Huawei investment subsidiary buys 40 companies in 3 years to reconstruct semiconductor supply chain

According to financial magazine Caijing (Chinese), Huawei has been building an independent and controllable silicon industrial capability in the last two years as it attempts to rebuild its supply chain.  Investments cover virtually every part of the semiconductor industry, including IC design, electronic design automation (EDA) software, packaging and testing, and materials.

On June 23rd, Tianyancha, an enterprise information query platform, revealed that Shenzhen Hubble Investment Partnership (Limited Partnership), a subsidiary of Huawei Technologies Co., Ltd [1.], became a shareholder of Qiangyi Semiconductor (Suzhou) Co., Ltd. The registered capital of the latter increased from 65.943 million yuan to 73.165 million yuan. This is the first company in mainland China that has the ability to independently design vertical probe cards and has achieved mass production of MEMS probe cards.

The probe card is the core component of the chip test link, accounting for 70% of the total cost of the entire test fixture. As a test interface, the probe card will test the bare chip and screen out defective products. For a long time, the semiconductor test probe market has been monopolized by foreign manufacturers.

Note 1. Shenzhen Hubble Investment Partnership (Limited Partnership), which was established in April this year and is an investment institution controlled by Huawei Investment Holdings Co., Ltd., which is the same as Hubble Technology Investment Co., Ltd., which was established in April 2019.

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Hubble Technology Investment Co., Ltd., which has been established for three years, has made faster and more detailed investments.  In May, it invested in Shenzhen Yunyinggu Technology. On June 23 and 24, it successively invested in Qiangyi Semiconductor and Chongqing Xinjing Special Glass. There are 37 companies in its investment portfolio, of which 34 are related to semiconductors, involving chip design, EDA, testing, packaging, materials and equipment All links.

Before the establishment of Hubble Investment in 2019, Huawei had always followed the long-term principle of not investing in any company. Hubble’s mission is closely linked to the production of Huawei chips via wholly-owned subsidiary HiSilicon.  Huawei CEO Ren Zhengfei had insisted the company would not invest in or partner with suppliers in order to ensure it was free to choose the best technologies.

In 2019, after Huawei was sanctioned by the U.S. government, the chips designed by HiSilicon could not find a foundry company (e.g. TMSC, Samsung, etc) that would make those chips for them.  Those U.S. sanctions have changed Ren’s stance on investments/acquisitions.  So Hubble Investment’s mission was directed at Huawei’s survival needs.

According to market research firm Strategy Analytics report, in the first quarter of 2021, the global smartphone processor market grew by 21% year-on-year, and Huawei HiSilicon’s smartphone processor shipments dropped by 88% compared to the same period last year. The sharp decline in data also indicates the urgency of self-help to make HiSilicon designed chips.

As tech blogger Kevin Xu pointed out: “Habo is a way to find and invest in the best companies in China who can be suppliers and partners, and groom them to be world class quality. That’s why Huawei gives them its business — there’s no better training than serving a real (and big) customer.”

Huawei’s executive director and CEO of consumer business, Yu Chengdong, once admitted that it was a mistake to only choose the field of chip research and development and ignore the asset-heavy chip manufacturing field.

The investment focus has shifted several times as it has built out its prospective supply chain partners, Caijing says. In late 2019 and the first half of 2020, its targets were materials and opto-electronic chip firms. In the latter part of 2020 and early 2021, it shifted to EDA software. In recent months it has targeted advanced equipment. In early June it invested 82 million yuan (US$12.7 million) in Beijing RSLaser Opto-Electronics Technology Co, specialist in light source systems for lithography machines.

Caijing confirmed with many people familiar with the matter that Huawei will build its first wafer fab in Wuhan. It will need a series of related materials, equipment, software, etc., which cannot be researched by Huawei alone. This means that Hubble’s investment in the semiconductor industry chain in the past three years will play an important role, and this will also be a crucial step for Huawei to achieve self-help in the supply chain.

Most of the companies invested by Hubble are in the early stages, and their scale is still far from the leading companies in the industry. Huawei tends to grow together with a company. Therefore, even some technologies that have not yet been commercialized in large quantities will receive investment from Huawei. This is for the controllable layout of Huawei’s industrial chain.

Although the information released to the outside world is extremely limited, many sources indicate that Hubble is closely connected with Huawei’s overall strategic plan. Bai Yi, the chairman and general manager of Hubble Investment, is also the president of Huawei’s Global Financial Risk Control Center and formerly vice president of Huawei’s strategy department.

A Huawei employee revealed to a reporter from Caijing that Hubble’s personnel are simple, “only a few dozen people”, but some of them also belong to Huawei’s strategic department in terms of administrative planning. For a long time before this, the decision-making power of Hubble’s foreign investment was not in the hands of the investment company itself, but was determined by the business department related to the invested company.

