Qualcomm makes its flagship chip a bit better

Just when you thought the Snapdragon 855 was as good as it gets, Qualcomm has only gone and put a plus on the end of it.

As its name implies, the Snapdragon 855 Plus is a bit better than the Snapdragon 855 chip, which Qualcomm launched amid much fanfare in Hawaii late last year. The marketing top-line for this launch is that it’s all about mobile gaming, with both the CPU and GPU being a bit faster than in the boring old vanilla 855. As with its predecessor the 855 Plus also plays nice with the 5G X50 modem.

“Snapdragon 855 Plus will raise the bar for elite gamers with the increase in CPU and GPU performance and elevate experiences for 5G, gaming, AI and XR, which is something our OEM customers look to us to deliver,” said Kedar Kondap, VP of product management at Qualcomm. “Snapdragon 855 Plus is our most advanced mobile platform to date and will build upon the success of the 2019 Android flagship Snapdragon 855 5G mobile platform.”

Apart from the faster processors there is talk of something called the Snapdragon Elite Gaming Experience, which includes the Vulkan 1.1 Graphics Driver, which Qualcomm compares favourably to Open GL ES and the ‘Game Jank Reducer’, a must-have for anyone whose game jank has reached troublesome levels. As if that’s not enough this SoC features the fourth generation of Qualcomm’s AI engine and some VR/AR features.

Ren’s back to tell us how Huawei is starting to ditch the US

Huawei founder Ren Zhengfei appears to be little more than a celebrity spokesperson nowadays, but a recent interview suggests the vendor is just fine with its US shunning.

Speaking to the Financial Times, Ren has once again been called into action to address the tensions between China and the US, as a result of which, Huawei has become a prime target for anyone hoping to inflict damage on the worlds’ second largest economy. The message from Ren is relatively simple; we’re doing OK and we’ll move away from US suppliers.

Such comments will certainly set off alarm bells in the offices of some US semiconductor firms, but it should hardly come as a surprise. The ‘Made in China 2025’ strategy might be unpopular with the US and Europe, but it is by no-means a secret.

‘Made in China 2025’ is an initiative set into action by Chinese Premier Li Keqiang during 2015. Through this initiative, the Chinese Government wants to evolve the perception of the country, ditching the ‘world’s factory’ tagline and moving up the value chain towards higher value products and services. The Government will be contributing $300 billion to the project to enable China to compete with the US.

This plan has been heavily criticised by the US for a number of reasons, but ultimately it all boils down to one; this is a genuine threat to the technological domination of the US on the global scene.

Of course, there are plenty of reasons not to like the idea. Some have suggested it violates the World Trade Organization (WTO) rules on self-sufficiency. Others have said trade secrets have been stolen from foreign companies or unfairly obtained through forced joint-ventures. For ‘Made in China 2025’, companies have to move up the value chain, targeting growth industries such as AI or medicine, and these smarts have to come from somewhere.

However, you always have to bear in mind the end-result irrelevant of path taken to get there. If ‘Made in China 2025’ succeeds, the US will no-longer be the dominant force in the technology world, and other economies could be shattered if China replaces imported goods with domestic.

In the latest interview, Ren is suggesting that even if there is a reprieve from President Donald Trump following the G20 summit last weekend, Huawei will continue to move its supply chain out of the US. Perhaps this is the catalyst which was needed to kick the ‘Made in China 2025’ concept up another gear.

“The US is helping us in a great way by giving us these difficulties,” said Ren. “Under external pressure, we have become more united than ever.

“If we aren’t allowed to use US components, we are very confident in our ability to use components made in China and other countries.”

Although there has been a concession from Trump with regard to the ban facing Huawei, some might view this pardon with scepticism. The President’s opinion seems to change more often than the tides so why would any organization pins its hopes and aspirations on the door of the Oval Office. Instead of a power demonstration, the US seems to have pushed the Chinese further towards autonomy.

While it is far from confirmed, we strongly suspect the huffing and puffing from the White House was little more than a demonstration of power. Huawei’s entry onto the Entity List might have been an aggressive move to gain the upper-hand in trade talks with the Chinese; look what we did to ZTE last year, the US appears to be saying, so play nice or we’ll do the same to Huawei.

