Huawei is grappling with significant production challenges due to U.S. trade restrictions, particularly in achieving a commercially viable yield for its advanced AI chips, which currently stands at around 20% for the Ascend 910C.

Tensions escalated in October 2024, as U.S. lawmakers urged the Department of Commerce to take stronger action against Huawei's alleged attempts to circumvent sanctions through a clandestine network of semiconductor facilities.

The Chinese government is backing its semiconductor industry with a nearly $48 billion fund, aiming for self-sufficiency in advanced semiconductors amid ongoing restrictions.

Despite these hurdles, Huawei is expected to address its supply challenges significantly by early 2025, aiming to expand its customer base for AI processors domestically in China.

In May 2024, the Biden administration revoked export licenses for American semiconductor companies, including Intel and Qualcomm, which has severely impacted Huawei's technological advancements.

Overall, the ongoing U.S. sanctions have significantly restricted both Huawei and SMIC's access to advanced chipmaking technology since 2020, complicating their operational capabilities.

In response to these restrictions, Huawei is prioritizing strategic government and corporate orders, recognizing the long-term challenges posed by the lack of extreme ultraviolet (EUV) technology.

Chinese tech firms, including ByteDance, have expressed frustration over slow delivery rates of Huawei's chips, receiving significantly fewer units than ordered, highlighting the supply issues faced by the company.

This initiative is part of Huawei's strategy to compete with Nvidia, which previously held a 90% share of the Chinese AI chip market but has faced restrictions since 2022.

Interestingly, Huawei's 910C chip is reported to outperform Nvidia's upcoming B20 chip, which is the most advanced chip Nvidia can sell in China under current restrictions.

Future U.S. export controls on the semiconductor industry are anticipated, especially with a potential return of Donald Trump to the presidency in January 2025, reinforcing tough trade policies towards China.

To address these challenges, Huawei has sourced chips from TSMC, as its primary chip manufacturer, SMIC, charges a premium of up to 50% for chips produced on its advanced nodes, which are less sophisticated than those made by TSMC.