A semiconductor investor told a reporter from Caijing that sometimes they will look at projects with Hubble Investment. In many projects, Huawei’s procurement VP will directly participate in investment negotiations. At the same time, some of the invested companies are also Huawei’s upstream suppliers. . Some companies have business cooperation with Huawei, but Hubble has only deepened business cooperation.

The most obvious manifestation of the in-depth business cooperation is the order. In addition to investment, Huawei will also support the invested companies in order.

Take analog chip manufacturer Si Ruipu as an example. In the prospectus disclosed, customer A is the number one customer of Si Ruipu, which accounts for 57.13% of the operating income of the company. According to some related information, it is speculated that this customer A is Huawei. According to the prospectus, Si Ruipu established a cooperative relationship with Huawei in 2016 and obtained the certification of Huawei as a qualified supplier in 2017. In 2019, Hubble Investment, a subsidiary of Huawei, through private placement, became a shareholder of Seripul, and furthered the cooperation, and Huawei became the number one customer of Siripul.

Another example is Can Qin Technology. In 2019, Can Qin Technology became Huawei’s strategic core supplier and the largest supplier of Huawei’s 5G base station filters. Its orders from Huawei accounted for 91.34% of its operating income. In 2020, Hubble Investment will invest in Canqin Technology through equity transfer, with a shareholding ratio of 4.58%.

For small and medium-sized start-ups, the most worrying thing before is that no manufacturers are willing to use the product. Obtaining Huawei’s orders means stable sales revenue and strong ecological support, and it also gives these companies the opportunity for iterative trial and error. Many semiconductor companies in the United States have gradually developed by relying on powerful semiconductor manufacturers.

As previously noted, Huawei was not receptive to domestic suppliers in the early days. In addition to its strong style, Huawei did not give many domestic companies opportunities in the early years of the company. Their suppliers will still be the world’s first-class manufacturers. Today, the situation is quite different, but it gives tech companies in mainland China a rare opportunity.

In addition to orders, if some companies say that products or technologies may not be developed until next year, Huawei will also say that as long as the company can produce products in the future, Huawei promises to use it. This is a strong driving force for China’s independent semiconductor industry chain.

Once Huawei’s wafer fab is completed, its IDM model will go through, and a closed loop of the ecological industry chain will be realized. Now, Huawei is hiring talents in chip manufacturing and equipment. At the same time, Huawei is also paying attention to some domestic material companies, such as photoresist, silicon wafer, gas and other companies, which will serve for the construction of fabs in 2 to 3 years.

Becoming a supplier of Huawei is not an easy task. Huawei has very high requirements on suppliers. Accepting Huawei’s orders is a very energy-consuming task. At the same time, invested companies may also face the choice of giving up other customers. If there is a problem with Huawei, a major customer, the company’s operations will also be strained.

Today, Huawei is planning to build its own wafer fab and adopt the IDM model. If completed, Huawei’s semiconductor ecosystem will gradually form a closed loop. Huawei also hopes that the companies it invests in will be used for its production lines in the next 3 to 5 years.

References:

https://mp.weixin.qq.com/s/16JJ4h5JXckwoowvLe4gYw

https://www.lightreading.com/asia/huawei-bets-on-chip-startups-to-rebuild-supply-chain/d/d-id/770669?

 

4 thoughts on “Huawei investment subsidiary buys 40 companies in 3 years to reconstruct semiconductor supply chain

  1. It is not only Huawei’s strategy, but the state’s strategy to build a closed loop semiconductor system within China. However, everything is still in the very early stages.

    In past three years, HiSilicon said many times that they can make all kinds of semiconductor chips. However, that did not happen, despite huge investments from Huawei and China’s government in semiconductor manufacturing capabilities.

    In years past, Huawei claimed they were not afraid of the sanctions from the US. They have evidently backtracked on that position now because the US sanctions, especially related to semiconductors, have almost crippled the company.

    I suggest we wait and see in verifying whether Huawei’s effort to rebuild their semiconductor supply chain are feasible in the near future.

    1. Based on an article in today’s NY Times, we don’t have to wait and see if Huawei can build a complete semiconductor supply chain, especially manufacturing very advanced semiconductor chips for its smartphones, base stations, fiber optics and other equipment. The answer is an emphatic NO!

      A fairly new semiconductor manufacturing machine, made by ASML Holding in Veldhoven, Netherlands is the SHOW STOPPER! Its system uses a different kind of light to define ultra-small circuitry on chips, packing more performance into the small slices of silicon. The tool, which took decades to develop and was introduced for high-volume manufacturing in 2017, costs more than $150 million.

