Teardown graphic shows how Huawei's newest flagship, the P40, still relies on US components

Huawei is focusing on cloud computing to ensure its survival

Huawei is focused on its burgeoning cloud business, which despite the sanctions imposed on the company, continues to have access to US chips to ensure its survival.

The Chinese group's cloud computing business, which sells compute power and storage to companies and gives them access to AI, lags far behind Alibaba and Tencent, the market leaders in China. But it's growing fast, and in January Huawei put the device on par with its smartphones and telecommunications devices.

A person at a Chinese supplier to Huawei said the cloud business is key to stabilizing Huawei in its home market as Beijing increasingly supports the company through public cloud contracts.

Several employees of Huawei's cloud business said the company is stepping up its offering. "We will continue to offer our customers a package of (cloud) services and products," said a person at Huawei who is familiar with the strategy. "The quality of the chips inside may not be as good as it was before, but for the other products that are not affected, we are offering something of a slightly better quality and customers can accept that."

The change in focus was necessary as the outlook for Huawei's smartphone and other consumer products was "hopeless" in the face of a US ban that will restrict access to mobile chips, said a person familiar with the business. The consumer unit was responsible for half of Huawei's $ 122 billion in revenue last year.

Industry executives and analysts said that suppliers of semiconductors needed for cloud computing are allowed to continue to supply Huawei and other components are available in the open market.

"Intel was the supplier of the main (central processing unit) for Huawei servers as it received a license last year that allows it to continue selling to Huawei," said a semiconductor industry manager who refused to be named because he is not authorized to speak to the media.

After the U.S. Department of Commerce added Huawei to a list of companies banned from doing business with U.S. companies last year, hundreds of companies applied for temporary licenses that would help them exempt them from tax. Despite rules enacted by the U.S. government in May and August 17 that prohibit the sale of chips designed or manufactured using U.S. technology or equipment in transactions with Huawei, these licenses remain in effect .

"The rule does not affect licenses issued before August 17th," a Commerce Department official told the Financial Times. "The scope of the rule has not changed for the licenses previously granted."

Last year, most companies applying for licenses focused on chip design and software, as the industry didn't expect Washington to crack down on the entire supply chain, including manufacturing.

Industry experts said the exception has become meaningless to these Huawei vendors as the latest rules exclude the companies that make the chips from shipping to Huawei. However, some chip manufacturers with their own production facilities received a license. The industry manager and two analysts said Intel was among them.

The Department of Commerce does not publish which companies are licensed. Intel has confirmed that it has licenses to ship to Huawei.

If Intel CPUs are still available, Huawei could use them as replacements for Kunpeng and Ascend. The company's cloud CPUs were created based on designs from UK chipmaker ARM that are no longer manufacturable due to recent bans.

Other electronic parts, including power management integrated circuits, memory chips and passive components, could be obtained through vendors, analysts say. "Channels like WPG have these on offer," said YC Yao, chip analyst at Trendforce, the industry research firm, referring to Asia's largest distributor of semiconductor components. "I don't think such transactions could be monitored to the extent that they could prevent sales to a specific end customer like Huawei."

Additional coverage from Richard Waters in San Francisco