Why Huawei Can Only Make 200,000 AI Chips a Year
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Jeffrey Kessler, Under Secretary of Commerce for Industry and Security at the Commerce Department, recently told lawmakers that China's Huawei is capable of producing no more than 200,000 advanced AI chips in 2025, a figure far below the company's own demand. But this wasn't a victory lap. Kessler warned that the U.S. shouldn't take comfort in that number, stressing that "China is catching up quickly" and it's "critical for us not to have a false sense of security."
This paradox gets to the heart of the global tech race: while China is proving it can design powerful, competitive chips, its ability to manufacture them at the cutting edge and at scale remains severely constrained. This isn't a simple matter of resources or will; it's about a handful of chokepoints in the global supply chain that are nearly impossible to bypass.
Isn't Huawei's new chip a big threat to Nvidia?
In terms of design and performance, yes. Huawei's Ascend series of AI processors, particularly the 910B and 910C, have emerged as credible alternatives to Nvidia's restricted offerings in China. Huawei has even started shipping full data center rack systems, like the CloudMatrix 384, that can link hundreds of these chips together. While these systems are less power-efficient than Nvidia's latest, they demonstrate that Huawei's chip design capabilities are formidable. Nvidia CEO Jensen Huang himself has called Huawei "one of the most formidable technology companies in the world."
The problem for Huawei isn't the blueprint; it's the factory.
What's stopping them from manufacturing more?
The answer lies in the highly specialized world of semiconductor manufacturing. Most leading chip designers, including Nvidia and AMD, are "fabless"—they design chips but outsource the actual production to a dedicated manufacturer, or "foundry." The undisputed king of this domain is Taiwan Semiconductor Manufacturing Co. (TSMC), which controls over 60% of the global foundry market and an even more dominant share of the most advanced processes (like 3nm and 2nm).
Building a leading-edge fab is astronomically expensive—costing upwards of $30 billion—and requires decades of accumulated expertise to achieve the high manufacturing success rates, or "yields," necessary for profitability. Competitors like Samsung and Intel have spent billions trying to catch up to TSMC's manufacturing prowess, but still lag in terms of scale and efficiency.
So China needs TSMC. What's the problem?
U.S. export controls. To prevent China from accessing the most advanced manufacturing, the U.S. has effectively barred TSMC from producing cutting-edge chips for Chinese companies like Huawei. This forces China to rely on its domestic champion, Semiconductor Manufacturing International Corp. (SMIC).
While SMIC has made impressive strides, reportedly producing 7-nanometer chips, it is still several years behind TSMC. Crucially, SMIC is also blocked from acquiring the most essential tool for modern chipmaking.
What is this single essential tool?
The ultimate chokepoint in the semiconductor world is the photolithography machine, and one company has a total global monopoly on the most advanced version: the Dutch firm ASML. These bus-sized machines use extreme ultraviolet (EUV) light to etch unimaginably small circuits onto silicon wafers. They are, as one analyst put it, "one of the most complicated machines humans have ever built." An EUV machine can cost over $100 million, and the next-generation "High-NA" models cost nearly $400 million.
Without ASML's EUV machines, it is virtually impossible to mass-produce the most advanced chips (5nm and below) efficiently and with high yields. U.S. pressure has ensured that the Dutch government does not grant export licenses for ASML to sell its EUV systems to China. This leaves foundries like SMIC relying on older deep ultraviolet (DUV) technology, which can be used to make less-advanced chips or to produce more advanced ones through complex, expensive, and lower-yield multi-patterning techniques. This is the fundamental, physical barrier that caps Huawei's production of advanced AI chips at a level far below its needs.
Can China build its own lithography machine?
China is certainly trying. The government is funneling billions into the effort, with companies like SiCarrier attempting to develop domestic alternatives to ASML's tools. But this is a monumental challenge. ASML's success was the result of decades of R&D and a complex global supply chain of specialized components, like the ultra-precise mirrors from Germany's Zeiss.
While China may eventually develop its own lithography technology, experts believe it is a decade or more away from matching ASML at the leading edge. Until then, no matter how clever Huawei's chip designs are, its production capacity for the most advanced AI processors will be dictated by the manufacturing technology it has access to—a chokepoint the U.S. continues to strategically squeeze.