Surprise for the market: Huawei claims a breakthrough in chip design. How does this threaten Nvidia

Chinese technology giant Huawei Technologies has developed a new approach to manufacturing advanced chips. Using this technology, Huawei expects to produce chips comparable in quality to the leading products of industry leaders Nvidia, Taiwan Semiconductor Manufacturing (TSMC) and Intel by 2031 together with its partner from China - Semiconductor Manufacturing International Corp. (SMIC), according to Bloomberg, The Wall Street Journal (WSJ) and CNBC.And that's without the unique hardware that Huawei's competitors use, but which is not available to the Chinese company due to US restrictions, the WSJ points out.

We are talking about Huawei's production of 1.4-nanometer chips using its own LogicFolding technology, the head of the company's semiconductor division, He Tingbo, told a conference in Shanghai dedicated to chips on Ma 25, Bloomberg writes. A similar - 1.4-nanometer process - is considered the next frontier in the production of advanced semiconductors, WSJ explains. Intel, TSMC and Samsung Electronics, among others, expect to start mass production of products using this process in the next few years. For this purpose, they plan to use equipment from the Dutch company ASML.

The new process is expected to allow Huawei to improve chip performance by increasing the number of transistors and optimizing the data transfer rate, Bloomberg notes. The first chips, for the production of which the Chinese company will use the LogicFolding architecture, will be Kirin chips for smartphones, the company said. Huawei plans to release them this fall.

"This year we have a surprise for the whole industry. It's not about another line extension or planned modernization, but a colossal leap forward," said He Tinbo.

The SSE Science and Technology Innovation Board 50 Index (SSE Science and Technology Innovation Board 50 Index) on the Shanghai Stock Exchange, which includes several of China's largest semiconductor companies, rose to a record high after He's announcement. SMIC shares soared more than 18%, while securities of mainland China's second-largest contract chip maker, Hua Hong Semiconductor, jumped to the daily limit, adding 20%.

If Huawei manages to mass-produce 1.4-nanometer semiconductors, the company will be able to disprove the common industry belief that ASML's EUV (Extreme Ultraviolet Lithography) systems are needed to mass-produce the most advanced chips - 5-nanometer process and beyond - Bloomberg notes. It would also remove a key hurdle for China in its technology rivalry with the U.S., and could make Huawei's chip production cheaper than competitors, the WSJ notes. "Our solution is feasible and affordable," He said at the conference.

While traditional chip manufacturing relies on placing more and more circuits on a single silicon wafer to speed up computing, some analysts say that classic manufacturing technology is hitting a physical ceiling where components simply can't get any smaller anytime soon, the WSJ reports. Huawei said that its approach is focused on improving the efficiency of computing - for example, by placing circuits in multiple layers within a single chip and reducing the time needed to transfer data between them.

The development was announced by Huawei amid export restrictions faced by leading US chipmaker Nvidia in China, as well as renewed competition between Apple and Huawei in the market of the world's second largest consumer economy, CNBC writes.

"What this means for Nvidia is that the window of opportunity to sell advanced chips like the H200 in the Chinese market is narrowing," said George Chen, partner and co-chair of digital technology at The Asia Group. "This trend is likely to heighten concerns in Washington, where Huawei remains a symbol of U.S. export restrictions," he added.

"Whether Huawei has a clear advantage here [in the chip manufacturing process] remains to be seen, but at least it's an alternative development path - a breakthrough that Huawei has managed to make in the face of a supply chain crisis," said Lian Jie Su, an analyst at research firm Omdia (quoted in WSJ).

The new method of chip production developed by the Chinese company "does not mean that Huawei has solved all the problems associated with the technological process, typical for the production of chips on 1.4-nanometer technology," noted the head of the technical division of DGA Group in Asia and America Paul Triolo (quoted by CNBC). In particular, the company may face difficulties with power consumption, "thermal characteristics, device performance," as well as the final output of products, he added.

Neil Shah, vice president of research at Counterpoint Research, agreed: Huawei's attempts to introduce the new technology into its flagship Mate 90 line of smartphones this fall will be a significant engineering achievement, but scaling up to the level of AI data centers will serve as "the ultimate test of China's ability to creatively circumvent Western sanctions," the expert noted (quoted by CNBC).

The US blacklisted Huawei in 2019 and banned American companies from selling advanced chips and technology to it. This forced Huawei to develop alternative technological solutions. Since then, the company has become a central player in Beijing's protectionist policies as it seeks to achieve technological self-sufficiency.

Huawei and Nvidia are often pitted against each other as the epitome of the escalating technological rivalry between Beijing and Washington, the WSJ notes. The Chinese company is increasingly relying on alternative architectures, advanced chip layout (packaging) techniques and its networking technologies to boost the processing power of its hardware and catch up with rivals.

Huawei securities are not traded on the stock exchange. US stock exchanges are closed on May 25 in connection with Memorial Day. Hong Kong stock exchange is also closed on Monday due to the holiday - today Buddha's Birthday is celebrated there. ASML shares gain 1.14% in the Netherlands.

This article was AI-translated and verified by a human editor