The chipset industry has reached boiling point

“The chipset, a pocket-sized brain that comprises most of our smartphones’ intelligence and innovation”

Focused on cutting-edge technologies with an ever smaller footprint, the chipset, or System on a Chip (SoC), comprises most of the intelligence in our smartphones. Its associated ecosystem is also concentrated around a few key players, and is currently facing a rocky road.

After years of intensive use, we sometimes take for granted everything our smartphone can do for us on a daily basis. Let us go deeper to learn, and understand, how this application and software engineering is driven. The answer is contained in a miniature component—with an area of less than 100 mm²—hidden behind the screen: the chipset.

A multi-purpose brain

This pocket-sized “brain” supports two of our smartphones’ essential functions. The Application Processing aspect, on the one hand, includes the microprocessor, graphics card, storage management, security, artificial intelligence modules etc. The modem, on the other hand, includes all the 3G/4G/5G connectivity. These two critical components can be separated—using a choice of architecture that accelerates the manufacture of new generations of chipsets—or fully integrated. In either case, most of the phone’s technical innovation lies with the chipset.

From architecture to production, a small ecosystem…

The intrinsic attributes of a chipset reside in the choice of its architecture. In recent years, the families designed by the British company Arm have been the ones that have led the way and constitute the default architecture.  This is with a particular subtlety built into its business model: The company does not sell or manufacture processors, but markets their technology as intellectual property in the form of licences.

For a highly technical component, an equally technical manufacturing process is expected. For the chipset, this is particularly refined and complex. It all starts with the wafers, 300-mm silicon discs that undergo a plethora of industrial processes before being cut into dies. They are repeatedly subjected to high-intensity exposure to UV light as well as to various chemical products to produce transistors. “In the mobile world, there are a small number of players and factories that know how to use these technologies and are able to manufacture chipsets”, says Bertrand Grelot, Device Technology Expert at Orange. “And that proportion reduces even further when it comes to 5G, which requires a tenfold increase in computing power compared to previous generations. The challenge, then, is to achieve an engraving finesse that allows more transistors to have an equal surface area. At present, only the founders TSMC (Taiwanese), Intel (American) and Samsung (South Korean) understand this technology.” Long dominated by US company Qualcomm, the distribution segment recently expanded after players such as Samsung and the Chinese company Huawei, eager to reduce their dependence, developed their own chipset designs and manufacturing capabilities.

…and a restricted environment for certain players

In recent months, key players in this ecosystem have faced a series of obstacles. The trade war between the US and China that began in 2018 is having a direct impact on the chipset industry. Restrictions on the use of US technologies in Chinese products have recently tightened further. Additional controls have been implemented in relation to the Entity List, which includes Huawei and several of its subsidiaries. As a result, companies whose products incorporate US intellectual property cannot cooperate with the Chinese group unless they obtain a government licence. Yet virtually all chipsets stem directly from US intellectual property, from architecture to equipment used during their manufacture. The implications for Huawei are clear: The Chinese manufacturer, which manufactured its own chips as a vehicle for differentiation, is now severely affected by its supply chain. Its ability to continue to produce mobile devices, as well as network equipment, is being strongly called into question.

Another structural parameter, albeit one that is up in the air, is the potential takeover of Arm by US company Nvidia, which, if confirmed, could draw the chipset architecture specialist into the realm of companies subject to the Entity List restrictions.

Are we heading towards an industry split into two?

“For the Chinese companies concerned, and for Huawei first and foremost, two alternatives become clear”, Bertrand Grelot continues. “Either find solutions by negotiating with the US authorities or move towards some sort of technical isolationism through creating their own ecosystem. This prospect would lead to a split between western and eastern technologies, which would lead to significant non-interoperability and security issues. This rapidly changing and fluctuating situation is being approached with care and prudence by ecosystem players, including carriers such as Orange, who would usually interact with chipset manufacturers in a spirit of co-construction and co-innovation.”

“The chipset, a pocket-sized brain that comprises most of our smartphones’ intelligence and innovation”

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