You're listening to Asia Centric from Blueberg Intelligence, the podcast that pulls back the curtain on global business so you can invest better across the Pacific Rim. I'm Tom Corbett on assignment in the US.
And I'm John Lee. US LED sanctions on Chinese technology firms were designed to be a retaining wall, putting a barrier between China and the critical components needed to make the most advanced smartphones.
However, Huawei drew a collective gasp when it revealed its latest smartphone, the May sixty Pro, is powered by a Chinese homegrown processor. It became proof that China had narrowed the gap with the West, giving tech tensions new urgency.
A Western sanctions too little, too late? And how does this compare to Apple's latest iPhone.
Here to discuss all things tech related is Dan Hutchison, vice chair of Tech Insights. He joins us from San Jose, California. Dan, great to have you.
Thanks John Tom for having me here. I'm really excited to be here on this podcast.
Dan, your company did a pair down of Huawei's new smartphone, the Mate sixty. What surprised you the most about these findings?
Well, the thing that was the most surprising. We kind of expected that it was going to be a seven nanimeter chip, and what surprised us the most was just the level of Chinese technology that was in there. You know, the motive one that on the APU was all Chinese technology.
Okay, Dan, can you put that into Layman's terms? What is a seven nanimeter chip? And why is it so important?
Yeah? Okay. The funny thing about it is is that, you know, explaining what a nanometer is really crazy. It's it's like a thousand a Salven's the thickness of human hair.
But the smaller the better, right, faller about it, right?
And so so what it means is is that the smaller the better means you can pack more transistors into a piece of silicon, so you get more performance your you know, your computer can do more. And so it's a it's a basic metric of technology, and we go down in every two years you try to double the density of what's on the chip. And that's the old More's law.
So, Dan, prior to the May sixty being unveiled, the overarching sentiment was that China was further behind on this technology than it really was. You've been watching the chip industry for decades, what surprised you the most when you learned about the chip in the May sixty.
The most interesting thing about the chip in the May sixty was that well, one was that it was not a five animeter, which the chip and the prior generation phone had a TSMC five animetor part in it, so it was kind of backed up, and that it was a smick chip. The big surprise was that it was a non EU of EA chip because they don't have
access to those tools. And yet it was a pretty clean looking set of dimensions, the layout of the chip itself, it all looked really clean and it looked as easily as good as what TSMC did when it did it's seven nanimeter non and U of E chip.
And the West was not expecting that was.
It now the West there's a certain arrogance, I think in the West in which we think we can throw these rolls out there and that the other side will it just won't make any progress. And in fact, with any technology, if you know it could be done and you're throw enough talent at it, you can make progress.
And then how does the chip performance compared to say, other smartphones? Such as maybe like the latest Samsung or the latest sell me, well, it's.
Not going to be as good as a phone that has a current generation three N animeter chip. Like what we just we're just tearing down the Apple iPhone fifteen and we saw a micron hit the record for d ram density, which was around a twelve nanimeter twelve thirteen animeter n.
In terms of specs technology, How many years is the Huawei Mate sixty pro behind the latest iPhone?
It's about four years. And if you look at the next generation that'll come out in a year or so. You know, if we look at the two animeter, they're probably about five years behind the very leading edge of what's you know, being developed today. But we also expect that they're developing their own five nanimeter a part which we expect we'll be here in about two more years.
The chips at power Huawei's latest phone are made by SNICK or Shanghai Manufacturing International Corporation. Do you think that SNIK is actually making money producing these chips?
Well, there's two sides of me on that, Okay, okay. One side says that there's no way you would do a phone and try to produce its scale unless you knew the chips were priced right. And there's no way if you had a fab of that capability that you try to do this unless you believe you could yield. My sense is looking at the SEMs and some of our people that told me looking at the SEMs, they're really good and clean, and I would expect their yields to be somewhere in the sixty percent range. They need
to get to eighty percent to be world class. But it's really a question of how well their yield management is working, and to know that, we really have to have access to their pro yields and look at the wafers that sort of thing, which that's not going to happen anytime soon. So that's the one side of me that says, you know, they wouldn't do this unless they
really knew they could make money at it. The other side of me says, well, they're communist country and they could do what they want to in market still matter. I remember a friend of mine who had been in a Russian fab told me in the eighty because he's in a country that they could go back and forth cel to the US, sell to Russia. At the time and he'd been in a Russian fab and he was watching an operator smoke cigarettes and flick the ashes that she was moving away first, and he says, aren't you
worried about yield? And the fab manager looked at us as yield that's a capitalist concept, and a government like the size of China, which is the second largest economy in the world, can do what they want to and there's no way for anyone on the outside to really know what's happening there.
When it comes to profitability, yep, and semiconductors has been chosen as a critical industry for China.