But it doesn’t seem to have worked; Huawei is still alive and still OK, if you listen to Ren.

How OK Huawei actually is remains to be seen. Ren has been wheeled out to put a positive spin on the situation, but the picture is rather gloomy. Smartphone shipments are set to decline by 40-60% over the remainder of the year, Google hasn’t said it is once again on friendly terms with Huawei despite Trump’s amnesty, and some have questioned whether China is capable of filling the semiconductor hole created through the China/US vacuum.

Huawei has done a lot to add diversity to its supply chain in recent years, while also moving numerous operations to its own fabless semiconductor company HiSilicon, but can it satisfy its appetite for more specialised components? Huawei works with a number of US firms who have niche operations, Qorvo supplies radio-frequency systems and solutions for Huawei for example, and when it comes to specialised components, the US rules the world.

For certain segments of the semiconductor industry, field programmable gate arrays as another example, and China has not been able to replicate the US success just yet. Despite what Ren says about moving Huawei’s supply chain out of the US, it will still be reliant for some incredibly important cogs.

One way of viewing this situation is that there is a short-term demonstration of power. Without the likes of Xilinx, Qualcomm, Qorvo, NeoPhotonics and numerous other semiconductor businesses, Huawei cannot produce the products it is promising customers. Not yet at least.

But long-term, perhaps this approach is simply forcing ‘Made in China 2025’ to accelerate and eroding the control the US has globally over some very high-value, highly profitable segments. Prior to the trade war, US companies were inside the tent. Admittedly conditions were not perfect, but they were inside not outside.

Perhaps this is the watershed moment; companies are going to be forced out as companies like Huawei increasingly look for domestic suppliers, and once they find them (by luck, convenience or necessity) there is no coming back.

Samsung profit is halved, company guidance warns

Samsung, the world’s largest smartphone and memory chip maker, warned the market its quarterly profit would drop by 56%, prior to the official result announcement later this month.

Samsung Electronics told the market that the operating profit generated in the quarter ending 30 June amounted to KRW 6.5 trillion ($5.55 billion), which would be a 4% sequential improvement on Q1 this year, but would represent a 56% drop from the same quarter a year ago. The total revenue is expected to be around KRW 56 trillion ($47.8 billion), a 7% sequential growth, but 4% year-on-year decline. The continued depressed profitability (operating margin almost unchanged from last quarter at 12%, compared with 25% a year ago) indicates Samsung’s main business has not turned the corner.

The semiconductor sector, where Samsung has generated the highest profit among all of its business units, remains weak. Last month investment analysts from the private fund Evercore reported that the inventory of memory chips by downstream device makers continued to be at excessively high level, therefore the investors did not see the sector recover before 2020.

The IT & Mobile communication unit, which has generated the highest revenue for Samsung, is still in trouble. Samsung has braced intensive competition particularly from the Chinese competitors, and its Galaxy S10 series have not been able to turn its fortune. The troubled launch of the Fold version of S10, which had been slated for Q2, has still yet to happen. A new Unpacked event has just been announced for August, but is likely to unveil its new tablet, the Galaxy Note 10, to consider the stylus featured on the event invitation.

When faced with pressure on profit, companies often turn to control cost. That looks to be what Samsung has been doing. A few days ago The Economic Times of India reported that Samsung will cut 1,000 jobs from the company’s smartphone functions. This is after 150 jobs are already gone in Samsung’s telecom infrastructure team.

Apple said to be sniffing around Intel’s modem business

Having recently ditched Intel’s modem business like a bad habit, gadget giant Apple is reportedly now thinking of buying it.

The rumour comes courtesy of The Information, which says it got the scoop from no less than four unnamed people who we’re told have been briefed on the discussions between Apple and Intel. Specifically Apple is said to be interested in Intel’s German modem operations, which is where much of the 5G R7D will have taken place.

Intel found itself as an unwitting pawn in Apple’s legal battle of will with mobile chip giant Qualcomm. Apple wasn’t happy with what Qualcomm was charging for its modems and took to the courts to do something about it. This was always just a form of negotiation, a crucial part of which was Apple’s insistence that it could just walk away from Qualcomm if it didn’t lower its prices.

