If ARM cuts ties with Huawei, the Chinese telecoms giant will accelerate use of its own in-house chips, Jefferies says

Iris Deng
Published: 12:10pm, 23 May, 2019
Updated: 12:57pm, 23 May, 2019

Huawei Technologies is likely to be able to weather a reported suspension of business with UK chip designer ARM as it will be able to rely on its own Kirin chips, according to a research report by Jefferies.

ARM, which develops the designs for chips used in smartphones and other connected devices, supplies two types of licence to Huawei – core and architectural – but any suspension will have limited impact on Huawei’s smartphone production, at least in the short-term, Jefferies analyst Rex Wu wrote in a note on Wednesday.

If Huawei loses its core licence from ARM, it will be able to use its self-developed custom CPU core and GPU architecture, Wu said. Huawei’s architectural licence, granted through ARM’s non-controlling joint venture in China set up last May to secure supplies for Chinese companies following a US export ban on ZTE, should remain valid, Wu said.

“We think ARM's suspension will accelerate Huawei adopting its own customer cores in new Kirin chips, and also developing its own Operating System and ecosystem,” said Wu. “We think Huawei will likely launch new Kirin chips in the near term to show little disruption to operations.”

ARM is the latest partner reported to be cutting ties with Huawei following the Trump administration’s move to add it to the US Commerce Department’s Entity List, after concluding that the Chinese telecom major was engaged in activities “contrary to US national security or foreign policy interests”. Google has blocked Huawei’s access to future Android operating system updates and a range of other overseas suppliers are considering cutting ties to comply with the US blacklist, which prevents Huawei from buying American technology.

The US move came as talks to resolve a lingering trade war between the world’s two-biggest economies ended without agreement this month, sparking a wave of targeted actions by the Trump administration against China, including an increase in tariffs from 10 per cent to 25 per cent on US$200 billion worth of China goods exported to the US.

BBC News first reported ARM’s move on Wednesday citing an internal memo that instructed company employees to halt “all active contracts, support entitlements, and any pending engagements” with Huawei, as ARM designs contain “US origin technology” that could be subject to the US trade ban.

ARM did not immediately respond to a request for comment and neither did Huawei.

Not all analysts are as optimistic as Jefferies on Huawei’s ability to withstand the loss of its relationship with ARM.

A Wired article points out that the open-source version of Android — which Huawei will likely have to use now that it is shut off from Google — is designed for ARM-based chips. “All of the options are going to be painful,” Wired quotes Eric Hanselman, chief analyst at 451 Research, as saying. “Changing out a core means you’ve got to do significant work not only in the silicon, but also in your software ecosystem. That’s not going to be simple.”

Shenzhen-based Huawei, the biggest network gear maker in the world and the second-biggest smartphone maker, has been stockpiling critical US components for almost a year though, according to separate reports by research houses Haitong and Canalys. This has been done to ensure Huawei can continue to make products that rely on core technology from US suppliers, such as Intel and Qualcomm, in the event of such a ban.

Huawei has also been developing proprietary chipsets for use in its smartphone and networking products, which are considered Intel and Qualcomm alternatives, while the company confirmed in March that it has developed its own operating systems (OS) for smartphones and computers in case those provided by US technology firms are no longer available.