After registering an all-time high revenue in 2020, the smartphone applications processor (AP) market continued momentum in Q1 2021. The smartphone AP market posted a double-digit shipment and revenue growth during the quarter, driven by 5G demand and the smartphone market recovery.

Except for HiSilicon, all other major smartphone AP vendors saw shipment and revenue growth. HiSilicon, Huawei’s semiconductor arm, took a hit due to trade restrictions on its business, its primary customer Huawei and its manufacturing partners. Back in August 2019, the US Department of Commerce added HiSilicon to its entity list. A year later, the US further tightened restrictions on HiSilicon by placing restrictions on its supply chain partners, including TSMC. TSMC stopped manufacturing chips for HiSilicon after September 15, 2020. In anticipation of this, HiSilicon stockpiled inventory. A lack of continued support means the company would soon run out of its stock.

This is exactly what happened to HiSilicon in Q1 2021. After seeing a spectacular growth between 2012 and 2020, HiSilicon’s smartphone AP shipments took a nosedive and declined 88 percent year-on-year. HiSilicon’s shipments will decrease to zero at some point this year. Our deep-dive analysis found that HiSilicon could lose up to $60-$70 worth of radio component revenue per Huawei 5G handset due to restrictions. HiSilicon’s primary customers include Huawei and Honor. Honor will primarily source from Qualcomm, MediaTek and Unisoc in the future.

Qualcomm and MediaTek fully capitalized on HiSilicon’s challenges and gained market share with the help of their strong presence at Huawei competitors Xiaomi, Oppo and Vivo. Both companies clocked a double-digit shipment growth in Q1 2021. HiSilicon’s forced exit also helped Apple, Samsung LSI and Unisoc.

The US-China trade war continues to create ripples across the industry. The trade war’s casualties include Qualcomm’s termination of NXP acquisition due to a lack of China approval and Huawei and HiSilicon’s collapse in smartphones due to the US trade restrictions. Huawei’s share losses due to trade sanction affected multiple suppliers, including Arm, Broadcom, Xilinx, Skyworks, Qorvo and others.

What does the continued trade war mean for the global mobile processor industry?

• China will try to accelerate its self-sufficiency effort to protect its interests further. The country is already close to achieving self-reliance in 28 nm and above process nodes.
• We should expect more home-grown semiconductor efforts from China, especially in 5G basebands and apps processors. Xiaomi, Oppo, Vivo, Lenovo and other players could develop their own 5G chips in the next 3-5 years.
• Will China retaliate with sanctions on Apple, Intel, Qualcomm and other US players? Possible, but given the central role of companies such as Qualcomm in China’s accelerated 5G deployments, it is unlikely in the near-to-medium term.

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