The geopolitical clash between the United States and China hinges on the tiniest of technologies, chips and other components that are essential to nearly every smartphone, laptop computer and cellular network on Earth. And the best ones— for now — are made only by America and its allies.
With names like MEMS accelerometers and field-programmable gate arrays, they operate invisibly to consumers but are at the heart of a long-running technological race that, so far, China is losing despite billions of dollars of investments.
But while the U.S. now has a strategic edge that China can’t easily counter, it may not last. By placing Huawei on its “Entity List” last week, threatening the future of one of China’s most important international companies, the Trump administration likely prodded China to redouble its efforts to close that crucial technological gap, say industry analysts.
The U.S. move, based on national security concerns, could have long-term consequences that would not be in U.S. interests, spurring the creation of new competitors in an industry now dominated by Western companies such as Qualcomm, Intel, Arm and others.
China’s renewed commitment to what it calls “semiconductor independence” likely already has begun, say industry experts and analysts — and will continue even if the current trade dispute gets resolved in negotiations.
“Either way, the Chinese government and Chinese companies will look at this and try to replace a U.S. supplier with a non-U.S. supplier,” said Stewart Randall, head of semiconductors for market consulting firm Intralink, who is based in Shanghai. “They won’t want to be in a position where the U.S. always wins.”
MEMS accelerometers allow phones to sense movement. Without them, the phone’s screen would not automatically adjust when turned vertically and horizontally. They also tell users which direction to walk while following on-screen GPS directions, or sense different activities, like walking, running or cycling. They are key to newer “augmented reality” apps that can place virtual objects in the real world.
These sensors, which are smaller than a grain of sand, sell for anywhere from 10 cents to as much as 50 cents each. But that low price doesn’t mean they’re easy to make, and the U.S., German, French and Japanese companies that manufacture the most advanced versions jealously guard the process, building them in in-house semiconductor fabrication labs known in the industry as “fabs” to make certain the technology does not leak to competitors.
The components in the latest accelerometers are microscopic — the term MEMS means “microelectromechanical systems” — making them impossible to simply take apart and copy. To build one, a company needs to develop the technology from the ground up, or somehow acquire the detailed schematics showing how they are assembled.
“If they’re not allowed to buy parts at all from American companies, eventually they’ll run into problems,” said Stacy Rasgon, a senior analyst on the U.S. semiconductor industry for Bernstein Research.
Larger and less sophisticated chips can be developed through computer simulation, according to chip experts. But MEMS-based chips are too small for that. Developing one is a painstaking, trial-and-error process that takes years. Chip experts think in 18-month “development cycles,” and it usually takes about three of those cycles for a company to get up to par, they say.
So far, China isn’t there.
But Chinese semiconductor companies in the past haven’t had much of a business incentive to devote the research budgets to developing technologies like advanced accelerometers because they could buy them from the West. Now, with the new U.S.-imposed prohibitions, chip experts say Chinese companies like SMIC likely will go into overdrive to develop better chips for a domestic market that is suddenly in play.
“Eventually they’ll get it, but it won’t be any time soon,” said James A. Lewis, a technology policy expert for the Center for Strategic & International Studies, based in Washington.
Others are not so sure it will take China long.
Industry analyst Joe Madden recalled a time, in the late 1990s, when a company he worked for was marketing a proprietary component for cellular networks and trying to decide whether to sell the component to Huawei.
Madden said his company assumed Huawei would take about three years to make its own version, ample time for Madden’s company to profit. But Huawei had its own version in just two months, Madden recalled.
Most of the key device components now made in the United States and allied countries, he said, could likely be replicated in China at some point. Until then, Huawei and its consumers would have to rely on less sophisticated components, making smartphones, for example, bulkier and glitchier.
“It think it still would take about two to three years,” said Madden, the founder of Mobile Experts in Los Gatos, Calif. “They could live with lower performance and battery life for a time. Eventually they would catch up to where we are today.”
Another important piece of equipment made only in the West is the field programmable gate array, or FPGA, for use in the most advanced 5G cell towers. Huawei has been purchasing these devices from U.S.-based Xilinx to help direct wireless traffic and carry out specialized tasks necessary to make 5G technology work. FPGAs are valuable for their versatility. The microprocessors in computers are like a traditional, three-bedroom home that has all the necessities but never changes. An FPGA is like a house that can have seven kitchens one day and 10 bathrooms the next, depending on what task is needed.
Building an FPGA is incredibly complex. A single one is comprised of billions of transistors, all of which can be physically reprogrammed on the fly with computer software. But there’s no standard coding language for FPGAs. Companies that build them also need to create customized software that can interact with each one of those transistors perfectly. That’s a herculean task, even for big companies like California-based Intel, which paid $17 billion to acquire FPGA maker Altera in 2015.
China will require “a humongous body of software developed in close relationship with the hardware” to develop an FPGA industry, said Hadi Esmaeilzadeh, a professor of computer science at University of California, San Diego. “It will be challenging.”
But there are signs that Huawei and the Chinese government have been preparing for this moment. As far back as 2015, Chinese leaders announced “Made in China 2025,” a strategic plan that called for increasing independence in a range of key industries, including the production of computer semiconductors.
Chinese investment in the industry is projected to surpass $100 billion, and China has developed several manufacturers for chips, including a Huawei subsidiary, HiSilicon. But most Chinese chips, say industry experts, rely on designs from Arm, a British-based company that announced Wednesday that it will cut off Huawei because of the U.S. trade ban.
Even before that happened, Chinese companies had failed to make some of the most advanced components in a range of major products, including for its rollout of 5G, the high-speed next generation of wireless technology expected to allow a range of new products and services, including self-driving cars.
Adding to Huawei’s woes is the fact that their smartphones run on Google’s Android operating system. While Huawei can install publicly available versions of Android, new phones won’t have access to the Android Play store and won’t be able to run popular Google services like YouTube, Gmail and Google Maps, unless the company can find some way to work around Google’s inability to license its products to Huawei.
In implementing the trade ban against Huawei, U.S. officials cited Huawei’s alleged violations of sanctions against Iran. But the Trump administration also has argued that Huawei’s potential dominance of 5G networks — it currently controls almost 30 percent of the global 5G equipment market — would create unacceptable national security risks by giving China the advantage in gathering signals intelligence. Huawei has denied that its equipment could be used for espionage.
Industry players are watching to see if the U.S. trade ban on Huawei remains in place amid the broader trade negotiations with China. Last year U.S. officials banned another Chinese company, ZTE, over allegations that it had violated sanctions against Iran and North Korea, pushing the company to the brink of closure. But Trump lifted the ban after a few weeks after a request Trump said was made by Chinese President Xi Jinping.
Trump underscored the unsettled nature of what will happen with Huawei Thursday afternoon by calling the company “very dangerous” but leaving open the door to negotiations. “If we made a deal, I could imagine Huawei being possibly included in some form of, or in some part of, a trade deal,” he said.
For Huawei, one alternative to paying Western companies for advanced technology is finding free versions of it. While Arm has earned billions of dollars licensing chip designs that can power mobile phones’ operating systems, a group of Berkeley researchers has for years been working on a free one called RISC-V, a blueprint anyone in the world can use.
The RISC-V Foundation, created in 2015, counts technology giants like Google, Huawei, Qualcomm and others as members, but has so far made little impact on the handset industry. Thanks to a U.S. ban on Huawei, that could be about to change.