And why is the Commerce Department targeting it and what is the impact?

In May 2019, the US Bureau of Industry and Security added Huawei and 114 of its affiliates into the entity list, limiting Huawei’s ability to acquire certain US products including semiconductor components and software. Early this month, the Commerce Department announced new measures to restrict Huawei, but this time more precisely target one affiliate of the company called HiSilicon. What is HiSilicon and why is it special?

HiSilion is a subsidiary of Huawei that designs semiconductor processors that power Huawei’s smartphones and telecom equipment. It is one of the most important reasons Huawei was able to keep operating after the US ban last May.

• For smartphones, the Kirin series of processor it designs is comparable to the most advanced processors designed by Qualcomm and MediaTek, and is one of the key differentiating factors Huawei has compared to other Android devices makers like Xiaomi and Oppo.

• For telecom equipment, HiSilicon designs the ASIC (Application Specific Integrated Circuit) that handles certain parts of data processing in the base station. This is the function historically achieved by high-end FPGA chips from Xilinx. Since Huawei was not able to buy FPGA from Xilinx after the US ban last May, the company uses its internally designed ASIC as a replacement in the base station.

What is this new restriction about and how does that impact Huawei?

• While HiSilicon designs the processor itself, it still relies on foundries especially TSMC to make the processor.

• The new rule requires foundries using any US semiconductor equipment to apply for a license before it can legally ship any processor that is designed by Huawei. Since all foundries use equipment from the US, that means all foundries around the world are subject to this new rule.

• Huawei’s telecom equipment business will see the biggest impact. Without access to the high-end FPGA from Xilinx, and now unable to manufacture their internally designed ASIC, it will be hard for Huawei to keep making competitive products in the long term once they use all the current inventory they have. It is not clear what other options Huawei has at the moment.