Has Huawei found a reliable chip supply channel?

Huawei may have come up with another chip supply channel to circumvent US bans – but it has a few hurdles to cross first.

The Shenzhen-based giant will reportedly become the major customer of a new local chip fab aiming to supply some chips that Huawei currently can't obtain.

The new company, Pengxin Micro IC Manufacturing Co., is run by an ex-Huawei exec and is built on a site near the Huawei campus, according to a Bloomberg report.

Pengxin Micro, founded in 2021 with assistance from the Shenzhen city government, has already ordered chipmaking equipment, including some from foreign suppliers, and says it will go into production in 2025.

Huawei is expected to buy most, if not all, of the company's output, according to Bloomberg.

The US Department of Commerce's Bureau of Industry and Security (BIS), which runs the country's Chinese sanctions program, told Bloomberg it was aware of Pengxin Micro and its alleged Huawei connections but declined to say whether it had licensed any equipment to it.

Since the US bans were imposed in 2019, Huawei's problem has been the inability to obtain chips made with the most advanced technology, which these days means 5-nanometer and soon 4-nm processes.

Pengxin Micro will start working with 28-nm tech but aims to build with 14-nm chips, which will likely suffice for a lot of networking components.

Lack of clarity

But as Bloomberg wrote, working with 14-nm and 7-nm is still a challenge for many Chinese chipmakers. An even more pressing problem is the lack of clarity on how Pengxin Micro can obtain the advanced manufacturing gear.

The other point of caution about the company is the Shenzhen government's backing, which is a reminder that, besides being created as a Huawei supplier, it is part of the national wave of new chip firms intended to fill the breach left by foreign suppliers. Billions of dollars have been tipped into this grand exercise of patriotic self-reliance. Predictably, there has been a great deal of waste, most notoriously in the Wuhan Hongxin Semiconductor debacle, which burnt through $19 billion without making a single wafer.

From Huawei's point of view, even if it becomes Pengxin Micro's biggest customer, it will still see the startup as just one more option. Huawei has invested in around 40 Chinese chip companies as it strives to reboot its supply chain.

Recently, Huawei lined up two domestic chip fabs, Fujian Jinhua Integrated Circuit Co., a DRAM specialist, and Ningbo Semiconductor International, which SMIC is an investor in, to make chips for its telecom and auto businesses.