Make a meal without rice and sigh. Yu Chengdong, CEO of Huawei terminal, admitted a few days ago that Huawei’s chip production would stop after September 15 due to the second round of sanctions imposed by the US government. Huawei’s flagship new product mate Kirin 9000 chip (originally named 1020) will be equipped with 5nm technology, but this is also
although Kirin chip has made many technological breakthroughs, in the field of chip manufacturing, the process of domestic chip manufacturers in China still lags behind the mainstream of the industry, unable to meet Huawei’s demand for high-end Kirin chips based on 5nm technology. The first wave of US sanctions last year did not affect TSMC, the OEM of Huawei’s Kirin chips. However, the second wave of sanctions in May this year finally forced TSMC to “cut off the power supply” of Huawei, and made Kirin 9000 a masterpiece without a manufacturing plant.
previously, Google was forced to stop providing Google services for Huawei’s mobile phones, which has dealt a heavy blow to Huawei’s new products in overseas markets (models before sanctions can be continued to be sold); this time TSMC has no choice but to cut off its power supply, which has made Huawei’s flagship suffer from the bottom of the drain in the future, including the production capacity of mate 40. This is a huge blow to Huawei, which just topped the global smartphone shipping list in the second quarter of this year.
However, the second round of Huawei sanctions order issued by the U.S. government was issued on May 15, giving Huawei a four month buffer period, which will take effect on September 15. In other words, Huawei will not accept new orders from Huawei in the future, and will not supply Huawei after September 15. In the past four months, Huawei has already started to prepare for the situation, and the patent license agreement with Qualcomm is a key step.
on July 30, when announcing its earnings report, Qualcomm announced that it had reached a multi-year patent licensing agreement with Huawei, so that it would record $1.8 billion in patent licensing revenue in the fourth quarter. It should be emphasized that this fee is the license fee accumulated by Huawei since 2017 covering 3G and 4G LTE patents, rather than the future licensing fees of both parties. Boosted by the news, Qualcomm’s share price has risen sharply from less than $93 on July 29 to $108 at present, and its market value has also reached a new high.
in January 2017, apple suspended the payment of patent license fees to Qualcomm after filing a patent lawsuit against Qualcomm. The company then sued apple for infringement of its own patents and successfully applied to ban some models of iPhones in Germany and China. In April of that year, Huawei also postponed the patent licensing fee for Qualcomm, but the relationship between the two sides was not as fierce as apple and Qualcomm. The two companies have reached an interim agreement, and Huawei still pays part of the patent fee to Qualcomm regularly during the negotiation process (US $150 million per quarter).
in April last year, apple and Qualcomm reached a settlement and a multi-year patent licensing agreement, which paid a total of $4.7 billion in a one-off payment of more than two years’ Arrears of patent fees. In addition, Apple will purchase a 5g baseband chip from Qualcomm for the iPhone 12 series to be launched this year. Now, Qualcomm has reached a patent licensing agreement with all major OEM manufacturers, and Huawei is actually the last to reach an agreement. A patent agreement with Huawei may be as significant for Qualcomm as the licensing agreement with apple.
in addition to the $1.8 billion patent fee payable, Qualcomm has completed patent licensing agreements with major manufacturers in the entire smartphone industry. From 3G to 4G LTE and then to 5g era, with its basic invention advantages, Qualcomm has always firmly occupied the leading position in the industry development. In the field of communication technology, patent strength is not simply measured by quantity, but by quality. Although the absolute number of patents of Qualcomm in 5g field is not among the best, most of them are core patents with higher quality and value.
this License Agreement is also of great significance to Huawei. On the issue of patents, the two mobile communication giants actually have the same consensus: only by respecting intellectual property rights and paying for patents can they have enough revenue to ensure technological innovation, promote the development of the communication industry and form a virtuous circle. The two companies have invested 15% – 20% of their annual revenue for technological innovation, and only in exchange for tens of thousands of communication technology patents have become the two innovators leading the 5g communication industry.
as the industry leader in the field of operator equipment, Huawei also has a strong patent pool of communication technology, and has reached extensive cross licensing agreements with major telecom operators in the world. Huawei also has a large number of patents to seek licensing revenue, and its intellectual property rights need to be respected by its partners. Since 2015, Huawei has accumulated nearly $1.5 billion in patent licensing revenue. Earlier this year, Huawei also filed a patent lawsuit against Verizon, the largest U.S. mobile operator, for a $1 billion patent licensing fee.
Huawei covers both telecom operators and consumer terminals, while Qualcomm does not involve in terminal and infrastructure manufacturing. This is the fundamental reason why Huawei has to pay a royalty to Qualcomm. But considering that both Huawei and Qualcomm have a large number of patents to cross license, Huawei may be the most influential manufacturer in the smartphone industry. However, as the largest manufacturer in the smartphone industry, the patent licensing fee paid by Huawei, which has more than 200 million units annually, to Qualcomm will not be a small number.
in the past three years, Huawei has been the fastest growing manufacturer in the smartphone industry, overtaking apple and Samsung successively, and finally topped the industry list in the second quarter of this year. Although it was blocked by the U.S. government last year, which slowed the growth of Huawei’s mobile phones, it did not block the rising momentum of Huawei’s mobile phones. According to Yu Chengdong, the U.S. ban last year caused Huawei to ship 60 million fewer mobile phones. In the first half of this year, Huawei’s consumer business revenue reached 255.8 billion yuan, and 105 million mobile phones were delivered.
