Analysts believe Huawei's chip breakthrough could trigger tighter U.S. scrutiny.

Analysts say the breakthroughs made by Huawei in manufacturing advanced chips highlight China's determination and Yihui foreign exchange spreadsability to counter US sanctions. However, these efforts might come at a high cost and could prompt the US to tighten its restrictions on the chip industry even further.

Last week, during the visit of US Commerce Secretary Gina Raimondo to China, Huawei unexpectedly launched its latest Mate 60 Pro smartphone. At the same time, the Chinese government is preparing to set up a new $40 billion investment fund to support the development of its chip industry.

After investigation, TechInsights stated that the Kirin 9000 chip used in the Mate 60 Pro, which employs advanced 7nm technology, was manufactured by SMIC, China's largest chip maker.

Dan Hutcheson, an analyst at TechInsights, mentioned that the Mate 60 Pro case not only highlights the technological advancements achieved by the Chinese semiconductor industry without the use of EUV tools but also indicates that despite the US intensifying restrictions on China's chip manufacturing industry, it has not hindered China's progress in the high-end chip sector.

EUV stands for Extreme Ultra-violet lithography, a photolithography technology that uses extreme ultraviolet light with a wavelength of 10-14 nanometers as the light source for manufacturing 7nm or more advanced chips.

Analysts at Jefferies said that the findings from TechInsights could trigger further investigation by the US Department of Commerce's Bureau of Industry and Security and spark more debates at high levels in the US about the effectiveness of sanctions, prompting Congress to incorporate stricter technology sanctions in competition laws against China.

Since the US banned ASML from exporting EUV machines to SMIC at the end of 2020, SMIC was only able to produce 14nm chips before the launch of the Mate 60 Pro. However, TechInsights had stated last year that SMIC might have acquired simpler DUV machines through other channels and successfully produced advanced 7nm chips.

Some analysts, including those at Jefferies, speculate that Huawei might have bought technology and equipment from SMIC to manufacture chips, rather than partnering with them in production. However, Tilly Zhang, an analyst at Gavekal Dragonomics, noted that the yield rate for SMIC’s 7nm process might be less than 50%, and the low output rate increases the cost of use. Only Huawei's vast financial resources combined with generous government subsidies can support selling the Mate 60 Pro at normal market prices.

Additionally, the standard yield rate for the chip industry is 90% or higher, significantly above SMIC's manufacturing process, which could undermine Huawei's confidence in regaining a dominant position in the smartphone market. Analysts at Jefferies estimate that despite Huawei's plan to ship 10 million units of the Mate 60 Pro, the 7nm chips made by SMIC might not be able to support Huawei's shipping target.

Reuters reported on Tuesday that in order to catch up with the US and other rivals in the chip industry, China will launch a new government-supported investment fund, aimed at raising about $40 billion for its chip industry.

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