Huawei’s AI chips may be a 'problem' for its smartphone business, here's why

The rising demand for Chinese smartphone maker

Huawei

’s artificial intelligence (AI) chips may have the potential to affect its smartphone production. According to a report by news agency Reuters, the company’s booming AI chip business has forced production tradeoffs with its premium Mate 60 smartphones. The report cited sources familiar with the matter.

As the global race for AI functionality and the

US-China technology crisis

gains more attention, Huawei has to put its smartphone business in second place soon after the company regained its top position in the Chinese market for the first time in more than three years.

Huawei prioritising chip manufacturing

Huawei manufactures both its

Ascend AI chips

and

Kirin

smartphone chips at the same facility. However, low chip yield rates have constrained production capacity, prompting Huawei to prioritise Ascend over Kirin, the report adds.
For this, Huawei has reportedly slowed its Mate 60 production to focus on improving Ascend yield rates. The company hopes that this arrangement will be temporary, the report added.

Despite shortages, Mate 60 drove Huawei's return as China's top smartphone seller in early 2024 - its first time since 2020. Other affected products include self-driving computing units for cars, causing delivery delays for Chinese automakers.
This situation reveals Huawei's challenges in rebuilding after US sanctions restricted the company’s access to chipmaking tools and crippled its smartphone business in 2019. It also shows how US curbs on selling AI chips to China have pushed customers like Huawei to domestic alternatives.

The company hasn’t officially shared any details about its chip-making ambitions. The report notes that Huawei's ability to produce advanced 5G Kirin chips for Mate 60s also surprised analysts. China's top contract chipmaker

SMIC

may have helped the company to tweak manufacturing machines.

Why Huawei’s Ascend AI chips are important for China

Huawei's Ascend series is considered China's most competitive non-Nvidia AI chips. China's computing power initiative has increased public and private demand for these chips. The report notes that local authorities in China have also announced data centre projects using Huawei's Ascend chips.