However, chips are the “Achilles heel” of Huawei mobile phones. Huawei cannot cover every link of the chip industry. After TSMC was unable to contract Kirin high-end chips for Huawei because of the ban, Huawei is now in urgent need of finding new chip supply for its flagship mobile phone, filling the supply chain gap of its high-end product line. They have only three choices: Samsung, MediaTek and Qualcomm.
MediaTek is the supplier of Huawei chips. At the beginning of this month, media reported that Huawei and MediaTek signed cooperation intention and purchase order, and will purchase 120 million chips from MediaTek. However, there is no guarantee that Huawei’s flagship will continue to maintain its hard won competitiveness in the high-end market.
Samsung is unlikely to supply Orion for Huawei’s flagship. On the one hand, Samsung has no history of large-scale external supply of Orion chips, nor does it have the corresponding customer support capability. Because the supply of chips is not only simple sales, but also needs extensive technical cooperation and support. On the other hand, Huawei is the main competitor of Samsung mobile phone. In the Android flagship market, Huawei’s two flagship P series and mate series almost compete directly with Samsung’s s s series and note series. It’s no exaggeration to say that supplying Huawei is a direct blow to the sales of its flagship products. Previously, Samsung, which also has the ability to contract 5nm chips, also refused to contract Kirin chips for Huawei.
in terms of the current reality, without Kirin high-end chips, Huawei’s only choice to maintain the competitiveness of high-end products in the Android camp is the flagship chip of the Qualcomm snapdragon 8 series, which is also the general-purpose processor of all high-end flagship of the Android camp. Although some unique functions of Kirin chip can no longer be realized, at least Huawei can stand on a competitive platform with other Android manufacturers and form differentiation advantages through its own R & D accumulation. The key point is that Qualcomm does not involve itself in terminal business, and has always maintained close cooperation with mainstream Chinese mobile phone manufacturers such as Xiaomi, oppo and vivo, and is also a long-term chip supplier of Huawei. The business model determines that Qualcomm is happy to see Huawei flagship continue to maintain strong sales under the support of snapdragon 8 series chips.
as early as the end of May this year, John Vinh, an analyst at keybanc capital in the United States, predicted that Huawei would soon reach a patent licensing agreement with Qualcomm, and would also purchase the snapdragon 8 series chips from Qualcomm to make up for the supply difficulties of Hisilicon chips due to the limited supply chain. According to mainstream US media reports, Qualcomm has been lobbying the U.S. government in the past few months to obtain an export license from the US Department of Commerce’s Bureau of industry and security (BIS) to supply China with snapdragon mobile chips for 5g mobile phones.
for Qualcomm, there is no competition between them and Huawei in the field of terminal hardware. If Huawei can be supplied with snapdragon flagship chips, Huawei will be able to tide over the current blue and yellow crisis, which is not only win-win for each other, but also conducive to the development of the whole industry. For Huawei, if it can get the flagship chip of snapdragon, it can ensure that it will continue to maintain its competitiveness in the high-end field of smart phones, save its strength, and wait for the improvement of domestic chip manufacturing process in the future.
this is not the first time that Qualcomm has called on the US government to release its supply to Huawei. Although it has Kirin chips, Huawei has been purchasing snapdragon chips from Qualcomm for smart phone products in the mid market. After Huawei was listed in the list of entities by the U.S. Department of Commerce last year, CEO molenkov of Qualcomm made it very clear that he would like to continue cooperation with Chinese partners no matter how the situation changes. Qualcomm will continue to focus on 5g development and will not be affected by government policies. In addition, the company, together with Google, Intel and other Silicon Valley giants, lobbied the US government to relax the ban and continue to supply chips to China.
in September last year, in a speech to Chinese media including Sina Technology, molenkov said that although Huawei is facing regulatory problems from the U.S. government, Qualcomm has been trying to supply to China. At that time, molenkov said, “every American company will be restricted by trade regulation to a certain extent, but in fact, Qualcomm has already started to supply to China, and has been trying to find ways to ensure that it can continue to supply in the future.”
despite the gradual deterioration of the political environment in recent years, the management of Qualcomm has been making a public voice “against the current”, calling for attention to the common interests of the two countries and emphasizing that the two countries have opportunities to achieve win-win growth through cooperation in many fields. Last month, Qualcomm’s president Ammon said that the cooperation between Qualcomm and China’s mobile communication industry for more than 25 years is a stable force in the technology industry, and China is leading the development of the world’s 5g industry.
the US government blocked Huawei mainly because of political factors. They were worried that Huawei’s rising status in the communication industry would bring “national security risks” to the United States. Their aim is to limit Huawei’s business to China as much as possible, which is also the main reason why the United States is trying to dissuade the UK, Australia, Japan, France, Italy and other allies from adopting Huawei 5g equipment. On the contrary, major US technology companies have been opposed to the government’s ban on Huawei.
in fact, Qualcomm and Huawei have always been in a good relationship of cooperation and competition. On the one hand, both companies are investing heavily in the research and development of mobile communication technology