So absolutely absolutely, and so you know, you have those two sides of it. And so the fact is is that the profitability question may not matter. I mean, either they are or they don't care. In that sense, it doesn't matter. And eventually, the other thing with semi auctors is the more you make, the better you get at the higher yields go. So even if they're not profitable now, they will be at some point as long as they have that government support.
So basically, if you keep on throwing money at the problem will eventually sort itself out.
Yeah.
Yeah, And what does Huawei's progress tell you about the effectiveness of the sanctions and their prospects for success going forward.
Well, I think unlike some people that say, oh, the sanctions aren't working, I looked at it and saw all the sanctions are doing what originally everybody thought they were supposed to do, which was not to put Huawei out of business, but to keep them a couple of generations behind, you know, keep them about for you know, two generations is four years.
And then what can always do to narrow the gap going forward?
Well, they don't have access to EUV tools, so you know extreme.
Moment, the equipment made by ASML right been.
Made by SML, and they don't have access to the emergent tools that they bought. Plus there's an older jenneration of emersion tool that's still available to them, and the immersion tool actually allows them to continue to move forward as long as they do multi patterning. And the problem with multi patterning is is that it does add inaccuracy in the overlay and in the actual dimensions of the
ship itself. So the result of it will be that you get a lower yielding device, it doesn't perform as fast, and it consumes more power than what you would like it to than what you have with the EUV tool, but you can still pull it off.
Then I also saw your report on the MAT sixty ten down and that your company also found some memory trips made by sk heinez inside these phones. They weren't supposed to be inside these phones, were they.
No, they weren't. Let me correctly. Was not my report personally. There were a lot of really good people working at this and you know, and I've been kind of following what they've been writing about really closely and looking at their SEMs and the pictures they've been coming at. So
I should kudos to them for what they did. The sk Heinex chips, the memories generations back, they weren't current notes, so it doesn't look like they actually acquired them directly from Heinex, and according to the sanctions, Heinex can't sell to Huawei. There's a myriad of ways that because of the commodities, those chips can work their way through the supply chain, and Huawei could have picked them up without them being directly coming, especially since there's a lot of
memory right now. There's a huge clut of memory coming because the memory producers overproduced during the shortage. They kind of drank the kool aid about how great this shortage was and it was going to last.
You're listening to Asia Centric from Bloomberg Intelligence. By the way, If you like what you hear, and we hope you do, please rate us on Apple podcasts, st Google podcasts, or wherever you may be listening to us. Of course, more stars are better. Your feedback matters, and we love hearing from our listeners. Dan Hutchison. One of Apple's defining qualities has been its ability to innovate, to come up with a new idea and just dazzle the world and power
its sales to new heights. Is there a perception do you think that Apple is starting to come up against a bit of a wall in its ability to generate that wow factor with new products? And if yes, how much are technological limitations at play here?
Oh? Well, technological limitations are becoming far more at play the thing about Apple, And realize that this is probably more in my opinion, but you know, you can't discount the immense ability of stee jobs. And typically what I've seen in the companies I followed is a good strategy to last for about five ten years tops before it kind of taps out when it comes to the market. And Steve had this amazing ability to look at technology that was out there piece it together into something that
was really amazing and fantastic. And I don't think Apple struggled to duplicate that. He just had an innate sense of what was really great. And those kind of people are really hard to find, you know historically, you know, when you look at companies that make themselves and Apple's struggling to reinvent itself, which the whole thing with the App Store and the Apple TV that's coming along, but it's also something that there's plenty of other competitors out there doing the same thing.
Once Apple has changed the world, what can to do for an encore.
Yeah, that's a very difficult thing. And if we talk about this, how Apple led with the iPhone, with the Mac and everything, but it midst the cloud and it missed, you know, the impact of what the cloud was doing, in which we saw other companies like Google and Facebook and Amazon come along. So really, sometimes the innovation comes from other places, and that's really where we look forward to. And I think in the whole artificial intelligence arena, that's
a whole spectacular area for massive innovation. It's also an area where China has a very strong leadership position.
And talking about innovation, Apple just release its new iPhone fifteen and the buzz seems to be the adoption of a USB C port. Is this really the major breakthrough for this phone or is there more to it than that?
No, I think that was that's like expected. Everybody has been telling them, you need to come up with their comments, so you know, but they wanted to sell more cards and make their devices more unique, and you know, that was always the downside of Steve Jobs, right, was is he wanted everything to be done his way and he wanted absolute control over it. And so I just don't see any value in fact. For me is a photographer.
The more exciting part about the iPhone fifteen is the new cameras that come with it and the ability that they've done. And the Apples phones have really become driven by what their cameras could do, and I'm surprised that that didn't generate more excitement.