      This complex machine is widely acknowledged as necessary for making the most advanced chips, an ability with geopolitical implications. The Trump administration successfully lobbied the Dutch government to block shipments of such a machine to China in 2019, and the Biden administration has shown no signs of reversing that stance.

      Manufacturers can’t produce leading-edge chips without the system, and “it is only made by the Dutch firm ASML,” said Will Hunt, a research analyst at Georgetown University’s Center for Security and Emerging Technology, which has concluded that it would take China at least a decade to build its own similar equipment. “From China’s perspective, that is a frustrating thing.”

      ASML’s machine has effectively turned into a choke point in the supply chain for highly integrated semiconductor chips, which act as the brains of computers, digital devices, and other equipment.

      A study this spring by Boston Consulting Group and the Semiconductor Industry Association estimated that creating a self-sufficient chip supply chain would take at least $1 trillion and sharply increase prices for chips and products made with them. That goal is “completely unrealistic” for anybody, said Willy Shih, a management professor at Harvard Business School who studies supply chains. ASML’s technology “is a great example of why you have global trade.”

      Since ASML introduced its commercial EUV model in 2017, customers have bought about 100 of them. Buyers include Samsung and TSMC, the biggest service producing chips designed by other companies. TSMC uses the tool to make the processors designed by Apple for its latest iPhones. Intel and IBM have said EUV is crucial to their plans.

      “It’s definitely the most complicated machine humans have built,” said Darío Gil, a senior vice president at IBM.

      Dutch restrictions on exporting such machines to China, which have been enforced since 2019, haven’t had much financial impact on ASML since it has a backlog of orders from other countries. But about 15 percent of the company’s sales come from selling older systems in China.

      https://www.nytimes.com/2021/07/04/technology/tech-cold-war-chips.html

      1. WSJ Update- July 17, 2021:
        The Biden administration has asked the Dutch government to restrict sales of ASML’s chip making machine, because of national-security concerns, according to U.S. officials. The stance is a holdover from the Trump White House, which first identified the strategic value of the machine and reached out to Dutch officials.
        ASML expects to make 42 of its most advanced machines this year and 55 next year. China accounted for 17% of ASML’s overall sales in 2020. Those sales, though, involve older-generation machines. Analysts say that without ASML’s most-advanced machines, Chinese chip makers can’t make leading-edge chips until domestically made tools catch up.
        An estimate that China is at least 10 years away from matching ASML’s technology prompted the Trump administration to begin lobbying the Dutch for an export ban. “This is in our mutual national-security interest,” Nazak Nikakhtar, a Commerce Department official in the Trump administration, said she told her Dutch counterparts.
        https://www.wsj.com/articles/china-wants-a-chip-machine-from-the-dutch-the-u-s-said-no-11626514513?mod=hp_lead_pos3

  2. Nikeii Asia related article January 13, 2021:

    China’s Huawei Technologies is ramping up investment in local chip companies to plug holes in its semiconductor supply chain caused by the U.S. crackdown on the tech giant.

    Huawei, the world’s largest telecom equipment provider and No. 2 smartphone maker, is engaging with several Chinese chipmakers for possible investment while also working to maintain its own chip design development, two people with knowledge of the matter told Nikkei Asia.

    The Chinese company has been cut off from many of its most important global suppliers since Washington imposed trade restrictions on the use of American technology, even by non-U.S. companies, to supply Huawei.

    Huawei has already taken stakes in 20 semiconductor-related companies over the past year and a half, an analysis of investment data by Nikkei Asia shows, with half of those deals coming in the past five months. Those investments cover chipmaking sectors currently dominated by companies from the U.S., Japan, South Korea and Taiwan, such as chip design tools, semiconductor materials, compound semiconductors and chip production and testing equipment.

    The acceleration of investment and the range of targets underscore the company’s eagerness to free itself from U.S. restrictions and maintain its tech development.

    The Chinese national tech champion is also quietly building a small-scale chip production line for research purposes in Shenzhen, where it is headquartered, multiple people said.

    “Broadly speaking, the importance of Huawei’s R&D production line in Shenzhen is to help accelerate chip development and to make sure all its designs can later be put into production smoothly,” one of the people said. Construction of the line began in the latter half of 2020, according to sources.

    On the investment front, Huawei is looking to fill gaps in its chip supply chain and is receiving government assistance to do so.

    “Local government officials are helping Huawei look for targets for investment,” one source said. “The company aims to step into any area that it lacks in chip development, from chip production, materials and equipment, to design software.”

    Huawei is in talks to invest in SiEn (QingDao) Integrated Circuits, a chip manufacturer founded in 2018, the source said, adding that it has the support of the local Qingdao government for the deal. The investment would provide Huawei with access to a broad range of integrated chip development services, from design and production to packaging and testing.

