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10 January 2020

New headache for Qualcomm as HiSilicon moves into the merchant market

HiSilicon, the semiconductor arm of Huawei, has presented significant challenges for Qualcomm, and other smartphone chip providers, by taking an increasing percentage of its parent’s orders for handset components and other chips. But while that reduced the addressable market for others considerably – especially when Huawei overtook Apple to become the world’s second largest smartphone provider last year – at least the unit was not selling on the merchant market. Now that has changed, with HiSilicon launching 4G chips that it will sell outside its captive customer.

This further complicates the situation in China for Qualcomm, the market leader in smartphone chips. The US supplier has worked hard to build up business with Chinese handset makers, including coming to an expensive settlement with antitrust authorities to ensure it was free to do business. However, the trade wars between the USA and China have redoubled the latter’s determination to be self-sufficient in key areas of technology such as semiconductors, especially since Huawei was placed on the US ‘entity list’, which forbids US companies to sell components to it without a special license.

HiSilicon also announced some other changes to its structure and portfolio. It has renamed its bestselling product line, Camera, as Smart Vision, targeting consumer electronics and automotive as well as its existing core market in surveillance. It has merged its set-top box and TV lines into a Smart Media category. It also said it will expand its connectivity business, with particular focus on applications requiring AI and IoT support along with 4G or 5G. It has also announced chips for a home network that would combine fiber and WiFi.

It has set up a subsidiary of HiSilicon, called Shanghai HiSilicon Technology,  that will be free to sell chips on the open market, though some cutting edge developments are expected to be kept for Huawei alone. Zhao Qiujing, director of platform and solution marketing for the new unit, said it was formally set up on April 1st 2019 and has made some sales, but this is its first public launch with a mainstream product. Shenzhen HiSilicon retains responsibility for sales to Huawei itself, but the new Shanghai arm is not just a sales channel. It will have design capabilities and could create products for third party customers even though they are not needed by Huawei.

So Qualcomm’s chances of expanding its sales in the world’s second largest mobile market look weak, and it now faces the additional threat that HiSilicon will start to steal business with the Chinese phonemakers which do still buy from Qualcomm, or even with international customers (especially in Asian markets which are less affected by the US sanctions).

Until now, HiSilicon has been treated as an internal unit by its parent because its high end chips especially its Kirin series of mobile and AI processors, provide a competitive advantage over other vendors. But with Huawei’s core businesses under pressure as a result of the US stand-off (see separate item), there may be a new motivation to build additional revenue streams.

In fact, HiSilicon has already been selling some of its less strategic products on the merchant market during 2019, as it acknowledged for the first time last month, where it launched 4G modems at the Elexcon trade show in Shenzhen, China.