The latest US government action against Huawei Technologies takes direct aim at the company’s HiSilicon division – the chip design business that in a few short years has become central to China’s ambitions in semiconductor technology, but will now lose access to tools that are central to its success. That could make it the most damaging US attack yet against China’s largest technology company that functioned as a “tool of strategic influence” for the Chinese Communist Party, US officials told reporters on Wednesday. Huawei, for its part, denounced the US allegations and called the new measures “arbitrary and pernicious”. Established in 2004, HiSilicon develops chips mostly for Huawei, and for most of its existence has been an afterthought in a global semiconductor business dominated by US, South Korean and Japanese companies. Like most electronics firms, Huawei relied on others for the chips that powered its equipment. But heavy investment in research and development helped drive rapid progress at HiSilicon, and in recent years the 7,000-employee unit has been central to Huawei’s rise as a major player in the global smartphone industry and the emerging 5G mobile network equipment market. HiSilicon’s Kirin smartphone processor, for example, is now considered to be on par with those designed by Apple and Qualcomm – a rare example of an advanced Chinese semiconductor product that competes globally. Huawei’s chip subsidiary is also central to the company’s leadership in 5G mobile equipment, stepping into the breach when the Trump administration cut off access to some US chips last year. In March, Huawei revealed that 8 per cent of the 50,000 5G base stations that it sold in 2019 came with no US technology , using HiSilicon chipsets instead. But the US export control rule, first reported by Reuters last week, aims to block HiSilicon’s access to two crucial tools: chip design software from US firms, including those from Cadence Design Systems and Synopsys, and the manufacturing prowess of dedicated chip foundries led by Taiwan Semiconductor Manufacturing Co (TSMC), the world’s largest contract chip maker. With the new restrictions，HiSilicon “will be in a situation where they’re not able to manufacture chips at all, or if they do, then they’re not leading edge any more”, said Stewart Randall, who tracks China’s chip industry at Shanghai-based consultancy Intralink. US regulators open door to possible tightening of Huawei chip curb Without its own processors, Huawei will lose its edge over domestic smartphone rivals, analysts said. International sales had already been gutted by a ban on the use of key Google software. Huawei, however, has stockpiled chips , and the new US rule will not go into full force for 120 days, according to industry sources. US officials also indicated that licences could be granted for some technologies. HiSilicon can also keep using design software it has already acquired. Still, analysts agree HiSilicon is in a tough spot. Nearly all chip makers globally – including China’s largest foundry, Semiconductor Manufacturing International Corp – buy gear from the same equipment suppliers, led by US firms Applied Materials, Lam Research Corp and KLA Corp. The new US rule requires licences for companies using US machinery to build Huawei-designed chips and delivered to the Chinese firm. To be sure, the new rule will not catch items shipped to a third party, allowing HiSilicon’s fabricators like TSMC the ability to ship chips to HiSilicon’s device manufacturers who can send them directly to a customer. HiSilicon overtakes Qualcomm as China’s top smartphone processor supplier While there are alternatives to American chip manufacturing equipment – Japan’s Tokyo Electron, for example, makes gear that competes with Applied Materials – replacing US technology is not as simple as swapping out a machine. “You almost have to think about it like a heart transplant,” said VLSI Research chief executive Dan Hutcheson, noting that chip production lines are finely calibrated systems where everything has to work well together. Doug Fuller of the Chinese University of Hong Kong (CUHK) said Huawei had a few options. It could slip around the rule by having suppliers ship directly to Huawei customers, though the US officials said they would be vigilant about such workarounds. Huawei and the Chinese government could also redouble efforts to build production capabilities that did not require US tools, by investing in nascent Chinese competitors and buying from Japanese and Korean firms, even if that required quality sacrifices. Another option for Huawei is to turn away from HiSilicon and revert to buying from overseas suppliers – just not American ones. “There’s talk of Huawei just turning to Samsung processors ,” for its smartphone, said CUHK’s Fuller.