The problem with this is that there are very few 5G modem players in town and even fewer that aren’t affiliated to a smartphone competitor of Apple’s. One of those was supposed to Intel, which found itself constantly defending its ability to deliver a competitive 5G modem in the face of understandable scepticism from the industry and, increasingly, from Apple itself.

Eventually the Emperor was revealed to be naked and Apple was forced to settle with Qualcomm once it became clear Intel wasn’t able to deliver. Intel wasted little time in throwing in the towel entirely on 5G modems once their only customer had ditched them and promptly retreated into the shadows, vaguely muttering about IoT.

But that doesn’t mean its efforts to deliver a 5G modem were entirely wasted. Through acquisition and organic R&D Intel must have picked up a thing or two about delivering 5G radio over the years. While Apple is forced in the mid term to rely on the loathed Qualcomm, it ultimately aspires to modem self-reliance. Since Intel’s 5G unit is presumably available at a knock-down price following its public humiliation it wouldn’t be at all surprising to see Apple snap it up, if only for a laugh.

Huawei CEO pressures US President Trump via Chinese media

Ren Zhengfei, Founder and CEO of besieged telecoms vendor Huawei, chose sympathetic Chinese media for his latest publicity initiative.

He invited the People’s Daily, CCTV and Xinhua News Agency, which are directly controlled by the Chinese Communist Party, as well as a bunch of other media not known for challenging the party line, for a bit of a chat at Huawei towers in Shenzhen. Conspicuously absent was the relatively neutral and objective South China Morning Post.

While the choice of media ensured a sympathetic line of questioning, Ren (pictured, photo taken from report) still served up some interesting answers. The current line from Huawei, in response to all the aggro it’s having to deal with from the US, seems to be to be as friendly as possible towards US companies, while at the same time demonising US politicians.

“What the US will do is out of our control,” said Ren. “I would like to take this opportunity to express my gratitude to the US companies that we work with. Over these 30 years, they have helped us to grow into what we are today. They have made many contributions to us. As you know, most of the companies that provide consulting services to Huawei are based in the US, including dozens of companies like IBM and Accenture.

“Second, we also have been receiving support from a large number of US component and part manufacturers over all these years. In the face of the recent crisis, I can feel these companies’ sense of justice and sympathy towards us.

“The US is a country ruled by law. US companies must abide by the laws, and so must the real economy. So you guys from the media should not always blame US companies. Instead, you should speak for them. The blame should rest with some US politicians.

“US politicians might have underestimated our strengths. I don’t want to say too much about this, because Ms. He Tingbo, President of HiSilicon, made all these issues very clear in her letter to employees. And all mainstream newspapers inside and outside of China have reported on this letter.”

Everything Ren said was accurate, but it’s intriguing that he made such a point of exonerating US companies from complicity in this whole affair. Huawei is, of course, a fully globalised company and relies heavily on good relationships with companies everywhere, so it makes sense to protect those relationships.

But looking under the surface of those comments two things spring to mind. Firstly it’s tactically sound to try to drive as much of a wedge as possible between the US private and public sectors. Presumably US companies like Google aren’t happy at being forced to stop doing business with one of the world’s largest technology companies and will be pressuring the US government to wind its neck in behind the scenes. They could yet be vital allies in Huawei’s bid to resolve this situation.

Secondly Ren seems to have scored a bit of an own-goal by conceding how powerless companies are to resist the will of politicians in their home countries. Since the central accusation levelled at Huawei by the US is that it is compelled to assist the Chinese state in espionage activities when asked, a call for private sector defiance may have been more cunning.

There was more talk of component autonomy but the Arm situation, which could scupper many of those plans, wasn’t directly addressed. Apparently Huawei was nearly sold to a US company in 2000 but it fell through at the last minute and they decided against trying to sell it to anyone else. Ren said Huawei has been preparing to ‘square off against the US’ ever since. The core message is that Huawei is fully prepared for this situation and will handle it just fine, but the Android situation was also conveniently avoided.