What about the Age seventeen Chip Dan Hudgson, You've just mentioned that consumers seem to gravitate more toward the gadgets and the gizmos, the cameras. Is the A seventeen chip, Is there anything really game changing in there?
Well, the big game changer for it's going to be that you'll get longer battery life and you will get more performance. But I also think it's probably somewhere near where the PC hit where we're beginning to see less
and less performance. So in terms of you know, does your call go through all that the same when you really see the performance is things like in the artificial intelligence application to the image processing for the camera itself, and so you get much better stabilization, much lower light, much more realistic images, and things like that. The camera has become the big reason to upgrade.
Then there's been some excitement that the new iPhone with the A seventeen chip could be a breakthrough for gaming. I know that you know some versions of Resident Evil have arrived on the iPhone. Do you think this is a major game changer?
Well, you know, if you look at kids and everything, they're all using their phones and their iPads for gaming, and they're not using laptops or computers. And this is the big advantage of this chip. I come back, I mentioned the performance and you see it in the AI
processing for images. You're also going to see it in the speed and reactiveness and gaming, which at the end of the day, in gaming, that's those slight incremental school games give you an advantage in where you're playing a driving game or you're on the battlefield.
So what's next for the iPhone in terms of spekes, in terms of the next breakthrough technology?
To be honest, I think we're going to see more of the same.
The improvements in the camera, you know, and.
It's improvements in the camera. You're going to get a faster chip that works better. The gaming will improve, and their whole goal is simply to give people enough incremental advantage to buy a new phone and to stay in their world garden, because that's becoming more and more. Where the money for Apple comes is the access to the TV and also just the fantastic usability of its products compared to other products that are out there in the world.
They've had me for ten years in counting.
Yeah, they've had me since the first iPhone.
Dan Hudgson, what do you think Steve Jobs would say if he could see the Apple of today, the iPhone of today, and and the ecosystem. Any thoughts on what he would think if he could see all that today.
I think he'd probably asked the question of what have you guys been doing? How did you miss Ai? And at the end of the day, they need to come up with another product, And they're kind of bifurcated, you know, because they've got hardware products that they're known for and the usability of those hardware products are known for. But
they haven't gone they haven't improved on those. The focus has all been on the app store and the applications, the TV trying to get into the movie business, the content business, compete with Netflix, those sorts of things that really just keep you looking at their screens.
What about the virtual reality headsets? It made a lot of news last year. Do you think that could be a major driver for Apple going forward?
I seriously doubt that the headset can be a major driver for anyone and been a real doubter on the headset. And here's my thinking about the headset. Well, one is you're not going to carry it with you. In fact, most people won't carry a laptop anymore. They'll just carry their phone and maybe an iPad. But now that the iPad has gotten as heavy as a laptop with a keyboard. You wind up choosing one or the other, right if
you have to. But most of the time you just take your phone because it's such a universal device, right. And the other issue you have is the usability of those devices. The market is driven by the ability of people to either have screen time for it or to take it with them. The reason why the auto market is so huge and why it drove the last century it is because it has about a five percent utilization. You buy a car and you drive it to work, you park it all day, you drive it home, you
park it all night. And so if everybody has to have one and they don't use it as much, that's there. Maybe that's the case with the headsets and with the virtual reality, but you know, you kind of have to come back to how do they get people to move towards that over just using their phone or something else for their reality.
So, Dan, you mentioned that Apple appears to have missed the step in terms of cloud. They also seem to have missed AI revolution. Which companies are leading the innovation?
Do you think, well, in terms of the cloud, I mean, clearly you've got Microsoft and Amazon leading the whole cloud space and when it comes to AI, how can you say the word AI and not mentioned in videos name
yes and what they've been able to do. And then you've also got Intel and A and D trying to come back and dig their way out of the PC trough if they've been in with their AI chips, but they've got a long ways to go because while they were focusing on AI, Wang kind of snuck in and stole the party.
And what about some of the Asian companies. Is TSMC still leading in terms of the logic chips and do you think you see this continue going forward?
Absolutely? The thing when you get in the lead of the semiconductor industry, you have so many advantages because of the scale you have. That said, it's really up to the engineers to continue to make the innovations. And it's
so easy to trip up and to fall behind. Intel did this in the nineteen eighties, TSMC did it in the late nineties two thousands, they started to slip behind, and really they had slipped systematically behind until twenty eight and animeter and that was when they started to catch back up again. So it's really a question of can they continue to innovate, and that may become a limit for them because the labor shortage of technical talent in
Taiwan is becoming really short. Because they've grown so much, they've become so big, it's harder for them to hire and.
I Samsung, like Tronics, dominates in memoratips, but they've also made a lot of investments into the logic space. Does Samsung all oppose any threat to TSMC?
