U.S. ban may prod China to gain ground in tech race

The Washington Post - - FRONT PAGE - BY CRAIG TIMBERG AND REED ALBERGOTTI

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 in in­vest­ments.

But while the United States cur­rently 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 prob­a­bly prod­ded China to re­dou­ble its ef­forts to close that cru­cial tech­no­log­i­cal gap, say in­dus­try an­a­lysts.

The U.S. move, based on na

tional se­cu­rity con­cerns, could have long-term con­se­quences that would not be in U.S. in­ter­ests, spurring the cre­ation of 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” has prob­a­bly al­ready be­gun, say in­dus­try ex­perts and an­a­lysts — and will con­tinue even if the cur­rent trade dis­pute is re­solved.

“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 go while fol­low­ing on-screen GPS direc­tions, and they 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 50 cents each. But that low price doesn’t mean they’re easy to make, and the Amer­i­can, 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 — MEMS means “mi­cro­elec­trome­chan­i­cal sys­tems” — mak­ing them im­pos­si­ble to sim­ply take apart and copy. To build them, a com­pany needs to de­velop the tech­nol­ogy from the ground up or ac­quire 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 are too small for that. De­vel­op­ing one is a painstak­ing, tri­a­land-er­ror process that takes years. Chip ex­perts think in 18month “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 their 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 will prob­a­bly 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 any­time soon,” said James A. Lewis, a tech­nol­ogy pol­icy ex­pert for the Cen­ter for Strate­gic and In­ter­na­tional Stud­ies, based in Washington.

Oth­ers are not so sure it will take China very 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 con­sid­er­ing whether to sell the com­po­nent to Huawei.

Mad­den said his com­pany as­sumed that 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 prob­a­bly be repli­cated in China at some point. Un­til then, Huawei and its con­sumers will 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 (FPGA), for use in the most ad­vanced 5G cell tow­ers. Huawei has been pur­chas­ing these de­vic­chips es 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 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 com­posed 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 Cal­i­for­ni­abased 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 build an FPGA in­dus­try, said Hadi Es­maeilzadeh, a pro­fes­sor of com­puter sci­ence at the Univer­sity of Cal­i­for­nia at 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, in­dus­try ex­perts say, rely on de­signs from Arm, a Bri­tish­based com­pany that an­nounced Wed­nes­day it will cut off Huawei be­cause of the U.S. trade ban.

Even be­fore that hap­pened, Chi­nese com­pa­nies did not 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 its 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 a way to work around Google’s in­abil­ity to li­cense its prod­ucts to Huawei.

In im­ple­ment­ing the trade ban against Huawei, U.S. of­fi­cials cited the com­pany’s al­leged vi­o­la­tions of sanc­tions against Iran. But the Trump ad­min­is­tra­tion also has ar­gued that Huawei’s po­ten­tial dom­i­nance of 5G net­works — it con­trols al­most 30 per­cent of the global 5G equip­ment mar­ket — would cre­ate un­ac­cept­able na­tional se­cu­rity risks by giv­ing China an ad­van­tage in gath­er­ing sig­nals in­tel­li­gence. Huawei has de­nied that its equip­ment could be used for es­pi­onage.

In­dus­try play­ers are watch­ing to see whether 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, fol­low­ing a re­quest he said was made by Chi­nese Pres­i­dent Xi Jin­ping.

Trump un­der­scored the un­set­tled na­ture of what will hap­pen with Huawei on Thurs­day af­ter­noon by call­ing the com­pany “very dan­ger­ous” but leav­ing the door open 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 the U.S. ban on Huawei, that could be about to change.

DENIS BALIBOUSE/REUTERS

Huawei con­trols al­most 30 per­cent of the global equip­ment mar­ket for 5G, the new­est wire­less tech­nol­ogy, but it and other Chi­nese com­pa­nies have re­lied on U.S.-made com­po­nents. With those sup­plies now re­stricted, they have in­cen­tives to de­velop their own chips.

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