China No Longer Needs US Parts in its Phones

-edited

China was once very dependent on US chips for its phones. The latest Chinese phones have no US parts.

The Wall Street Journal reports Huawei Manages to Make Smartphones Without American Chips.

American tech companies are getting the go-ahead to resume business with Chinese smartphone giant Huawei Technologies Co., but it may be too late: It is now building smartphones without U.S. chips.

Huawei’s latest phone, which it unveiled in September—the Mate 30 with a curved display and wide-angle cameras that competes with Apple Inc.’s iPhone 11—contained no U.S. parts, according to an analysis by UBS and Fomalhaut Techno Solutions, a Japanese technology lab that took the device apart to inspect its insides.

In May, the Trump administration banned U.S. shipments to Huawei as trade tensions with Beijing escalated. That move stopped companies like Qualcomm Inc. and Intel Corp. from exporting chips to the company, though some shipments of parts resumed over the summer after companies determined they weren’t affected by the ban.

Meanwhile, Huawei has made significant strides in shedding its dependence on parts from U.S. companies. (At issue are chips from U.S.-based companies, not those necessarily made in America; many U.S. chip companies make their semiconductors abroad.)

Huawei long relied on suppliers like Qorvo Inc., the North Carolina maker of chips that are used to connect smartphones with cell towers, and Skyworks Solutions Inc., a Woburn, Mass.-based company that makes similar chips. It also used parts from Broadcom Inc., the San Jose-based maker of Bluetooth and Wi-Fi chips, and Cirrus Logic Inc., an Austin, Texas-based company that makes chips for producing sound.

Yet Another Trump Trade Win

  • Trump cut off supplies so China looked elsewhere.
  • Trump changed his mind.
  • This is what constitutes a win.

When Huawei came out with this high-end phone—and this is its flagship—with no U.S. content, that made a pretty big statement,” said Christopher Rolland, a semiconductor analyst at Susquehanna International Group.

Huawei executives told Rolland that the company was moving away from American parts, but it was still surprising how quickly it happened.

This was likely going to happen anyway, but Trump escalated the speed at which it happened.

Trade Deal?

Standard Assumption for 17 Months

Assuming there is a deal, the standard assumption for 17 months, Trump will announce two key elements.

Greatest Deal in History

  1. China will resume buying the same amount of soybeans as before.
  2. China will resume buying the same amount of chips as before.

​The longer this takes the more wins there will be.

With that in mind, please recall Another Trump Tariff Success Story: Vietnam.

And despite the fact that Trump's China Tariffs Made Matters Made the Global Manufacturing Recession Worse and has killed US farmers, It's important to remember, Trump is collecting "huge tariffs".

So please brush aside this recession warning: Freight Volumes Negative YoY for 11th Straight Month.

Mike "Mish" Shedlock

Comments (44)
No. 1-25
Harbour
Harbour

The great decoupling continues.

George Phillies
George Phillies

The tariff talks appear to be stalled on IP and removal of tariff issues, i.e., they are not going anywhere.

Stuki
Stuki

China won't resume buying as many chips as before. They don't have to. Production of everything have been moving Asia for decades. Because that's where people and organizations most competent at producing stuff are located. There's nothing strange and magical about "chips" that renders them impervious to that trend.

As for Soybeans, once your erstwhile trading partner demonstrates massive unreliability, you don't go back to being as reliant on him as you were before.

Jojo
Jojo

Thanks to our politicans and the corporate oligarchy who turned over all USA technology to China in the search for higher profits at any cost. We enabled China to leap-frog decades of having to learn on their own by giving them the complete plans to all our technology as they acted as a manufacturing subsidiary of our corporate oligarchs.

Now China does not only not need the USA any longer, but they are expanding worldwide on all fronts, making huge investments in Africa, the Middle East, South America and even Europe. They are expanding their military and making storing inroads into space, with plans to land on the moon and build a moon base by 2030, something we should have done back in 1980, 10 years after we landed on the moon. Nero is fiddling for the USA. China is going to be the #1 power in the world in the next decade and we will all have to learn to use their currency.

Je'Ri
Je'Ri

But ask yourself, can the US manufacture phones or other electronics without Chinese chips? Bonus if you are aware how much of America's sensitive military technology has at least on Chinese chip in it.

JustASimpleMan
JustASimpleMan

US corporate boardrooms are packed with MBAs, most of whom have handled a copy of Sun Tsu's "The Art of War" and some of the greatest disciples of Onan will display it proudly in their offices as a mark of their management competence.

Sadly, none of them read it or if they did, heeded the contents. Meanwhile China followed the centuries old lessons and used US corporate greed and self interest to scoop them hollow and leave them to rot.

tz3
tz3

Well, they are using US Patented IP to build them, but who cares if they are paying royalties or stealing it.

njbr
njbr

In a world with more production capacity than consumption capacity it's a dangerous tactic to force your buyer to make a choice between suffering and finding a new supplier.

