The Silicon Struggle: Huawei's Semiconductor Quest and the Global Chip Power Shift

The quest for semiconductor self-reliance in China has become a high-stakes battle, with Huawei at the center of efforts to bypass U.S. sanctions and secure advanced chip technology. Yet delays in SMIC's 5nm node adoption, reliance on outdated 7nm chips, and escalating U.S. export controls have exposed critical vulnerabilities in China's tech ambitions. For investors, this dynamic presents both risks and opportunities, reshaping global chip industry dynamics and favoring firms with access to cutting-edge manufacturing.

The Hurdles Facing SMIC and Huawei

SMIC, China's leading foundry, has struggled to close the gap with global leaders like TSMC and Samsung. While it achieved a pilot production of 5nm chips using deep ultraviolet (DUV) lithography by early 2025, the process comes with steep costs and poor yields. SMIC's 5nm wafers cost 40–50% more than TSMC's equivalents, with yields at just one-third of TSMC's levels due to the lack of extreme ultraviolet (EUV) equipment banned by U.S. sanctions. This limits mass production of advanced chips like Huawei's planned Ascend 910C AI processor, forcing reliance on older 7nm nodes.

The U.S. export controls have compounded these challenges. The 2023–2024 sanctions banned EUV sales to China and restricted access to advanced semiconductor manufacturing equipment (SME), pushing SMIC to adopt inefficient workarounds. Even domestic efforts, such as SiCarrier's trial production of EUV alternatives by Q3 2025, face technical and timeline uncertainties.

Strategic Implications for China's Tech Sector

China's semiconductor roadmap hinges on overcoming these hurdles. The delays in 5nm adoption mean Huawei and other firms cannot fully leverage AI and cloud computing innovations requiring cutting-edge chips. For instance, the Ascend 910C AI chip, designed to rival NVIDIA's H100, is delayed due to SMIC's yield issues. Meanwhile, competitors like NVIDIA and AMD continue to advance to 3nm and 2nm nodes, widening the performance gap.

This chart highlights the divergence: SMIC's stock has stagnated, while TSMC's advanced node leadership has bolstered investor confidence.

Investment Opportunities: Winners and Losers

The sanctions have created asymmetric advantages for U.S., Taiwanese, and South Korean firms:

1. TSMC (TPE:2330): Maintains a three-generation lead over SMIC, with 3nm in mass production and 2nm nearing commercialization. Its dominance in advanced nodes positions it to capture AI and high-performance computing demand.
2. Samsung (KS:005930): Rivals TSMC in advanced nodes and benefits from diversified supply chains. Its 2nm process for Qualcomm's Snapdragon chips underscores its competitiveness.
3. ASML (ASML): Monopolizes EUV lithography, a critical chokepoint for advanced chipmaking. U.S. sanctions ensure its technology remains out of China's reach.

This comparison underscores TSMC's and Samsung's accelerating growth, while SMIC's rise is constrained by technical bottlenecks.

Risks and Upside for Investors

Risks to Chinese tech firms:
- Sanctions escalation: U.S. policies targeting software tools (e.g., design automation) and HBM memory could further stifle progress.
- Competitive disadvantage: Older nodes like 7nm will lag in AI and cloud applications, making Chinese products less attractive globally.

Upside for U.S./allied firms:
- AI-driven demand: TSMC and Samsung will benefit from the AI chip boom, as companies like NVIDIA, AMD, and Intel rely on their advanced nodes.
- Supply chain resilience: Firms with diversified manufacturing (e.g., Intel's IDM 2.0 strategy) and EUV access are well-positioned.

Strategic Investment Takeaways

1. Favor advanced-node leaders: TSMC and Samsung remain core holdings for tech investors, leveraging their manufacturing edge.
2. Monitor U.S. semiconductor stocks: ASML, Lam Research, and Applied Materials benefit from restricted Chinese access to critical equipment.
3. Exercise caution on Chinese tech: SMIC and Huawei face prolonged headwinds until domestic EUV breakthroughs materialize—a timeline stretching beyond 2025.

Conclusion

The semiconductor war is reshaping global tech power. While China's self-reliance efforts are commendable, U.S. sanctions have entrenched Taiwan's and America's dominance in advanced chipmaking. Investors should prioritize firms with access to leading-edge technology, as the race for AI supremacy hinges on it. For now, the silicon stratosphere belongs to those who control the tools to build it.

This visualization shows Taiwan's share rising from 24% to 32%, while China's remains below 10%, reflecting the entrenched divide.