Huawei from an Applied Perspective: Huawei on the growth Flywheel

Based on the core idea of Amazon.Com Inc's original flywheel, we review the business development process of Huawei in the past 30 years, and take the lead in putting forward Huawei as a leading borderless expansion technology giant in China and even in the world. its business expansion path is also in line with the underlying algorithm of the flywheel model. The purpose of this section is to build a flywheel model of Huawei's growth from four levels by drawing lessons from this theory, and to explore Huawei's business trajectory and growth boundary from an application perspective.

（1）Bottom flywheel (from): mainly refers toToGThe operator's business.Operator business is the starting point of Huawei story, completed the primitive accumulation, after 2G start, 3G catch-up, 4G synchronization, and achieve 5G beyond. The company's communications equipment products complete layout of base station access network, transmission network and core network industry chain. After years of accumulation of 4G, Huawei overtook Ericsson to become the world's largest telecom equipment operator for the first time in 2017, with business revenue of 296.7 billion yuan in 2019. 5G time Company formulates industry communication standards and takes advantage of first mover. Huawei's operator business is to complete the original accumulation of business, and through research and development to continuously improve the service quality of operators to form a positive cycle, driving the high-speed rotation of the flywheel.

（2）The second layer flywheel (bearing): mainly refers toToCThe consumer business.The consumer business uses smartphones as the core hardware, radiating hardware terminals such as mobile phone accessories, personal computers and tablets, wearable devices, smart home products, and Internet applications. The core is to create the digitization and interconnection of people. The success of Huawei's consumer business is also applicable to our "4A" moat theory.It starts with the appearance.From the extreme design and craftsmanship of appearanceObsessed with interactionHuawei has gradually become a leader in innovation in the field of human-computer interaction such as photoacoustic touchBe loyal to ecologyCreate a full scene of consumer business intelligent IoT ecosystemSuccess in operation:The ultimate supply chain management system from a global perspective. Huawei is committed to creating a full-scene and intelligent extreme experience for consumers, further improving customer satisfaction.

（3）The third layer flywheel (turn): mainly refers toToBThe corporate business.Enterprise-level business aims to expand trillions of new blue seas. Huawei has expanded the ICT industry based on the capabilities accumulated in carrier business. Revenue in 2018 has exceeded US $10 billion, with a compound annual growth rate of 40%. Revenue in China has exceeded 50 billion yuan, the number of cloud partners has nearly doubled, and online users have increased 15 times, which has far exceeded that of local competitors in this field. The company will cooperate with tens of thousands of companies to win-win and share the successful results. Through "ubiquitous connection + digital platform + omnipotent intelligence", we are committed to being the base of digital China. Enterprise business provides a strong support for the underlying flywheel by building a digital platform.

（4）The fourth layer flywheel (combination): mainly refers to the ToT service that provides the underlying infrastructure.Full stack + panoramic chip is the underlying technical support of Huawei 2C, 2B, 2T business. 1. Kirin is the world's leading domestic SoC chip, mainly for Huawei smartphones. 2. Teng AI chip uses "da Vinci architecture" to achieve full scene coverage, while providing AI solutions for 2C consumer products, 2B servers and 2T IoT terminals. 3. Kunpeng chip is mainly used in Taishan series servers to provide powerful computing power for cloud computing business. 4. 5G chip including terminal baseband chip (Barone series) and base station core chip (Tiangang chip) is the core of the digital world. Huawei To T business focuses on building full stack platform capabilities and end-to-end service capabilities, and carries out omni-directional ecological cooperation, which has become a favorable support for the normal operation of the top three flywheels.

Huawei from the Perspective of Ecology: Kunpeng / Hongmeng Ecology

The realization of the four application scenarios of Huawei comes from the interaction between hardware and people, and the software implied in the hardware and people plays an important role in connection and optimization. With the server as the window and Kunpeng chip as the cornerstone, Huawei has expanded its industrial territory to software scenarios such as virtualization, big data platform, storage, database, middleware, cloud services, and management services, creating a grand Kunpeng ecosystem.

