Huawei’s Day of Reckoning Could Arrive Next Week
Next Tuesday could go down as the beginning of the end for Huawei Technologies Co. Ltd., one of China’s biggest high-tech success stories, as its key chip suppliers are formally banned from selling to the company under a highly coordinated U.S. campaign.
Washington has been assaulting Huawei nearly nonstop since May 2019, first cutting off the company from its many U.S. suppliers after determining it illegally sold American products to Iran in violation of U.S. sanctions. Since then the U.S. has taken similar action to cut off Huawei from its non-American suppliers by threatening to cut off those companies from their U.S. partners that provide everything from chip design software to manufacturing equipment.
Those non-American companies include leading global contract chip maker Taiwan Semiconductor Manufacturing Co. (TSMC), Taiwan-based telecom chipmaker MediaTek and global display giants Samsung Electronics and LG Display, both of South Korea.
A very public campaign will force TSMC, the world’s most cutting-edge contract chipmaker, to stop supplying key chips that power Huawei’s high-end smartphones and telecom networking equipment as of Sept. 15. That date was determined after the U.S. Department of Commerce ordered TSMC to sever its relationship with Huawei on May 15, and gave the pair four months to wind down their previous commitments.
Meantime, two of the world’s biggest display-makers, LG Display Co. Ltd. and Samsung Electronics, are also expected to stop supplying premium displays to Huawei from Sept. 15, under similar U.S. restrictions, Reuters reported, citing a Wednesday report from South Korean online media Chosun Biz.
TSMC is the world’s largest foundry and had counted Huawei as its second largest customer, accounting for 14% of its sales. At an event on July 16, TSMC Chairman Mark Liu said the company hasn’t received any new orders from Huawei since May 15, and the company had no plans to supply Huawei after Sept. 14.
The biggest challenge for Huawei will be to its smartphone business, particularly its premium products. The company took the crown as the world’s largest smartphone-maker for the first time in this year’s second quarter, largely based on its strong performance in China, the world’s largest smartphone market.
But most expect that part of its business to start declining toward the end of this year or beginning of next, as the company’s stockpile of chips starts to run out and consumers increasingly avoid it due to uncertainties about its ability to provide after-sales support. The company earlier suffered a major setback when U.S. sanctions cost it access to Google’s app store, a critical component for nearly all of its phones sold outside China that are powered by Google’s Android operating system.
On Thursday, Huawei announced it would begin a mass rollout of its self-developed Harmony operating system in its phones starting next year as an alternative to Android.
In early August, Yu Chengdong, head of the company’s consumer products division, said at an industry event that the company’s newest flagship model, the 5G-capable Mate 40, would go on sale in the fall using the latest chips from its Kirin series. Those chips, which were designed by Huawei’s HiSilicon unit and require some of the most cutting-edge chip-making technology, could well be the last to come from the series with the end of the TSMC relationship.
Caixin’s coverage of hobbled Huawei
After the U.S. forced an end to the TSMC-Huawei supply agreement, some had said that Huawei could still continue to make phones with lower-performance smartphone chips designed by third parties like Taiwan’s MediaTek. But on Aug. 17 the U.S. expanded its campaign to cut off that channel as well using a similar threat of banning U.S. firms from selling to the company. The U.S. also added 38 Huawei affiliates to its list of companies banned from doing business with U.S. partners, bringing the total of banned Huawei affiliates to 152.
A representative from MediaTek told Caixin the company has already applied to the U.S. for permission to sell to Huawei and is waiting for approval.
The Commerce Department now requires that any transactions involving Huawei-affiliates must get official government approval before being allowed to proceed. Such a requirement not only cuts Huawei off from third-party suppliers outside the Chinese mainland, but is also likely to cut it off from potential substitute suppliers on the mainland like Semiconductor Manufacturing International Corp., which also rely heavily on U.S. products in their supply chains.
The U.S. previously banned Huawei equipment from use in its domestic telecom networks, saying it could pose a national security risk due to suspected ties between the company and Beijing — something Huawei has denied. Since imposing that ban several years ago, the administration of U.S. President Donald Trump has embarked on a more aggressive campaign not only to get other countries to stop buying Huawei equipment, but also the most recent campaign to cut off Huawei from many of its suppliers.
Market watchers have speculated that Huawei may be trying to assemble a new chip design and manufacturing supply chain that doesn’t include any U.S. technology to get around the various bans, though Huawei has yet to comment.
At the end of the July the company set up a display drive department to lessen its reliance on suppliers in South Korea and the U.S. It has also been stockpiling chips to help it continue making phones as the various bans take hold. Analysts forecast the company’s stockpiles are adequate to supply the company through early next year.
Contact reporter Yang Ge (email@example.com) and editor Joshua Dummer (firstname.lastname@example.org)
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