Huawei will ‘inevitably be impacted’ by ‘arbitrary and pernicious’ US restrictions, it says

The US Commerce Department announced new restrictions on Huawei’s ability to develop semiconductors using American technologies last week
The new rule will directly affect Taiwanese wafer foundry TSMC, the world’s largest contract chip maker and a key Huawei supplier

Huawei

Celia Chenin ShenzhenandJane Zhangin Hong Kong

Published: 4:20pm, 18 May 2020

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Huawei Technologies will “inevitably be impacted” by what it has described as an “arbitrary and pernicious” decision by the Trump administration to further restrict the ability of the Chinese telecommunications giant to develop semiconductors using American technologies, it said on Monday.

However, Huawei rotating chairman Guo Ping said at the company's global analyst summit in Shenzhen, “as the challenges over the past year have helped us develop a thicker skin, we are confident about finding solutions soon”. The company is still evaluating the impact of the new restriction and “survival is currently the keyword for Huawei”, Guo added at the subsequent question and answer session.

The company’s comments come after the US Commerce Department said last Friday it would refine its regulations specifically on how to define “direct product” rules to “narrowly and strategically target Huawei’s acquisition of semiconductors that are the direct product of certain US software and technology”.

Huawei chairperson Guo Ping delivers a keynote speech at the Mobile World Congress (MWC) in Barcelona on February 26, 2019. Photo: AFP

The new rule, which went into effect on Friday but has a 120-day grace period, means even non-US chip manufacturers using American chip making technologies will have to apply for licences before shipping chips to Huawei or its 114 subsidiaries, including its chip design unit HiSilicon.

The move once again puts Shenzhen-based Huawei centre stage in the US’ efforts to decouple from China in technology, as the Trump administration and lawmakers across political parties voice concern that America’s dependence on China for critical technology could threaten the country’s national security.

US plans to further restrict Huawei’s semiconductor development

In an official statement released at the summit on Monday, Huawei said it “categorically opposes” the new restriction and is “undertaking a comprehensive examination” of it.

“This decision was arbitrary and pernicious, and threatens to undermine the entire industry worldwide,” the company said in the statement. “To attack a leading company from another country, the US government has intentionally turned its back on the interests of Huawei's customers and consumers. This goes against the US government’s claim that it is motivated by network security.”

The company said that the US government’s decision does not just affect Huawei, but will have a serious impact on a wide number of global industries and ultimately harm US interests.

“In the long run, this will damage the trust and collaboration within the global semiconductor industry which many industries depend on, increasing conflict and loss within these industries.”

The new restrictions are expected to directly affect Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chip maker and a key Huawei supplier. TSMC announced last Thursday that it will build a US$12 billion chip plant in Arizona with the US government’s support, and on Friday added it was “following the US export rule change closely”. However, the Taiwanese company said a report on Monday that it had stopped new orders from Huawei due to the new rules was “purely market rumour”, according to Reuters.

China hits back at America’s ‘unreasonable suppression’ of Huawei

Huawei, in anticipation of the new restrictions, has been gradually shifting production of chips designed in-house away from TSMC and towards Chinese firm Shanghai-based Semiconductor Manufacturing International Corp (SMIC), according to a Reuters report last month. In the wake of Washington’s announcement of the new restrictions, China’s state-backed funds also pumped US$2.25 billion into a wafer plant by SMIC, mainland China’s largest semiconductor foundry.

However, the new licence rules would also apply to SMIC as it relies on US manufacturing equipment to fabricate silicon wafers.

The Trump administration’s newest rules are likely to have a serious impact on Huawei’s chip research and development, according to one analyst.

“In the short term, Huawei will increase its procurement efforts to ensure that it obtains as many original accessories as possible to satisfy its shipment of mobile phones and base stations for as long as possible,” said Jia Mo, an analyst at research firm Canalys.

“However, after four months, Huawei’s chip research and development will be greatly affected, and this will cast a shadow on its main businesses, such as the design and manufacturing of 5G base stations and hardware products including smartphones.”

Huawei’s revenue grew 1.4 per cent year-on-year in the first quarter of this year despite the global coronavirus pandemic and ongoing sanctions from the US, about a year after it was put on the latter’s so-called Entity List, which effectively bans the telecoms giant from buying parts and components from US companies without US government approval.

Its continued survival is due to its stockpiling of critical US components for almost a year before it was put on the American trade blacklist and its shift in focus to the domestic market, according to Jia.

“In the domestic market, Huawei has gradually transformed itself into an inseparable brand from China

Jia Mo, Canalys analyst

In the first quarter of this year, as smartphone sales in China plummeted 22 per cent amid the coronavirus pandemic, Huawei was the only major smartphone maker in the world’s second-largest economy to achieve positive growth with a 6 per cent increase in smartphone sales.

“In the domestic market, Huawei has gradually transformed itself into an inseparable brand from China, which has not only enhanced the brand image but also made its high-end products gain an amazing market share in China,” Jia said.

Jia said that with the latest restrictions, Huawei is likely to accelerate its shift in focus to the domestic market while it continues to lose overseas market share due to restrictions on its use of Google apps and services that most overseas Android users rely heavily upon.

This article appeared in the South China Morning Post print edition as: Huawei upbeat in face of ‘inevitable’ hit from US curbs

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