Huawei shrugs off U.S. sanctions to take top place in China’s smartphone market—but its new AI chips might be an even bigger achievement

The institution was nan top-selling smartphone marque successful China successful nan first 2 weeks of 2024, according to nan South China Morning Post citing a study from investigation patient Counterpoint Research. The patient noted that it’s nan first clip Huawei has taken first spot since nan U.S. put nan institution connected a waste and acquisition blacklist successful 2019. (The U.S. accused Huawei of having ties to China’s military, charges nan institution denies.)

Last August, Huawei returned to nan premium smartphone market pinch nan Mate 60 series, featuring an precocious China-manufactured processor. The Kirin processor, made by Chinese chipmaker Semiconductor Manufacturing International Corporation (SMIC), is conscionable a fewer generations down nan astir precocious chips utilized successful Apple’s latest iPhone. 

State media celebrated nan merchandise of nan telephone arsenic impervious of China’s expertise to withstand U.S. export controls connected income of precocious chips and chipmaking instrumentality to Chinese companies.

Huawei’s summation is Apple’s loss. Last quarter, nan U.S. tech institution reported a 13% driblet successful income successful Greater China—which includes mainland China, Hong Kong and Taiwan. CEO Tim Cook called China nan “most competitory smartphone marketplace successful nan world” successful an question and reply pinch Reuters past week. 

SMIC, which makes Huawei’s smartphone processors, reported $174.7 million successful quarterly nett income connected Tuesday, up of expert expectations of $139.1 million. 

Huawei’s AI chips

Yet Huawei’s expertise to prolong its smartphone strengths could beryllium constrained by different 1 of its successes: nan company’s AI chips. 

Strong request for nan company’s Ascend AI chips is forcing nan institution to slow accumulation of its smartphones, Reuters reported Monday, citing unnamed sources. Huawei reportedly uses 1 installation to nutrient some its smartphone processors and AI chips, but is struggling pinch debased accumulation yields. 

Huawei did not instantly respond to a petition for comment. 

Analysts antecedently suggested to Fortune that while Huawei’s expertise to make an precocious processor fixed its constraints was impressive, Chinese spot makers will apt struggle to nutrient much precocious semiconductors successful a cost-effective manner. 

Still, Chinese companies person embraced Huawei’s chips, which reportedly person capabilities that attack nan processors made by marketplace leader Nvidia. The U.S. has stopped Nvidia from trading its astir precocious chips to Chinese tech companies, which are embarking connected their own arms race to create generative AI products. 

Nvidia continues to create China-focused chips that comply pinch U.S. export controls. Yet Chinese companies now deliberation that these weaker chips are nary longer importantly amended than cheaper home options for illustration those made by Huawei, nan Wall Street Journal reported earlier this year. 

In precocious December, Huawei said it expected to generate almost $100 cardinal successful income successful 2023, which would beryllium an summation from nan $92.3 cardinal it generated successful 2022.