US embargo hinders Huawei's AI chip ambitions

Huawei is designing two next-generation Ascend processors to compete with top-of-the-line processors made by Nvidia Corp. But the chips are based on aging 7-nanometer technology, due to U.S.-led restrictions that prevent Huawei’s chipmaking partners from buying advanced extreme ultraviolet (EUV) lithography systems from ASML Holding NV of the Netherlands.

This means Huawei's flagship chips will be stuck with older technology until at least 2026, according to people familiar with the matter. Huawei's smartphone processors, for its Mate line, face similar restrictions.

Huawei’s suspension affects not only the company’s business but also China’s broader AI ambitions. The difficulties suggest that China will have a hard time closing the technology gap with the U.S. by 2025, when Taiwan Semiconductor Manufacturing Co. (TSMC) — a chipmaker for Apple Inc. and Nvidia — begins mass production of 2nm chips.

To make matters worse, Huawei’s main manufacturing partner, Semiconductor Manufacturing International Corp. (SMIC), is struggling to consistently produce 7nm chips. The Shanghai-based company’s 7nm production line is experiencing yield issues. It’s uncertain whether Huawei will be able to secure enough smartphone processors and AI chips in the coming years.

Huawei and SMIC have not commented on this issue.

In 2023, Huawei launched the Mate 60 Pro smartphone with a 7nm chip designed by SMIC. That cemented the company's technological credentials in the eyes of the Chinese public, helping Huawei's sales increase for seven consecutive quarters thanks to strong demand for that device.

But in a sign of Huawei’s struggles in 2024, the company has been quiet about the chip for its upcoming flagship Mate 70 smartphone, which is due to launch on November 26. The company did not release any hardware specifications when it began taking early orders this week.

Huawei's difficulties show that years of US sanctions have somewhat "frozen" China's technological progress, as well as limited development opportunities for the country's leading enterprises.

The U.S. government has restricted China’s access to sophisticated manufacturing equipment from its suppliers such as Applied Materials Inc. and Lam Research Corp., as well as Nvidia’s most powerful AI chips — a commodity sought after by major tech companies and governments.

In recent years, Huawei has played a key role in China’s push for self-sufficiency in key sectors, including semiconductors and AI. But Huawei’s struggles highlight the major obstacles China faces in building advanced supply chains in emerging technologies.