Developers are the core driving force of Kunpeng's sustainable ecological expansion, and the development of Huawei's "basic software" empowers developers. Huawei launched CloudIDE to help developers deploy Kunpeng Cloud native applications, provide developers with on-demand configuration and quick access to workspaces, and help developers master the capabilities of software migration, compilation, construction and system optimization. Huawei has built an open source operating system openEuler for B-side, which has established the basic platform of Kunpeng software ecology.

Based on the CloudIDE development platform and openEuler operating system, Huawei and high-quality partners continue to add bricks to Kunpeng, cooperate with Yuyou Network and Kingdee International Software Group to focus on the development of ERP, promote database construction with China Software and Taiji shares, focus on middleware development with Dongfang Tong and Puyuan Information, and promote the localization of office software with Jinshan Office and Wanxing Science and Technology.

Hongmeng has great ecological potential, and HMS helps Huawei ride the wind and waves. With the vigorous development of Kunpeng ecology, Huawei is also gradually building a Hongmeng ecology in the field of consumer electronics. In the consumer electronics scene, Huawei builds a C-side-oriented "Hongmeng ecology" and builds a bridge between the application of APP and Hongmeng OS through HMS. Just like GMS protecting Android ecology, Huawei's Hongmeng also needs HMS to optimize its interaction with third-party APP to enhance the user experience, thus contributing to Huawei's continued expansion of overseas markets.

Huawei from the Perspective of Chip: the Advanced step of Chip Independent Design

The cornerstone of Huawei's ecology comes from chip support.The hardware facilities need the chip to control the realization of its function, and the software needs to determine its development mode according to the chip architecture. The chip is the underlying foundation of Huawei's ecological realization. From the application scene to the underlying chip, Huawei has completed the "terminal-ecological-chip" industrial layout.

In the ToG scenario, Huawei continues to iterate over the terminal baseband chips (Barone series) and base station core chips (Tiangang chips), seizing the historical opportunities brought by 5G infrastructure.

In the ToC scene, Huawei Kirin is the world's leading domestic SoC chip, with smartphones as the core window, radiating hardware terminals such as mobile phone accessories, personal computers and tablets, wearables, smart home products, and Internet applications.

In To B scenario, Huawei Kunpeng chip laid the foundation for openEuler ecology, serving server scenarios, mainly used in Taishan series of servers, and providing powerful computing power for cloud computing business.

In the ToT scenario, Huawei Shengteng AI chip uses the "da Vinci architecture" to achieve full scene coverage, while providing AI solutions for 2C consumer products, 2B servers and 2T IoT terminals. In addition, Huawei has a series of chips that focus on family scenes, and IPSoC chips that focus on video codec.

As the representative company of China's independent chip research and development, Huawei's chip development represents the highest level in this field in China, and is a strong support for China to get rid of chip technology dependence. However, chip design is not achieved overnight. Huawei also needs to rely on the technical support of other manufacturers in terms of chip architecture and EDA software. Huawei's chip design needs the IP nuclear license of ARM and three high-end EDA software tools of Synopsys, Cadence and Mentor. Even if there are some domestic preparatory manufacturers, the advanced process is still difficult to meet the demand.

Through the Perspective of Huawei: the rising Semiconductor Industry in China

The chip of Huawei Hayes has reached the top level in many fields after more than 20 years of development. as a part of the industry chain, chip design also needs the support from Taiwan Semiconductor Manufacturing Co Ltd manufacturing OEM. The key link supporting the whole manufacturing OEM is the six core equipment of semiconductors (lithography machine, etching equipment, coating equipment, testing equipment, cleaning equipment, ion implanter, etc.).

Huawei semiconductor components are divided into five parts (SOC chip, panel, memory chip, CIS, communication RF chip). Through the penetrating analysis of each subdivision of the industry chain, we think that under the integrated cooperation system of the industry chain, the three clusters of domestic semiconductor companies, such as equipment, manufacturing and materials, will usher in a historic opportunity.

For SOC chipsTake the Kirin 990 series as an example At present, the global EDA tools market is basically carved up by Synopsys, Cadence, Mentor and other three giants, which leads to almost 100% of domestic integrated circuit design companies using foreign EDA tools. Kylin series production is mainly supported by Taiwan Semiconductor Manufacturing Co Ltd, the six major equipment of its current production line are: lithography machine (ASML, Canon, Nikon), etching equipment (Applied Materials Inc, Pan-Lin), deposition equipment (Applied Materials Inc), testing equipment (Klei Semiconductor, Terida), cleaning equipment (Ke Lei Semiconductor), Ion implantation Machine (Axcelis), etc.

