Chinese tech champion Huawei has staged a dramatic comeback, reaching new heights five years after U.S. sanctions cut off the company’s supplies of advanced chips.
The company was the top-selling smartphone brand in China in the first two weeks of 2024, according to the South China Morning Post citing a report from research firm Counterpoint Research. The firm noted that it’s the first time Huawei has taken first place since the U.S. put the company on a trade blacklist in 2019. (The U.S. accused Huawei of having ties to China’s military, charges the company denies.)
Last August, Huawei returned to the premium smartphone market with the Mate 60 series, featuring an advanced China-manufactured processor. The Kirin processor, made by Chinese chipmaker Semiconductor Manufacturing International Corporation (SMIC), is just a few generations behind the most advanced chips used in Apple’s latest iPhone.
State media celebrated the release of the phone as proof of China’s ability to withstand U.S. export controls on sales of advanced chips and chipmaking equipment to Chinese companies.
Huawei’s gain is Apple’s loss. Last quarter, the U.S. tech company reported a 13% drop in sales in Greater China—which includes mainland China, Hong Kong and Taiwan. CEO Tim Cook called China the “most competitive smartphone market in the world” in an interview with Reuters last week.
SMIC, which makes Huawei’s smartphone processors, reported $174.7 million in quarterly net income on Tuesday, ahead of analyst expectations of $139.1 million.
Huawei’s AI chips
Yet Huawei’s ability to sustain its smartphone strengths could be constrained by another one of its successes: the company’s AI chips.
Strong demand for the company’s Ascend AI chips is forcing the company to slow production of its smartphones, Reuters reported Monday, citing unnamed sources. Huawei reportedly uses one facility to produce both its smartphone processors and AI chips, but is struggling with low production yields.
Huawei did not immediately respond to a request for comment.
Analysts previously suggested to Fortune that while Huawei’s ability to make an advanced processor given its constraints was impressive, Chinese chip makers will likely struggle to produce more advanced semiconductors in a cost-effective manner.
Still, Chinese companies have embraced Huawei’s chips, which reportedly have capabilities that approach the processors made by market leader Nvidia. The U.S. has stopped Nvidia from selling its most advanced chips to Chinese tech companies, which are embarking on their own arms race to develop generative AI products.
Nvidia continues to develop China-focused chips that comply with U.S. export controls. Yet Chinese companies now think that these weaker chips are no longer significantly better than cheaper domestic options like those made by Huawei, the Wall Street Journal reported earlier this year.
In late December, Huawei said it expected to generate almost $100 billion in sales in 2023, which would be an increase from the $92.3 billion it generated in 2022.