Recently, the “Nikkei Asian Review” once again hyped the fact that China’s 5G base station construction has slowed down, citing that Chinese companies such as Huawei, ZTE and other Chinese companies have run out of 5G base station parts in the United States (dry up), and also claimed that Japan and others are heavily dependent on it. Suppliers in China’s 5G market have turned to the US and European markets.
Huawei and ZTE declined to comment. But a person familiar with Huawei said that he had not heard of this issue and was curious how the Japanese media learned about it. He believes that the operator business is Huawei’s basic business, and it is also the object of Huawei’s priority protection, so the base station chips will not run out. It may be that Huawei deliberately slows down the consumption rate.
As of the end of September, Huawei and ZTE have participated in two rounds of large-scale centralized procurement of 5G equipment by China Mobile this year. At present, China has opened base stations accounting for 70% of the world’s total, and 5G terminal mobile phone connections account for 80% of the world’s total. Whether it is equipment or applications, it is the world’s largest market.
And this is not the first time that Japanese media have hyped the progress of China’s 5G construction.
During the mid-term earnings season two months ago, Nikkei observed that the capital expenditures of the three major Chinese operators declined in the first half of the year, and began to take the opportunity to hype the slowdown of China’s 5G construction progress due to the lack of chips. However, the three major operators said that their The centralized procurement and construction of base stations were concentrated in the second half of the year, and there was no core shortage problem.
The decrease in Chinese companies’ purchases from Japanese companies means that the chips have been used up?
“China’s drive to build fifth-generation wireless communications infrastructure has lost momentum as equipment makers here have run out of U.S.-made components, forcing suppliers to turn further to the U.S. and European markets.” Nikkei Asian Review in reported on October 20.
The main basis for the Nikkei is the statements of Japanese companies.
The report quoted Tsuneo Murata, chairman of Murata Manufacturing, as saying that Chinese companies’ demand for parts to prevent network interruptions has declined; another communication parts manufacturer’s statement is not too informative, only saying that starting from the summer of 2020, it will no longer be available. Supply to Huawei.
Since Japanese companies such as Murata Manufacturing, Sumitomo Electric, and Nippon Electric Glass rely heavily on China, the world’s largest 5G equipment market, Nikkei also showed off in the report that Chinese companies such as Huawei and ZTE cannot obtain key chips from the United States, ” Headwinds in key markets are forcing (Japanese) suppliers to look for greener pastures.”
Huawei and ZTE’s reduction in purchasing parts from Japanese companies means that Chinese companies have run out of chips, and China’s 5G construction will slow down. This is probably the main logic of this report by Nikkei.
However, a senior semiconductor industry source said that Huawei’s 5G base stations should have a lot of chips in stock. Base stations are Huawei’s top priority for stockpiling, which is more important than mobile phones and security. Therefore, it is not enough to say that Huawei’s base station chips are used up. It may be that Huawei itself is slowing down the consumption rate. “No one outside knows how much Huawei has stockpiled, but it is possible to save bullets and use them stably.”
As Huawei’s starting business, the operator business represented by base stations has a very high status within Huawei. In May 2019, Huawei President Ren Zhengfei publicly stated that Huawei’s main battle force is the operator BG. This department may not have the highest income in Huawei in the future, but it is of great significance. He also positioned HiSilicon as Huawei’s “refueling truck, stretcher team, and bridge-building team in the main battle force.”
Therefore, whenever Huawei holds an important event, it almost always responds to the concerns of the outside world about the operator’s business. In September 2020, the third round of U.S. sanctions just took effect. Guo Ping, Huawei’s rotating chairman, revealed that Huawei’s chip inventory for the To B business (base stations, etc.) is relatively well prepared; in April 2021, Huawei’s rotating chairman Xu Zhijun reconfirmed , Huawei’s chip inventory is no problem to meet the needs of To B customers, but it is not always a problem.
The outside world is not worried about Huawei’s To B business for the time being. Another important reason is that compared with the annual chip consumption of Huawei’s mobile phones in the hundreds of millions, the shipment volume of Huawei’s operator business and enterprise business is much smaller. Therefore, Huawei’s To B business is relatively small. It is safe and can last for a long time. According to data disclosed by the Ministry of Industry and Information Technology of China, as of September 2021, in the two years since 5G commercialization in China, a total of 993,000 5G base stations have been opened and constructed, accounting for 70% of the global total. Based on this calculation, the total number of 5G base stations in the world is only about 1.42 million, and the number of 4G base stations is only tens of millions.
In addition, industry insiders said that compared with the chips used in smartphones, the chips used in 5G base stations are in the outdoor environment all the year round, which makes the chips themselves pay more attention to reliability and stability, and also makes the life cycle of these chips longer. , usually only need to update the relevant software for continuous use.
The problem of base station chips should not be underestimated
There are also some signs that Huawei’s base station chip inventory is still “surplus”. In July this year, China Mobile disclosed the winning bid for 5G 700M wireless network main equipment totaling about 38 billion yuan, with a procurement scale of about 480,000 stations. Huawei has the highest quotation among the three bid packages, and the winning share is also the highest, all at 60%. At the end of September, China Mobile disclosed the results of the centralized procurement of new equipment for the 4G/5G converged core network in 2021. Huawei and ZTE were the first and second winning bidders respectively. The total amount of the bidding was as high as 7.5 billion yuan.