For panelTake OLED as an example, its manufacturers are mainly Samsung and BOE, but most of the cutting-edge equipment on its production line are imported equipment. LTPS-AMOLED process integrates many cutting-edge technologies of the display panel industry, especially the two-stage process of TFT array and Cell box, including many complex processes, and the key equipment is basically monopolized by American, Japanese and Korean enterprises. Evaporation is the core of OLED，Global evaporation machine (especially all-in-one machine for evaporation and sealing)Production is almost monopolized by Canon Tokki.Coherent of the United States is the supplier of wire beam excimer laser system for LTPS annealing, which has absolutely leading position in the core process of AMOLED technology.. In terms of panel materials, the production of glass substrates has long been monopolized by Corning of the United States and AsahiGlass of Japan, of which Corning's market share is close to 50%.

For memory chipsAs the largest downstream of the semiconductor industry chain, memory chips account for the highest proportion and the highest market concentration in the whole integrated circuit market. The global market share of memory chips is basically monopolized by the first three giants (Samsung, Micron and Hynix). The production equipment of memory chip is similar to that of SOC chip, mainly forLithography machines (ASML, Canon, Nikon), etching equipment (Applied Materials Inc, Pan-Lin), deposition equipment (Applied Materials Inc), testing equipment (Klei Semiconductor, Terida), cleaning equipment (Corey Semiconductor), Ion implantation Machine (Axcelis)等。

For CISIn terms of supplier market share distribution, Sony and Samsung are still the world's leading suppliers of CIS components, with a combined market share of nearly 70%. Howie Technology as a well-known manufacturer of CIS components in China, the foundry for the production of CIS components are Semiconductor Manufacturing International Corporation, Taiwan Semiconductor Manufacturing Co Ltd, Huahong, Huali, etc. The core equipment on the production line of the above foundry include: etching equipment (Applied Materials Inc, Pan Lin), deposition equipment (Applied Materials Inc), cleaning equipment (Klei Semiconductor) and so on.

For RF front endThe RF front-end module is mainly composed of RF switch, LNA, PA, filter and Duplexer, in which the high-end filter and PA are monopolized by international giants. There are mainly two categories of filters: SAW and BAW. In the SAW filter market, the top five manufacturers (Murata, TDK, TAIYOYUDEN, Skyworks, Qorvo) occupy 95% of the global market, while the BAW filter market is basically monopolized by Broadcom. The vast majority of the global PA market share is also occupied by Skyworks, Qorvo, Broadcom and Murata, with a combined market share of 96%. Because analog devices have higher requirements for process but lower requirements for manufacturing process, most of the leading RF device manufacturers in the world adopt IDM mode, while domestic RF device manufacturers mainly use Fabless. The main domestic RF contract manufacturers Sanan integrated core equipment mainly include: etching equipment (Applied Materials Inc, Pan Lin), deposition equipment (Applied Materials Inc), cleaning equipment (Klei Semiconductor) and so on.

Through the separation of various semiconductor components, Huawei has achieved the extreme in its field, but the semiconductor industry chain cannot be fully undertaken by a single company, and an integrated cooperation system has been formed in the world today. this system should not and cannot be reversed.But it also needs the joint efforts of domestic semiconductor supply chain to establish a complete ecology.. As an industry of global division of labor, the semiconductor industry will face the common development of the industrial chain in the future. Standing at the entrance of the smart world, the opportunities of the semiconductor industry will be far greater than the competition!

In order to cope with this great change in the living environment, China's semiconductor industry has also made three rounds of major adjustments:

The first stage: the terminal factory drives the upstream design and closed testing.

