The Six Five Team discusses news that Huawei is back in the phone business and their “mystery” P60 Smartphone.
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Transcript:
Daniel Newman: I know you used to be a big power user of Huawei devices. Thanks for lending all of your personal information to China. Appreciate that. Kidding, maybe, I don’t know, whatever. But the big news, Huawei is back in the phone business. They’d disappeared or at least they disappeared outside of China for a while.
Patrick Moorhead: Yeah, this is a great intersection between a lot of conversations that we’ve had on The Six Five and one of them is the ongoing saga of China versus U.S. regarding cutoffs in the technology. I always like to tell the big picture of this. This goes back decades to when China was blocking companies like IBM and Cisco. The thing that’s true today, which is most online services are blocked. U.S. online services are blocked in China. And China essentially copies the Facebooks, the Twitters, Google search and things like that. Here we are today where the U.S. thought it had cut off Huawei from advanced semiconductor tech, but also you have to get a waiver if and when, from the U.S. federal government, if you’re going to provide anything to Huawei. But here, this mystery, I call it the mystery phone, the P60 and the P60 PRO come out. On day of launch, the company didn’t even talk about what processor was inside, didn’t talk about whether it supported 5G or 4G, which quite frankly was bizarre.
And then you saw phones that were provided to reviewers. Now remember, this is a China only phone. Huawei sampled this well beyond Chinese phones. So, even the people who were writing about the phone didn’t even know what it supported. And oh, by the way, the timing just happened to coincide where the highest-level U.S. diplomat on trade Raimondo came over and was visiting. And then the entire Chinese press got around that, it was a feeding frenzy. A lot of questions about this phone. And then what popped up was Hynix memory. Hynix is not allowed to sell flash memory to Huawei without a waiver. And even Hynix is trying to figure out where this came from. Was it black market? Was it left over from 18 months ago when the initial sanctions were put in? Nobody quite knows. And by the way, why didn’t Huawei use indigenous flash? Why didn’t they use indigenous memory from China? That’s a weird one.
You and I have talked about how Micron has been cut cutoff or greatly reduced from certain types of applications here. There was some dialogue about Qualcomm and what this meant. Here’s the bizarre part. Qualcomm zeroed out Huawei a long, long time ago, so no revenue. But for some reason, again, I question the intelligence of the stock market on this one. SMIC, which by the way, is the foundry that supposedly created this seven nanometer N+2 chip, which by the way is close in characteristics to TSMC’s six nanometer. It’s not leading edge, not even close. People are wondering how they could possibly provide the volumes to Huawei. And the final bizarre thing about this is I think 10 days after launch or something like that, the company did say, no, this supports 5G, but there’s not a single video in any of the reviewers that shows it connecting to a 5G network.
Again, this is why I wanted to call this Huawei’s mystery phone. Apparently one of our state senators who leads a committee on commerce has opened up an investigation on this because if you think, how could SMIC do this without U.S. technology? Hey, did they use any of the software tools from companies that we cover? Did they use any of the core IP building blocks that have restrictions in China from the U.S.? Anyways, it’s the mystery phone. We might be talking about this a little bit more in the future, Dan. I don’t know.
Daniel Newman: We all know for sure that they don’t pay for a lot of software. That’s a well-known thing in China. That goes back to that joke I made about VMware. How many VMware licenses does China own? Anyways. But there’s so many weird implications here, Pat, and this all does tie together a little bit. I’ve talked a lot about China and microaggressions for a while. There’s so much conflict between are we doing this well or are we not in terms of how we’re managing this. I shared an article, Pat, a week ago that talked about how the U.S. is using all these cheap IoT sensors in military grade devices from China rather than using just slightly more expensive US-based technology. I know it’s not related to a phone, but I’m saying it’s weird that we pick something and then we get really focused on it and then we don’t pick other things. Are they really a threat or are they not a threat?
I was listening to one expert online this morning, a policy expert, talking about China’s aggressive consideration of going back for Taiwan, and it could happen in the next seven years. It’s funny how we just shrugged that off because that’s a freaking huge deal. It’s a huge, huge deal. But it’s like, well, it’s not a problem yet. But there’s certainly consideration that China’s ramping up to take military action with the U.S. Look, us cutting them at the knees on AI is not a small, inconsequential thing. We’ve also known for a long time that China’s a massive market for so many of these technology companies. So many of them are dependent on being able to sell stuff in China. And when you take away the ability for them to sell stuff to China, it does actually cause an impact to growth for US-based companies.
So, there is that push and pull effect going on. Can we sell and what should we sell? What’s a military grade risk? Is it just about military and defense or is it really just about technology leadership as a whole? The war for AI is a race, and the race is won by slowing them down. I think what we’re seeing with the SMIC and the seven-nanometer thing is they’re going to find a way with or without EUV to be able to get access and the way they’ll get access. We don’t actually know for sure, Pat, but I think you said something to me about gray market. You and I are talking about there’s always a way this stuff ends up where it’s not supposed to end up. What you brought up about SK, what you brought up about these different parts, but then of course, if China wants to put off this perception that there are this powerhouse national capable of building their own stuff, but then they’re still having to get all the capabilities, the intellectual property, the building blocks, the memory from outside of China.
How capable are they and how much of this can they actually build? How much, how fast can they build? At the same time, Pat, didn’t they just ban the use of iPhones from a whole bunch of their citizens? Mostly the government ones. But that was a pretty big step. By the way, Apple got pounded this week based on the proclamations of potential lower sales in China. They already knew Apple was making some strategic moves to go to India, building more in India, at least from a manufacturing standpoint. But the Chinese market is incredibly nuanced and complex right now. And them wanting to build their own phone, Pat. The Qualcomm thing, I think you nailed it. It’s a total nothing burger. It’s as bad as the Apple and Qualcomm relation conversations. Qualcomm has already for over a year or two years now in their investor decks communicated what’s happening with Apple. It’s no surprise and no secret there. Same thing with Huawei. That’s a weird one to me.
But the real question is can China build at scale competitive devices without using intellectual property that’s part of this ban or part of these chip controls? Pat, unless I’m mistaken, to build a super phone that’s going to compete with a Snapdragon or to compete with an iPhone, they need leading edge technology that’s probably going to be processed below seven nanometer. Unless I’m mistaken, I don’t understand entirely how they’re going to do it at scale when there’s no technology to manufacture those chip sets, at least that I’m aware of, that they have the access to get their hands on. By the way, I’m not saying I have all the information here, but if I’m mistaken, I don’t understand how this is going to get done at scale. By the way, China has a few billion people. So, if this thing started to sell at scale in China, are they going to… How much capacity could they make of these devices?
Patrick Moorhead: Not a lot.
Daniel Newman: That seems to be a problem for me to try to math this thing. How big of an opportunity does it really become for Huawei? By the way, does Huawei have any chance outside of maybe selling their phones in China and Russia? Are there any other markets that are going to really adopt these? I’m going to leave that there. Very interesting though, Pat. And there’s a confluence of things coming together that are just making this China thing more and more interesting to keep tabs on.
Patrick Moorhead: I call this the hallmark topic. It’s the gift that’s going to keep on giving.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