However, judging from the performance in the first half of the year, Huawei’s operator business still suffered some setbacks. According to the financial report, in the first half of 2021, Huawei achieved revenue of 320.4 billion yuan and a net profit margin of 9.8%. Among them, the consumer business fell by 47% year-on-year to 135.7 billion yuan; the operator business fell by 14.2% year-on-year to 136.9 billion yuan; the enterprise business increased by 18.2% year-on-year to 42.9 billion yuan. In addition to the positive growth of the enterprise business, Huawei’s consumer business and operator business both showed negative growth.
However, from the perspective of the industry, chips are not the main reason for the decline of Huawei’s operator business. Huachuang Securities pointed out that Huawei’s substantial squeeze in the European operator market and the large-scale 5G bidding by Chinese operators in 2021 will be concentrated in the second half of the year, which are the two reasons for the decline of Huawei’s operator business, “Huawei’s solid leadership in the 5G market. , with the start of 5G centralized procurement in the second half of 2021, Huawei’s operator business will resume growth.”
When releasing the results for the first half of 2021, Xu Zhijun, Huawei’s rotating chairman, also said that looking forward to the full year, despite the decline in revenue from the consumer business due to external influences, Huawei is confident that the operator business and enterprise business will still achieve steady growth. “We have clarified the company’s strategic goal for the next five years, which is to survive and survive with quality by creating value for customers and partners.”
But the problem of base station chips cannot be underestimated. In October 2020, Nikkei and a professional investigation company dismantled Huawei’s 5G base station and found that in the estimated cost of Huawei’s base station of US$1,320, the proportion of components designed by Chinese companies is about 48%, of which TSMC’s participation in manufacturing may reach 6%. to make. In addition, 27.2% of Huawei’s 5G base stations use US components. These include FPGA chips from Lattice Semiconductor and Xilinx; power management chips from Texas Instruments and ON Semiconductor; memory from Cypress Semiconductor; communication switch components from Broadcom; amplification components from Analog Devices, etc. ; The number of Korean parts used is second only to the United States, and the memory is manufactured by Samsung Electronics; the parts of Japanese companies are only products from TDK and Seiko Epson.
In January 2019, Huawei released its self-developed 5G base station digital chip, Tiangang. This 5G base station chip, which can be used in the 3.5GHz and 2.6GHz frequency bands, uses TSMC’s 7nm process. In October 2020, Bloomberg reported, citing people familiar with the matter, that TSMC began to expand production of Tiangang chips at the end of 2019 at the request of Huawei. Before the third round of US sanctions took effect, TSMC had shipped more than 2 million Tiangang chips.
According to industry insiders, there is currently no sign that Huawei’s operator business has been significantly affected by the chip issue. Even in the worst-case scenario of Huawei’s base station chips being exhausted, there are other equipment manufacturers such as ZTE in China, and 5G construction will not be significantly affected.
However, Nikkei continued to hype “China-related demand drying up” and said that Japanese companies would focus on Europe and the United States.
Among them, Sumitomo Electric will double its research and development personnel in the European and American markets by March next year to “quickly meet customer needs there.” The company also started operating a U.S. factory in September to make chips for 5G base stations, and plans to increase its market share in Europe and the United States to around 50 percent within five years from the current 10 percent. In addition, Nippon Electric Glass will set up a sales team dedicated to the European and American markets as early as 2022. At present, about 90% of the company’s optical fiber components are sold to China.
In fact, the inability of Japanese companies to sell components to Huawei is entirely due to the obstruction of the United States. In April of this year, Xu Zhijun, Huawei’s rotating chairman, said that Huawei’s purchases from Japan in 2020 will be about 8 billion US dollars, a year-on-year decrease of 20%. Since Japanese companies want to sell a chip or a device to Huawei, they all need approval from the US government. This is a typical unfairness and a typical impediment to free trade.
This is the second time that Nikkei has hyped up China’s 5G construction progress recently. In August this year, the Japanese media reported that in the first half of 2021, spending by China’s major telecom operators on 5G networks and other infrastructure fell by 25%, and pointed out that the shortage of chips led to delays in the delivery of some network equipment, affecting China’s 5G network construction.
In response to this matter, China’s four major telecom operators (including China Tower) said that the construction of 5G base stations has not encountered the shortage of chips reported by Japanese media.
As for why the capital expenditure was reduced in the first half of the year, China Mobile revealed that it was because the issue of jointly building a 700MHz frequency band with China Radio and Television was still under negotiation, and the investment was slightly delayed compared with last year. At present, the company’s 5G 700M wireless network master equipment bidding has been completed in July; China Telecom and China Unicom said that they mainly intend to control the pace of investment, improve equipment utilization efficiency, and wait for 5G technology and standards to become more mature. Completion progress exceeded expectations.
Looking forward to the second half of the year, all four companies disclosed that they will maintain their investment plans for the whole year unchanged, and will focus on 5G construction in the next few months. If the expenditure is completed as planned, the capital expenditure of the four companies in 2021 will reach 370.6 billion yuan, which is basically the same as last year (370.2 billion yuan). Based on the data in the first half of the year, the capital expenditure of the four companies in the second half of the year will reach 233 billion yuan, a year-on-year increase of 25.3%; the number of new base stations will reach 439,000, an increase of 18% year-on-year; 630,000 new 5G base stations will be built throughout the year, which is in line with the requirements of the Ministry of Industry and Information Technology. be consistent.