In response to a question about how long this current situation will last Ren replied “You are asking the wrong person; you should ask President Trump this question. I think there are two sides to this. Of course, we will be affected, but it will also inspire China to develop its electronics industry in a systematic and pragmatic manner.”

Hilariously the piece concludes with the statement “Huawei contributed to this story,” implying some degree of editorial veto. Nonetheless it’s worth reading the whole thing for the considerable insight it offers into the thinking behind the company. Huawei seems to have used this benign media gathering as an opportunity to put pressure on US politicians, or at least encourage US companies to do so. While this is a sound tactic there is currently little evidence of any progress being made in the geopolitical spat that Huawei has found itself in the middle of.

Huawei US ban metastasizes to ARM – where next?

The BBC is reporting that mobile chip designer ARM is the latest tech company to suspend its business with Huawei.

An ARM internal memo leaked to the Beeb instructed all employees to cease “all active contracts, support entitlements, and any pending engagements” with Huawei and made it clear that this was as a direct result of the recent US decisions to put Huawei on a list of companies US companies aren’t allowed to do business with.

ARM is based in the UK but is now a subsidiary of Japanese conglomerate SoftBank. However the memo apparently states that since ARM designs contain technology that originates from the US, ARM is cutting ties just in case that causes problems. Since these are probably design and software patents this move introduces the prospect that any company with even a trace of US intellectual property in its products may feel compelled to shun Huawei.

Huawei’s smartphone business is already in a lot of trouble thanks to its reliance on Android, but this ARM move will mean it can’t make its own chips either, which renders talk of OS alternatives redundant. It’s surely impossible to make a viable smartphone that contains no US intellectual property whatsoever and that may also be true of networking equipment.

The ARM business model involves licensing its semiconductor designs to third parties, who then incorporate them into their own chips. ARM’s designs are so effective, especially in power constrained environments, that they’re ubiquitous in the mobile world. The appear in not just processors and modems but IoT sensors and countless industrial applications, including a lot of networking gear. It’s hard to see how Huawei can function without access to them.

Here’s Huawei’s statement on the matter: “We value our close relationships with our partners, but recognise the pressure some of them are under, as a result of politically motivated decisions. We are confident this regrettable situation can be resolved and our priority remains to continue to deliver world-class technology and products to our customers around the world.” ARM doesn’t seem to have made a public statement yet.

Elsewhere it’s being reported that the US is mulling over the next tranche of Chinese companies to put on its blacklist. Next in the crosshairs are those that make surveillance gear, which isn’t too surprising. The way this is headed there seems to be no limit to the scope of this US ban. Only companies that do absolutely no business whatsoever with the US seem safe at this stage.

US supply ban threatens to cripple Huawei’s global business

Another day, another escalation as Google heads a stampede of US companies apparently refusing to do business with Huawei.

As escalations go, however, this is a pretty big one. Reuters was the first report that Google has suspended some business with Huawei in response to the company being put on the US ‘entity list’, which means US companies need explicit permission from the US state before they’re allowed to sell anything to them. It seems that permission has been denied.

For Google this means denying access to those bits of Android Google licenses – mainly the Play Store and Google’s own mobile products such as the Gmail and Maps apps. Huawei can still access the core Android operating system as that has an open source license but, as companies such as Amazon have discovered, that’s pretty useless without all the other Google goodies.

We recently wrote that Huawei’s addition to the entity list is the most significant consequence of Trump’s executive order and here we have an immediate illustration of that. It looks like pretty much all other US companies are also rushing to comply with the new regulations, with Bloomberg reporting that Qualcomm and Intel are among others cutting of business with Huawei and others will presumably follow. Nikkei even reckons German chip-maker Infineon has joined the stampede.

Huawei already has an extensive chip-making operation of its own, so arguably it can cope without the likes of Qualcomm, but what about the millions of other bits and bobs that get crammed into a smartphone such as screens, cameras, memory, sensors, etc? A lot of these could be supplied by non-US companies like Samsung and, of course, Chinese ones, but there must surely be some areas in which Huawei is entirely reliant on the US supply chain.

