLED panels), FRD (飞荣达) (electromagnetic shielding and antenna components), Goertek (歌尔股份)(speakers and headphones), Biel Crystal (伯恩光学)(glass panels), Hwa Create (华力创通)(satellite communication chips), and Triductor (创耀科技)(NearLink chips), among others.

Huawei is well aware of the gap that local suppliers have in terms of yield and technology compared to international leaders, but they have shown considerable patience and provided real support to local suppliers in terms of orders, investment, and technology. This has significantly benefited the Chinese semiconductor industry, which was going through a global industrial downturn, and has led to the industry chain becoming more complete and gradually upgrading. In 2020, domestic screen manufacturer Visionox (维信诺) received a 25 billion RMB order from Huawei, resulting in a revenue increase of 27.7% compared to the previous year and a 218% year-on-year increase in net profit for shareholders. The smartphone camera module supplier OFILM (欧菲光) faced declining revenues after losing Apple as a major customer due to being placed on the Entity List. By 2023, their losses had accumulated to as much as 7 billion RMB. However, with their significant involvement in supplying camera components for the Mate60 series, it was reported that they have hired thousands of new employees and expanded production lines. Supply chain experts predict that, based on the expected sales of 20 million units for the Mate60 series, this order could contribute over 10 billion RMB in revenue, potentially turning OFILM’s losses into profits.

The patient approach has paid off as Huawei’s localization rate of smartphone components continues to rise: In 2019, the Mate30 (5G version) had a domestic substitution rate of 42%, the Mate40E in 2020 was 56%, the Mate50 in 2022 reached 72%, and finally, the Mate60 series achieved a localization rate of 90%.

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Stage lights gradually brighten

Under the escalating pressure of sanctions, Huawei continues to maintain significant investments in research and development. In 2022, Huawei allocated 25.1% of its annual revenue to R&D, with a total R&D investment of 448.4 billion yuan over three years. During this period, Huawei competed with Samsung in the high-end smartphone market with its foldable screen products, drawing attention to foldable smartphones and their technological innovations. Foldable smartphones, as a new high-end category, have become a stronghold for the smartphone industry to weather the winter of the market. According to research firm Counterpoint Research, in the first quarter of 2023, the overall Chinese smartphone market experienced an 11.8% year-on-year decline, but foldable smartphone shipments grew by 117%. Companies like OPPO, Xiaomi, and Honor also followed suit, benefiting from this trend.

In May 2023, OPPO announced the shutdown of its chip design subsidiary, ZEKU, discontinuing chip development. According to industry sources, OPPO had sent its in-house developed 4nm AP chip to TSMC for production in 2022, and the results were expected to be available by the end of May. However, the sudden decision to halt the project was regrettable, resulting in a loss of $1 billion and the layoff of 3,000 employees. Regardless of the actual reasons behind this decision, the incident represents a significant setback for all companies involved in domestic chip research and manufacturing.

Xiaomi is perhaps the one with the most complex sentiments in this situation. Despite many naysayers from the outside, Lei Jun hasn’t stopped on the path of self-developed chips and has kept contemplating deep software and hardware integration. After the introduction of the Surge S1 in 2017, Xiaomi intensified its efforts to develop the Surge S2, which took almost a year and four attempts but ended in failure each time. Especially in March 2018, the fourth attempt was found to have significant technical flaws, requiring a complete restart.

In 2020, Xiaomi restructured Pinecone Electronics, which was lagging in research and development, into two separate entities. One continued research on SoC and AI chips, while the other focused on AIoT technology. The shadow of multiple failures in self-developed SoCs led Xiaomi to consider starting with slightly less challenging chips. In 2021, Xiaomi introduced the Surge C1, an ISP chip primarily designed to process camera-related image data. Lei Jun didn’t heavily promote this chip, providing only a brief introduction during the launch event with a small line of text on the screen that read, “This time we made a small chip.”

Similarly low-key is Xiaomi’s semiconductor industry investment fund. According to media reports, since its establishment in 2017, this fund has invested in 110 semiconductor companies, spanning areas such as optoelectronic chips, automotive chips, semiconductor manufacturing equipment, and more. Notably, in 2021, it executed 47 strategic investments, showing a clear acceleration.

Lei Jun once stated to the media that Xiaomi aims to become a genuinely globally leading technology company, and waging the chip-making battle is non-negotiable. Despite the uncertain future of chip manufacturing, Lei Jun appears to be determined not to give up.

As more performers exit the stage due to market competition, R&D challenges, or geopolitical pressures, Huawei stands as the sole Dancer that perseveres amidst multiple hardships. Emerging from its darkest moments, Huawei’s resilience may serve to strengthen Xiaomi’s commitment to R&D and chip-making: This leading competitor, continuing to stride ahead, exudes intangible yet powerful pressure, but under its silhouette lies a path marked by footprints and milestones.

On September 25, 2023, at its autumn product launch event, Huawei announced the next version of HarmonyOS after HarmonyOS 4.0, called “HarmonyOS NEXT.” This new version will remove all Linux and AOSP code (used for Android app compatibility), which is expected to eliminate 40% of redundant code in HarmonyOS. This move will make HarmonyOS a fully independent operating system ecosystem separate from Android. The developer preview of HarmonyOS NEXT will be available to all developers in Q1 2024. On October 17, 2023, Lei Jun announced that Xiaomi would be using a brand new operating system called “Xiaomi Hyper OS.” The goal is to provide a unified underlying operating system for Xiaomi’s extensive range of smart devices and AIoT ecosystem. Apparently, Lei Jun’s understanding of deep integration of hardware and software does not stop at thinking, under his leadership, Xiaomi chose to act as the second “16%” challenger after HarmonyOS.

While Huawei may not yet fully represent the overall technological level of China’s semiconductor industry, it largely embodies the direction that the industry aspires to move towards and needs to become.

Before the arrival of an even colder winter, Huawei returns to the center stage, and perhaps Shelley’s ‘Ode to the West Wind’ would be a fitting title for its performance.

Photo by Kazuo ota on Unsplash

Original source: Dancing in chains: HUAWEI’s comeback to the stage backed up by the Chinese semiconductor industry (Part III) (baiguan.news)