Nikkei: Huawei is being suppressed by the United States at a time when ZTE is improving its chip design capabilities

At a time when rival Huawei continues to be dragged down by the US crackdown, ZTE, China's second-largest telecommunications equipment manufacturer, has been quietly improving its chip design capabilities.

Since the outbreak of Sino-US trade and technology tensions, ZTE has been working hard to improve its technical capabilities in the past three to four years, and it is focusing on processors, including the use of TSMC's most advanced 7nm technology as well as advanced packaging technology to manufacture 5G base station processors for it, according to Nikkei Asia Report.

In contrast, AMD and Nvidia's flagship processors and GPUs all use TSMC's 7nm chip technology, and AMD, Nvidia, Xilinx and Broadcom all use TSMC's advanced chip packaging technology. Sources said ZTE is also considering using more advanced chip manufacturing technology than 7nm chips.

A person familiar with ZTE said, "In the past few years, ZTE has become quite active in the pursuit of chip capabilities. Although sales are still small, impressive progress has been shown. ”

According to Nikkei Asia, ZTE has told suppliers that it plans to achieve double-digit growth in domestic server shipments this year to expand its market share in China, especially for servers used in base stations. This ambitious goal poses a direct challenge to Huawei, which still faces obstacles in acquiring key components.

ZTE's move is part of a trend in China's tech industry, with companies trying to wrest market share from Huawei. Given the precedent of the U.S. blacklisting Huawei for trade, strengthening internal technological power is also seen as a way to protect itself from future geopolitical tensions.

Due to U.S. repression, Huawei has been unable to work with TSMC, once an important supplier. The U.S. government tightened export controls against Huawei at the end of 2020, cutting off the company's access to the Taiwanese chip manufacturing giant and its cutting-edge production technology, among other things. Huawei's 2021 revenue fell nearly 29 percent, the first time the company has ever reported a full-year revenue decline.

Manoj Sukumaran, chief analyst of IT business at Omedia's data center, pointed out that Huawei's server revenue fell 44% year-on-year in the third quarter of last year due to the impact of US trade sanctions. The decline in Huawei's business in China is a boon for its local rivals Inspur, Lenovo, H3C and ZTE. The financial report shows that several companies have seen growth in revenue in China in the third quarter of 2021.

ZTE said in its annual report that the company's market share increased last year in three areas: servers, core networking and storage solutions, and Huawei is a key player in these three areas.

Compared with domestic counterparts Inspur, Huawei and Lenovo, ZTE's influence in the global server market is not too large, but the company said that in the first three quarters of 2021, its server and storage solution revenue doubled year-on-year. In particular, the company highlighted that its servers accounted for the highest share of orders from China Mobile, China's largest mobile operator, for three consecutive years, indicating that its server business has become a reliable player in the country.

In addition, like domestic counterparts Xiaomi and OPPO, ZTE is also stepping up efforts to rebuild its smartphone business and seize market share in the field from Huawei. Its global smartphone shipments reached 6.4 million units in the first three quarters of 2021, up from 5.9 million units in all of 2020, while its global market share has increased from 0.5 percent in 2020 to around 0.7 percent, according to IDC data.

Both ZTE and Huawei are banned from participating in the construction of 5G network infrastructure in some countries, mainly in the West, so both are paying more attention to the domestic market. According to preliminary data from China's Ministry of Industry and Information Technology, China is a world leader in 5G deployment and is currently the largest market for 5G deployment, with 1.3 million 5G base stations installed by 2021.

Stephane Teral, principal analyst at LightCounting, a market research firm focused on the communications industry, said Huawei remains China's largest telecommunications equipment maker, but ZTE's domestic market share in China climbed from 30 percent in 2020 to an estimated 35 percent last year.

"ZTE has been sticking to its line, carefully executing its strategy to gradually gain a share of its domestic market. Abroad, Huawei and ZTE have been able to maintain a certain level of business activity in markets such as Africa, Europe, Southeast Asia and South America that are not restricted by government bans. Teral said. Overseas, they are also able to maintain the business of upgrading 4G networks, as these bans typically only apply to 5G, Teral added.

ZTE declined to comment on this article to Nikkei Asia. TSMC told the media that the company complies with all applicable laws and regulations and declined to comment further on the matter. (Proofreading/Jenny)