We divide semiconductors into upstream, middle and downstream, of which the most downstream are fabless and closed test, and the downstream of the chip is directly bound to the terminal factory (mobile phone, computer, etc.), so we see that after Huawei is listed in the physical list by the United States in 2019, there will be a considerable part of Huawei.The transfer of chip orders to the domestic "spare tire" supply chain has directly and significantly promoted the accelerated growth of revenue and performance of domestic chip design (analog, digital, RF, storage) and closed testing companies.. In addition to purchasing domestic supply chains, Huawei Hayes has achieved a world-class level in many areas of chip design based on its years of profound patent accumulation and R & D. the whole chip design industry has attracted a large level of pull because of external pressure.This is the original behind the A-share semiconductor bull market that began in 2019.因。

The second stage:FablessDrive the upstream wafer generation factory.

Since all the fabs around the world, includingTaiwan Semiconductor Manufacturing Co Ltd has adopted a large number of American technologies (semiconductor equipment, materials, EDA/IP)The second round of entity list restrictions on Huawei in the United States are directly targeted at Fab contract manufacturing.At this time, the main contradiction of China's semiconductor industry has gone from the lack of finished chip products to the lack of chip foundry.After overseas Fab factories were unable to provide wafer foundry for Huawei Hayes, domestic wafers have become an alternative. After years of development, with the cooperation of domestic fabless giants, Semiconductor Manufacturing International Corporation has mass-produced 14nmFinFET technology in 2020 and made a transition to Nylon 1 node. this is a historic breakthrough in China's integrated circuit industry, becoming the third FinFET fab member in the world, and represents a phased breakthrough in process adjustment.It provides experience for domestic mature process fab factory.。

The third stage: the wafer factory drives the upstream equipment and materials.

At a time when the FinFET process is breaking through one after another, a new round of entity list in the United States at the end of 2020 points directly to fab Semiconductor Manufacturing International Corporation, because semiconductor equipment is the chassis of the fab, while American equipment manufacturers occupy about 50% of a fab production line (PVD, etching machine, CVD, Imp, Clean, Furnace). AMAT, LAM and KLAC are all global monopoly equipment giants and are still irreplaceable in advanced node processes. However, at the mature process node, domestic and Japanese equipment can be replaced to a considerable extent.At present, the main contradiction in China's semiconductor industry is not the lack of technology, but the lack of semiconductor equipment and materials.. As the European ASML DUV lithography machine (.13um-7nm) has not hindered the supply to China, the core contradiction of China's semiconductor industry in the future is to make up for the shortcomings from the root technology (semiconductor equipment, materials) to achieve real supply chain security.

Under the dual drive of domestic substitution and cyclical recovery, the three clusters of domestic semiconductor companies, such as equipment, manufacturing and materials, will usher in a historic opportunity.

Based on this, Chinese semiconductors will move towards mature process, double cycle and root technology in the future.

1、From the simple pursuit of advanced technology-> Return to mature process("new 55nm" is much larger than "old 7nm")

2、By external circulation-> Inside and outsideDouble cycle(de-A, not localization)

3、Make up the deficiency board by the dry technology-> root technology (design and manufacturing are not root technology)

We reiterate our recommendation on the three levels of semiconductors and recommend that we pay attention to:

1. Lack of chip design:Weier shares, Zhuosheng Micro, Jingchen shares, Shengbang shares, Huiding Technology, Zhaoyi Innovation, Lanci Technology, Ziguang Zhanrui, Hengxuan Technology, Core original shares, Silipu

2. Lack of contract manufacturing closed test:Semiconductor Manufacturing International Corporation, Huarunwei, Hua Hong Semiconductor, Wentai Technology, Changdian Science and Technology, Shenzhen Science and Technology, Jingfang Technology, Huatian Science and Technology, Tongfu Micro Power, Shilan Wei, Yangjie Technology, Agile Micro Power

3. Lack of equipment and materials:North Huachuang, China Micro Corporation, Huafeng Measurement and Control, Yitang Semiconductor, Zhi Pure Technology, Core Source Micro, Wanye Enterprise, Shengmei Semiconductor, Precision Test Electronics, Central Co., Lion Micro, Anji Technology, Jiangfeng Electronics, Shanghai Silicon Industry, Jacques Technology, Divine Industry Co., Ltd.

Risk Tips:The intensification of trade frictions between China and the United States has triggered a new round of blockade; downstream demand for semiconductors is lower than expected; product development and process promotion are not as expected