But Google’s licensed mobile products and services are unique. An Android phone that doesn’t provide access to the Play store is massively diminished in its utility to the end user and Google Maps is the market leader. Google also has a near monopoly with YouTube and millions of people are reliant on things like Gmail, Google Pay, Play Movies. When there are so many great alternative Android smartphone vendors, why would anyone now buy a de-featured Huawei one?

In response to these reports Android moved to stress that it will continue to support existing Huawei Android phones in the following tweet.

Meanwhile Huawei issued the following statement. “Huawei has made substantial contributions to the development and growth of Android around the world. As one of Android’s key global partners, we have worked closely with their open-source platform to develop an ecosystem that has benefitted both users and the industry.

“Huawei will continue to provide security updates and after sales services to all existing Huawei and Honor smartphone and tablet products covering those have been sold or still in stock globally. We will continue to build a safe and sustainable software ecosystem, in order to provide the best experience for all users globally.”

Huawei has reportedly been working on its own smartphone OS in anticipation of this sort of thing happening but, as Microsoft, Samsung and others have found, there seems to be little public appetite for alternative to Android and iOS. Huawei may be able to sell a proprietary platform in China, where the Play Store is restricted anyway, but internationally this move will surely see Huawei smartphone sales fall off a cliff.

“If the US ban is permanent, we predict Huawei’s global smartphone shipments will tumble -25% in 2019,” Neil Mawston of Strategy Analytics told Telecoms.com. “If Huawei cannot offer Android’s wildly popular apps, like Maps or Gmail, Huawei’s smartphone demand outside China will collapse.

“If the US ban is temporary, and lifted within weeks, Huawei’s global smartphone growth will return to positive growth fairly swiftly. Huawei offers good smartphone models at decent prices through an extensive retail network, and it should recover reasonably well if it is allowed to compete.”

“We still don’t have a clear understanding of what Google has told Huawei and what elements of the Android operating system may be restricted, so it remains unclear what the ramifications will be,” said Ben Wood of CCS Insight. “However, any disruption in getting updates to the software or the associated applications would have considerable implications for Huawei’s consumer device business.”

There have been very few official statements on the matter from US companies, so Wood is right to tread carefully at this stage, but it’s hard to see this news as anything other than catastrophic for Huawei. Its consumer business, which is the most successful unit in the company, relies largely on Android to run its products and will surely be severely diminished by the Google move.

And there’s no reason to assume the damage will be contained there. Last year Huawei’s contemporary ZTE was almost driven out of business by a ban on US companies doing business with it. Huawei may have hedged its position regarding networking components suppliers more effectively than ZTE but it will presumably suffer greatly once those companies follow suit.

Huawei is one of the biggest companies in the world and has become so in spite of being largely excluded from the US market. The Chinese state will do everything it can to support Huawei, but at least some of its US suppliers offer unique products. At the very least this puts Huawei in a weak negotiating position with potential replacement partners and international customers, but the implications of this latest development are potentially existential.

Qualcomm banks almost $5 billion from Apple and that’s just the start

In its latest quarterly earnings announcement Qualcomm revealed just some of the cash it’s trousering from Apple after winning their legal fight.

“On April 16, 2019, we entered into settlement agreements with Apple and its contract manufacturers to dismiss all outstanding litigation between the parties,” said the relevant bit of the report. “We also entered into a six-year global patent license agreement with Apple, effective as of April 1, 2019, which includes an option for Apple to extend for an additional two years, and a multi-year chipset supply agreement with Apple.

“While we continue to assess the accounting impacts of the agreements, our financial guidance for the third quarter of fiscal 2019 includes estimated revenues of $4.5 billion to $4.7 billion resulting from the settlement (which will be excluded from our Non-GAAP results), consisting of a payment from Apple and the release of our obligations to pay or refund Apple and the contract manufacturers certain customer-related liabilities.

“In addition, our financial guidance for the third quarter of fiscal 2019 includes estimated QTL revenues for royalties due from Apple and its contract manufacturers for sales made in the June 2019 quarter.”

Fiscal Q3 for Qualcomm is equivalent to financial Q2, so it covers all the initial payments Apple will make to Qualcomm as a result of their settlement. If you factor in the June quarter sales royalties that wouldn’t otherwise have been paid that should mean Qualcomm’s current account will be around $5 billion better off by the Summer.

