Caixin
Aug 18, 2020 08:27 PM
BUSINESS & TECH

Update: U.S. Puts Stranglehold on Chip Sales to Huawei

The U.S. has announced new rules which would completely cut off the supply of chips to Huawei Technologies Co. Ltd., in what some say could be a killing blow to the Chinese company.

Under the rules announced Monday by the Department of Commerce, companies worldwide will need a license to sell the Chinese company products in which U.S. technology is used in the production process, including of any components.

“This amendment further restricts Huawei from obtaining foreign made chips developed or produced from U.S. software or technology to the same degree as comparable U.S. chips,” the department said.

The latest rules build on previous regulations announced in May that targeted products specifically designed by Huawei, affecting companies such as Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) which manufactures custom chips for the telecom-gear giant.

But the new rules also target third-party chips, which the company was expected to rely on after its stockpile of custom-built chips ran out.

The U.S. government fired its first shot at the Chinese company in May 2019 when it placed it on the Commerce Department’s “Entity List.” This blocks Huawei from procuring products and services from U.S.-based companies.

Currently, the world’s chip companies, including Chinese mainland firms, rely on U.S. equipment and software to manufacture their products. The latest restrictions will threaten to cut off Huawei’s chip supplies completely. Many analysts expect Huawei’s chip stockpile will run out by early 2021.

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The latest U.S. rules are a “death sentence” for Huawei, said Dan Wang, a technology analyst with Beijing-based research firm Gavekal Dragonomics. “Huawei is probably finished as a maker of 5G network equipment and smartphones once its inventories run out,” he added.

After Huawei was first placed onto the Entity List, it managed to evade U.S. sanctions by turning to chips designed by its HiSilicon unit and made by third-party companies like TSMC. It also bought non-custom chips from non-U.S. companies.

The latest tranche of rules announced on Monday, however close both loopholes. Already, after the May rule barring sales from firms that manufacture its self-designed chips, Huawei has now stopped delivering orders to TSMC, Caixin has learned.

Earlier this month, Yu Chengdong, CEO of Huawei’s consumer business, said in an industry forum that the company’s Kirin 9000 chipset used in its smartphones would no longer be available after Sept. 15, due to U.S. sanctions.

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Also, on Monday, the Commerce Department added another 38 Huawei affiliates in 21 countries to the Entity List, bringing the total number of Huawei affiliates on the U.S. economic blacklist to 152.

By doing so, the U.S. government is further closing a loophole that had allowed Huawei to evade the previous restrictions.

Beijing denounced Washington’s latest measure toward Huawei.

“China firmly opposes the U.S. actions to deliberately discredit and suppress Huawei and other Chinese enterprises,” Zhao Lijian, a spokesperson for China’s Foreign Ministry, said in a daily news briefing Tuesday.

“The U.S. has recently enacted a variety of restrictive measures against Huawei and other Chinese companies based on accusations for which no evidence has been provided,” he said, accusing the U.S. of abusing “state power” and using national security as an excuse to target Chinese companies.

Contact reporter Mo Yelin (yelinmo@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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