If we had the TSMC executives here talking honestly, they would probably tell you that their biggest worry is Samsung yep. And just because of the raw resources and their ability to throw money at it and their ability to use the scale from memory and then apply that to logic,
and that's really the big issue for them. The hard part for Samsung is they're really good at making memory, and memory is a very different animal to logic in terms of what you're building and how you build it because memory is a pure commodity and logic is not a commodity. All of those designs go to a particular end system and they're totally dependent on where their customer, how what the volume they want to buy. And if they say, oh, we don't want those wafers and they're
halfway into production. You're kind of host where in memory, whatever you make you can only sell. So it makes it a much more difficult market in terms of managing your fabs and managing the losses they trace around the fabs. And that's something that TSMC has been a real master of. And the old model for TSMC, why they were so successful was the intersections in type, you know, and y TSMC came out winning versus in memory. The intersections. Everybody
stops at the stop light and waits. That's the way a memory fab works, and in a boundary fab it has to work like an intersection in type, where the only rule is you don't hit the fender of the car next to you.
Organized chaos.
Yeah, Dan, you've been covering the chip industry since the late nineteen seventies nineteen seventy eight. I think what in those forty years of covering this industry surprises you the most about the way the industry has evolved, technology, the overarching economic and political implications. What stands out in your mind when you look back over your career and gaze over that landscape.
Well, I would have to say more recently, Number one is that Washington finally figured out that chips were important and that all of those smart things.
They were a little late to that game.
Yeah, they were a little late to that game. I mean, there was some real visionaries in Japan in the nineteen seventies that saw this late sixties early seventies that saw this and really pushed Japan. But then they had their own issues. And that kind of leads to the thing that I think it really surprised me the most is
how difficult it is to lead this industry. And all of the leaders have succeeded by being global, by being at the best at what they do, and by selling to the best companies that are out there, and by buying from the best companies that can supply them. And Japan tried to create its own vertical supply chain, and that was really the seeds of its own destruction, because the weakness in those layers were the weakness of the
whole chain. Well, if you look at the companies that wound up succeeding, like Tokyo Electron, Advantest JSR, they succeeded because they really went global and went after the companies. TSMC has succeeded because they built a global set of customers. And what we've seen is is that you know, just because you lead the market today doesn't mean you're going to lead the market in five or ten years. We've
seen this complete churn of companies. When I got in the industry, Texas Instruments and Motorola were the two top companies in the world, and the Japanese were on the rise, and Intel was in the I don't think Intel was even in the top ten yet. So there's been this constant change, and the companies that win are the ones that go global and then run faster than everybody else. It's all about running faster.
And this raises an interesting question about China in its quest to develop kind of its own home grown technology, infrastructure or ecosystem. Do you think it can succeed sustainably doing that or will it have to go global as well?
Well? It doesn't matter what I think, but the history of it has been that you have to have a global source supply chain, you have to think global, and trying to do it vertically is a path to failure. So based upon that history, I think the odds for trying to have a complete vertical supply chain and then lock everything into China. Are really the seeds of it walking down the same path of Japan.
Walk down that Apple and it supplies a moving more production away from China to India. Have you had a chance to look at an India made iPhone?
I know we're working on that, but I don't think we've made that contrast yet. We're definitely interested in figuring out one out. And you know, of course we've read all the stories and India is a difficult challenge. That said, China was always a difficult challenge. The products that come from China in the before Apple got there were noted for very poor quality. So I think they can bring
India back. India is definitely a very different challenge though, because you don't have the kind of governmental control over the society there, over the business, that sort of thing in India that you have in China. So India still has a long ways to go. And then some of the infrastructure issues like the ability of power, ability to get deliveries on time, those sorts of things are constantly a problem in India that you don't see in China.
Dan, is there any questions that you'd like us to ask you.
I think the one question that's kind of interesting here that the few people have asked me that you asked me of a question that missed and it sort of came to me, and that is is is this phone stabilizing or destabilizing to the geopolitics? And my sense is that now that China's making progress again, it actually sort of brings more stability to the battle between the US and China over it, and you know, they can see
that they're making progress. I'm hoping that this actually helps to really get us more towards a peaceful solution to attentions.
Our guesst has been Dan Hutchison, vice chair with Tech Insights. We've been talking China, Huawei, chips, tech and the future. It's been remarkable and insightful conversation and Dan, we look forward to hearing more from you.
Well, thank you for having me here. It was a real pleasure to be Tom and John, you know, the both of you and really just sort of sus these issues.
The pleasure has been ours. I'm Tom Corbett on assignment in the US, and.
I'm John Lee. This podcast has been edited by Clara Chen and you've been listening to the Asia Centric podcast