There didn’t seem to be any details revealed about the new patent licence agreement, but the two-year backlog points to a historical rate of around $200 million per month. Given the apparently dominant negotiating position Qualcomm will have been in regarding access to its 5G products it’s easy to believe Apple will be handing over a fair bit more than that for the foreseeable future.

There was one other comment of interest in Qualcomm’s outlook. “Our financial guidance for the third quarter of fiscal 2019 also includes $150 million of QTL revenues from Huawei, which represents a minimum, non-refundable amount for royalties due by Huawei while negotiations continue. This payment does not reflect the full amount of royalties due under the underlying license agreement.”

While this is essentially a restatement of the announcement Qualcomm made a quarter ago, it implies the dispute still isn’t resolved. Aside from all this Qualcomm’s Q1 revenues were roughly in line with expectations but a relatively downbeat general outlook drove its shares down a couple of percent.

Samsung’s profit crashes on weak semiconductor sales

Samsung Electronics reported a net profit decline of 57% in Q1, with total revenue going down by 14%. The semiconductor unit suffered the worst.

Samsung’s quarterly revenue went down from KRW60.56 trillion ($52 billion) a year ago to KRW52.39 ($45 billion) in Q1. The gross margin level came down from 47.3% to 37.5%. The operating profit dropped to KRW6.23 trillion ($5.3 billion) from KRW15.64 trillion ($13 billion), a decline of 60.2%. The net profit came down by 57% to KRW5.04 trillion ($4.4 billion).

 Samsung 2019_1Q_income

On business unit level, Device Solutions reported a 27% drop in revenue, the sharpest decline among all the business units. Inside the unit, Memory chips declined by 34%. Samsung attributed the weakness to “inventory adjustments at major customers”, indicating its customers including other smartphone makers, have been selling slower than expected.

IT & Mobile Communications, Samsung’s largest business unit by sales, the business was more stable. Revenue from the handset business dropped by 4% from a year ago, but grew sequentially by 17%. Samsung saw strong demand for its Galaxy S10 products, but the de-focus of mid-range and lower products limited the volume growth. The recent debacle of S10 fold, high profile as it may be, should not have had any material impact on Q1 as it was scheduled to launch in Q2. Samsung’s network business, though small in comparison to its competitors, reported a strong revenue growth of 62% to reach KRW1.28 trillion ($1.1 billion), benefiting from the “accelerating commercialization of 5G in Korea”.

Samsung 2019_1Q_BU

Samsung gave cautious lift to its outlook for Q2 but more optimistic with the second half of the year. It foresees the memory chip market stabilising in Q2 and stronger growth in the second half due to seasonality and product line refreshing. On the mobile side, Samsung sees growth in shipment in Q2 thanks to continued demand for the S10 products and positive market response to its new mid-range A series. It sees the 5G products and the fold form-factor making material contribution in the second half.

Apple starts to count the casualties of its poor 5G campaign

It looks like one of Apple’s most senior wireless engineers has cleared off, just days after the company lost its fight with Qualcomm.

The Information has reported that Rubén Caballero, a VP of Engineering in charge of wireless stuff at Apple, has left the building. One of its mystery sources said Caballero was ‘leading Apple’s charge into 5G’, which is especially appropriate considering his surname. Since that charge was resoundingly defeated by Qualcomm’s big guns Apple seems to have decided to discreetly disband its 5G light brigade.

As is its way Apple hasn’t offered any comment on the scoop but The Information says his work emails are bouncing back and his work phone has been disconnected so the circumstantial evidence is strong in this one. Additionally Apple Insider did a bit of sniffing around of its own and got another anonymous source to confirm Caballero’s departure.

Both stories feature a fair bit of speculation about why Caballero may have galloped off after 14 years at Apple, but to us the most likely reason for any wireless casualties at Apple must be the utter farce of its attempted collaboration with Intel. Since Intel was clearly hopelessly inadequate as a 5G modem partner, Apple CEO Tim Cook must have a pretty low opinion of any of his execs that told him otherwise.