Huawei adjusts smartphone production amid surging demand for AI chips

Huawei, the Chinese tech giant, is reevaluating its smartphone production strategy due to heightened demand for its artificial intelligence (AI) chips, according to sources familiar with the matter. The surge in appetite for Huawei's AI chips, coupled with manufacturing constraints, has prompted the company to prioritise AI production and slow down the manufacturing of its premium Mate 60 phones.

Three sources revealed that Huawei employs a single facility for both Ascend AI chips and Kirin chips, which power its smartphones. However, production has been impeded by a low yield rate, indicating challenges in production quality. 

This move comes at a time when Huawei has secured the top spot in Chinese smartphone sales for the first time in over three years, reflecting the global competition for AI functionality amid the Sino-US technological standoff.

The situation sheds light on Huawei's struggles since the 2019 US sanctions, which restricted access to advanced chipmaking tools on national security grounds, affecting its smartphone unit. The impact of US restrictions on the sale of AI processing chips to China is evident, as the country seeks alternatives to US-controlled Nvidia.

China's initiative to enhance its computing power has led to increased demand for Huawei's Ascend series, especially in data centre projects. The Ascend 910B, considered a competitive non-Nvidia AI chip in China, has gained traction.

Huawei has chosen to prioritise Ascend chip production over Kirin chips, leading to the slowdown in manufacturing for Mate 60 smartphones. The company is actively working to improve its yield rate, with hopes that this production adjustment is temporary.

While Huawei has been discreet about its chip manufacturing capabilities, recent developments indicate progress in producing advanced chips. The Mate 60 series, featuring a Chinese-made chip capable of fifth-generation (5G) telecommunication speeds, contributed significantly to Huawei regaining its status as China's top smartphone seller.

However, the production bottleneck has also affected other Huawei products, including the Ascend-equipped computing unit MDC 810, causing delays in flagship model deliveries for Chinese automakers.

Huawei declined to comment on the situation, emphasising the challenges it faces in navigating the complex landscape of chip production amid geopolitical tensions.

(With Reuters inputs)