    Huawei has stepped up its investment activities mainly through Hubble Technology Investment, its wholly owned venture capital arm with paid-in capital of 2.7 billion yuan ($417 million). The investment arm was set up in April 2019, a month before Washington added Huawei to a trade blacklist that restricted access to American technology. Since then, Hubble has made strategic investments in at least 25 Chinese tech companies, of which 20 are semiconductor-related, according to a Nikkei analysis of data from Qichacha, a Chinese provider of business data.

    Of the 25 investments, 18 were made in 2020. Ten of them took place after the U.S. Commerce Department in August further tightened export control rules to restrict even non-U.S. players from using American technology to supply the Chinese company.

    Huawei also made strategic investments in domestic chip developers, focusing on communication semiconductors such as radio frequency chips, analog chips and antennas, Nikkei’s analysis showed. U.S.-based Skyworks, Qorvo, Broadcom and Qualcomm are the leading players in this market.

    At least five of Huawei’s investment targets have plans for initial public offerings in China. Others have already gone public. 3Peak, headquartered in Suzhou, debuted on Shanghai’s STAR board — the Chinese version of Nasdaq — last September, four months after Huawei’s Hubble took a 6% stake in the company. Founded in 2012, 3Peak focuses on developing analog chips and sees Analog Devices Inc. of the U.S. as a competitor. Frequency filters and antenna developer CaiQin Technology, in which Hubble owns a 4.58% stake, plans to go public on the STAR board, according to its prospectus. CaiQin’s top rivals are Skyworks, Qorvo and Broadcom.

    Huawei is building an R&D center in Shanghai, looking to maintain its innovative edge despite heavy U.S. sanctions. © AP
    Huawei’s ownership in the Chinese tech companies ranges from 3% to 15%, based on current data. Its most recently recorded investment came in late December, when it bought a 15% stake in NineCube, a Chinese chip design toolmaker founded in 2011 in Wuhan. Chip design tools, also known as electronic design automation tools, are crucial for companies looking to design their own chips. The market and expertise for advanced chip design tools are controlled by only a handful of companies, two of which — Synopsys and Cadence Design Systems — are American. U.S. dominance in this field has made Washington’s most recent export crackdown on Huawei particularly painful.

    Huawei’s chip design arm, HiSilicon Technologies, was China’s biggest chip developer and designed the high-end Kirin mobile processors used in Huawei’s premium smartphones, as well as its own networking and server processors for base stations. HiSilicon was also the world’s biggest surveillance camera chip supplier and leading television chip developer. However, most of the chips it developed could not be manufactured because the U.S. demanded that all Huawei’s chip production partners using American technology — including Taiwan Semiconductor Manufacturing Co., the world’s biggest contract chipmaker — stop supplying the Chinese company without a license. Richard Yu, CEO of Huawei’s consumer business group, said the Kirin series will likely “go extinct” due to Washington’s crackdown. Currently, Huawei is relying on inventories of high-end chips it stockpiled over the past two years.

    Huawei’s investments also included local companies that supply materials for semiconductors, such as SICC and Tankeblue Semiconductor, which make silicon carbide, as well as chip production equipment makers like Shenzhen Skyverse and Ningbo Allsemi Microelectronics Equipment. Both fields are dominated by U.S. and Japanese companies like Applied Materials, Lam Research, KLA, 3M, Dow Dupont, Tokyo Electron and Shin Etsu Chemical.

    Efforts by the Chinese giant to beef up its chip supply chain are in line with Beijing’s goal of achieving self-sufficiency in semiconductors — a key battleground of the U.S.-China tech war. China’s biggest contract chipmaker Semiconductor Manufacturing International Corp. and memory chipmaker Yangtze Memory are accelerating efforts to strip U.S. equipment out of their production lines, the Nikkei reported earlier.

    While Huawei has grown more aggressive in its investments, the company has maintained a rather low public profile since announcing it would sell its budget smartphone brand Honor last November. Huawei canceled its annual year-end message, which it usually delivers along with its earnings report for the final quarter of the year. At the end of 2019, Huawei warned that it would face a tough 2020 and would sack underperforming staff. The company reported a significant slowdown in its July-September earnings.

    In November, founder Ren Zhengfei told employees that Huawei will have to streamline its business and focus on what is important.

    “You cannot do everything, otherwise, you won’t have energy to fight in the future,” Ren said in his speech, which was made public this month on Xinsheng Shequ, the company’s employee community platform.

    https://asia.nikkei.com/Spotlight/Huawei-crackdown/Huawei-ramps-up-chip-investment-in-fight-for-survival

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