Why Huawei Can Only Make 200,000 AI Chips a Year

Under Secretary of Commerce Jeffrey Kessler indicated that Huawei's capacity to produce advanced AI chips will be capped at 200,000 units in 2025 due to manufacturing constraints, specifically its inability to acquire ASML's EUV lithography machines necessary for producing chips at 5nm and below. While Huawei has demonstrated strong chip design capabilities, its reliance on less advanced manufacturing processes and inability to access critical technology like ASML's EUV systems, due to U.S. export controls, limits its production scale and efficiency, hindering its ability to compete directly with Nvidia in the AI chip market.

Analysis

U.S. Commerce Department Under Secretary Jeffrey Kessler has indicated that Huawei's advanced AI chip production will be capped at an estimated 200,000 units in 2025, a volume significantly below its internal demand, despite China's rapid advancements in semiconductor design capabilities. This limitation stems directly from U.S. export controls restricting access to critical semiconductor manufacturing technologies, particularly extreme ultraviolet (EUV) lithography machines from Dutch firm ASML, which holds a global monopoly on this essential equipment for producing chips at 5nm and below. While Huawei's Ascend series AI processors, such as the 910B and 910C, demonstrate competitive design and performance against restricted Nvidia offerings in China, with Nvidia's CEO Jensen Huang acknowledging Huawei as a 'formidable' competitor, Huawei's inability to secure EUV tools forces its domestic foundry partner, Semiconductor Manufacturing International Corp. (SMIC), to rely on older deep ultraviolet (DUV) technology or less efficient and lower-yield multi-patterning techniques for advanced nodes. This creates a fundamental manufacturing bottleneck, as Taiwan Semiconductor Manufacturing Co. (TSMC), the dominant global foundry controlling over 60% of the market and an even larger share of advanced processes, is barred by U.S. regulations from supplying Huawei with cutting-edge chips. Although China is investing heavily in developing indigenous lithography solutions, expert consensus suggests it remains a decade or more from matching ASML's leading-edge capabilities, reinforcing the strategic effectiveness of current U.S. export policies in constraining China's advanced AI chip production scale.

Key Decisions for Investors

• The persistent manufacturing limitations on Huawei, primarily due to restricted access to ASML's EUV technology, are likely to mitigate immediate large-scale competitive threats to Nvidia's market share in the high-end AI chip segment, despite Huawei's advancing design capabilities.
• Given their pivotal roles in the semiconductor supply chain and the enforcement of export controls, ASML and TSMC remain strategically positioned, which may support their current market valuations and justify continued investor focus.
• Long-term investors should monitor China's progress in developing indigenous advanced semiconductor manufacturing equipment, particularly lithography tools, as any significant breakthroughs, though estimated to be a decade or more away, could eventually alter the geopolitical and competitive landscape of the global AI chip sector.