Sechel
Sechel

U.S. is good at design and marketing. They are not a production center for high tech parts. Trump keeps wanting to protect failing industries that will never hold their own at the expense of what would otherwise be successful ones like agriculture. It doesn't make any sense except that's where Trump gets his votes and funding from

Cajundoug
Cajundoug

Did I miss it? I don't see where the high tech parts that they are using are made. This seems like a very important factor. Do theChinese actually have the technology, or are they just buying from Japan or Europe?

thimk
thimk

yikes, that didn't take long. but did the article say who the new supplier was ? hit paywall . Huawei will discount product and clean Apples's clock.

ksdude69
ksdude69

Id imagine a lot of reverse engineering going on for things they cant make yet, or things they couldn't in the past.

thimk
thimk

@thimk - hmm, anyways here is some may 2019 supporting, complimentary info on possible supply chain replacements,

CautiousObserver
CautiousObserver

Lots of reverse engineering is continuously going on by all parties on all sides in tech. The question here is, once a company like Huawei has been completely shut off from suppliers such as the US, what incentive do they have not to blatantly copy any components previously purchased legally? If China’s government does not enforce IP law, then Huawei will logically use other suppliers to copy whatever they need, as they have probably done here.

This situation likely represents the nut of the IP issue that the US and China have been disputing. It appears China expects the Trump administration is bluffing and has called. Will the Trump administration fold or not?

KidHorn
KidHorn

Why is this surprising? Cell phone technology is old. The most sophisticated part is the screen and almost all the good screens are made by Samsung and LG.

Harbour
Harbour

Automation will replace underpaid labour of third world countries though not sure what we are going to do

awc13
awc13

wow. they got that last $2 worth of silicon content out of their phones. they have been working to do that for years now.

abend237-04
abend237-04

Mercantilism on stolen IP steroids: The perps, China in this case, understandably think it's a good deal. It is...for China, and the communist party is delighted to claim the credit for disgusting, failed collectivism. The world is sitting back quietly giggling at Trump's flopping about trying to gain consensus, while their own living standards are sliding to China. The problem with this approach to problem solving, (letting the U.S do it), is that the eventual conflict resolution has always been via war. There's historical precedent: Rome finally, and utterly, destroyed Carthage in 146 B.C. Little noted today was that Rome also conquered Corinth, Greece in the same year, underscoring the fact that no culture could co-exist with Rome's. Ditto China...eventually.

njbr
njbr

A look at China's goal to become 40% self sufficient in chips by 2020 and the recently released IP protection policy.

(quote) ....Another part of the problem is that China is not producing enough top-rank engineers to fulfill its own needs. This creates a situation in which Chinese companies are competing with each other to attract top local talent. China’s Internet companies are making a lot of money, which means they can pay high wages. IC companies cannot always offer competitive salaries, however, which puts them at a disadvantage when trying to attract top talent.

Part of the issue is the lack of sufficient protections for IP. Companies and individuals want assurance they will be able to profit from their innovation, specifically so that they can afford to offer competitive salaries. This is why President Xi Jinping and Premier Li Keqiang favor strict protection for IP rights and are recommending severe punishments for violations of IP rights.

“This is not for the Americans,” said Dai. The implication is that Xi and Li are not making promises to mollify the U.S., which has long expressed displeasure about China’s approach to IP. The politicians’ desire to provide stronger protection for IP is legitimate.

Dai said, “It is to protect the investment in the country and in local R&D companies. Because if you don’t protect the bottom line, the whole industry will be very bad. In short, if your company makes money, you can pay the employees high wages. Please don't rely on the state to pay for the salaries."

https://www.eetimes.com/document.asp?doc_id=1334555&page_number=4 (end quote)

So two takeways from that--progress toward 40% self sufficiency is being made, and that the recently released China IP protection policy is directed at internal competition to allow internal businesses to grow. Who knows what its international competitors will experience.

Casual_Observer
Casual_Observer

Fundamentally cell phone technology was still invented by the US Military and used during WW2. The notion that some chip produced in a non-US country doesn't rely on the US anymore is quaint.

Augustthegreat
Augustthegreat

Trump is the greatest president ever! The american people really deserve it!

FloydVanPeter
FloydVanPeter

FloydVanPeter
FloydVanPeter

Bill_Butlicker
Bill_Butlicker

Anyone who actually follows tech knows China started developing their own domestic chip fabrication industry more than a decade ago. Producing computer chips domestically has been China's objective for far longer than that

Naive to suggest this is in any way related to the media's trade war (and just because Trump taunts them like the idiots that they are, doesn't excuse the media).

But people with Trump Derangement Syndrome see absolutely everything through that lens and no other way. They cannot accept that many events were put in motion years ago and would have happened no matter what the Kardashians do. A lot of events are outside the control of the US media

WilhelminaUchida
WilhelminaUchida

Yes, and it started long before Trump. Obama banned supercomputer chip sales in 2015. They still sold supercomputers, just without U.S. chips. The cows were let out of the barn decades ago. https://appdevelopmenttexas.net/