US further tightens restrictions on Huawei’s access to chips
• Under new rules issued by the Commerce Department, any company that sells Huawei any products made anywhere with US technology will require a licence
• The Trump administration has also pressured other governments to restrict Huawei from building their 5G networks
It just got even harder for Huawei Technologies to obtain US-made chips.
Under new rules issued by the US Commerce Department on Monday, any company that sells Huawei any products made anywhere with US technology will require a licence. The measures are to prevent Huawei’s efforts to evade US export controls by obtaining electronic parts through third parties.
The rules build on similar restrictions issued in May when the Commerce Department refined its regulations to include chipsets that are the direct product of certain semiconductor manufacturing equipment located outside the United States. Such a change could prohibit Huawei from obtaining products from overseas companies and bypassing the US restrictions.
“There will be some confusion about how this would be enforced, but the intent is pretty clear. At a minimum it is likely to impact US suppliers who were able to supply Huawei from non-US locations,” said Paul Triolo of the Eurasia Group.
“The major issue will be how other non-US semiconductor suppliers to Huawei treat the rule,” said Triolo. “If enough companies comply globally, Huawei’s ability to generate workarounds will be severely undercut, putting its continued existence as a viable commercial entity in doubt.”
The big wild card, Triolo said, is how domestic Chinese semiconductor manufacturers react to the move.
“Semiconductor Manufacturing International Corporation, Yangtze River Memory and Changxin Memory, for example, are not likely to comply, but could face US penalties if they resist,” he said.
The Commerce Department also added another 38 Huawei affiliates – including Huawei Cloud Computing Technology and Huawei Cloud Beijing – in 21 countries to a so-called entity list, which effectively bars foreign companies from exporting US technology to the entities without a licence.
“As we have restricted its access to US technology, Huawei and its affiliates have worked through third parties to harness US technology in a manner that undermines US national security and foreign policy interests,” Commerce Secretary Wilbur Ross said in a statement. “This multi-pronged action demonstrates our continuing commitment to impede Huawei’s ability to do so.”
Secretary of State Mike Pompeo said on Monday that the measures were “to protect US national security, our citizens’ privacy and the integrity of our 5G infrastructure from Beijing’s malign influence”.
“The Trump administration sees Huawei for what it is – an arm of the Chinese Communist Party’s (CCP’s) surveillance state – and we have taken action accordingly.”
A Huawei representative didn’t immediately respond to a request for comment.
The restrictions are the latest measures by the Trump administration to crack down on Chinese tech firms to prevent them from advancing their products using American technology on national security concerns. The US put Huawei on the entity list in May 2019.
The US has warned that letting Huawei and other Chinese telecoms companies take part in American tech infrastructure could endanger national security because the companies might be obliged to give up crucial information to Beijing.
The Trump administration has also pressured other governments to restrict Huawei from building their 5G networks. Britain, Australia and Canada have so far excluded the Chinese company from their next-generation infrastructure at the US government’s urging.
At the end of June, the US telecommunications watchdog the Federal Communications Commission designated Huawei and ZTE as security threats and banned American firms from using a government fund to purchase their products.
In addition to curbing its access to chips containing American technology, the US has also blocked Huawei from acquiring chips designed in its own labs and built using US technology.
Jodi Xu Klein in New York
• Jodi Xu Klein is Deputy Bureau Chief, North America at the South China Morning Post. Klein is an award-winning business journalist with 20 years of experience. She joined the Post in 2017 following a decade covering finance and business for The Wall Street Journal and Bloomberg in New York. She was part of the Time Magazine reporting team that won the Henry R. Luce Award for the China Sars coverage.
• South China Morning Post. Published: 12:48am, 18 Aug, 2020. Updated: 1:44am, 18 Aug, 2020:
https://www.scmp.com/tech/policy/article/3097734/us-further-tightens-restrictions-huaweis-access-chips
US sanctions bite as Huawei admits ‘big loss’ as supply of high-end Kirin smartphone chips to run out soon
• Smartphones come under Huawei’s consumer business group, the company’s biggest operating segment, which generated US$36.5 billion in revenue in the first six months
• Huawei’s most advanced processor, the Kirin 900 series, accounted for 36 per cent of total smartphone shipments in the first quarter, according to Omdia
Huawei Technologies’ reign as the world’s No 1 smartphone vendor may be short lived, as the head of its consumer business unit publicly admitted that the company may not be able to ship handsets with its high-end Kirin chips after this year owing to US trade sanctions.
“We are in a difficult situation … Huawei’s smartphones have no chip supply,” Richard Yu Chengdong, chief executive of the company’s consumer business group, said on Friday at the China Info 100 conference, according to a video recording of his comments posted on multiple websites. “This year may be the last generation of Huawei Kirin high-end chips … This is a big loss for us,” he said.
Huawei, which overtook Samsung Electronics in the second quarter to become the world’s No 1 smartphone vendor, is at the epicentre of escalating US-China tech tensions. In May, Washington expanded its sanctions against Huawei by prohibiting foreign chip makers like Taiwan Semiconductor Manufacturing Co (TSMC) from using US technology to produce chips for the Chinese company. That move followed its inclusion in a US trade blacklist a year earlier.
Huawei declined to comment for this story.
With its in-house HiSilicon chip unit, Huawei was able to get around the first US ban by designing its own chips to replace those it could not buy from US suppliers like Qualcomm, but it lacks the ability to manufacture the devices.
However, that loophole was closed with a new direct product rule sanction that takes effect September 15, which will require TSMC or any other non-US semiconductor maker that uses US equipment in its wafer fabs, to apply to Washington for a licence to ship chips to Huawei.
Smartphones come under Huawei’s consumer business group, the company’s biggest operating segment, which generated 255.8 billion yuan (US$36.5 billion) in revenue in the first six months of this year.
“Huawei looks like it will lose a lot in smartphone sales [without Kirin chips],” said Greg Austin, senior fellow for Cyber, Space and Future Conflict at the International Institute for Strategic Studies in Singapore. “Whether the US ban is permanent depends on who wins the election in the United States, now just three months away.”
Yu said Huawei’s smartphone shipments “probably will be lower than the level of 240 million” last year due to the sanctions, in a sign that the US bans are starting to damage Huawei’s business.
“The problem of Kirin [system-on-a-chip] supply is not limited to volume,” said Jusy Hong, director of smartphone research at Omdia. “Most of the Huawei models currently sold in China are high-end models … Potentially limited supplies of Kirin SoCs, which are integrated in high-end models, will have a tremendous impact on sales and profits beyond volume.”
Huawei’s most advanced processor, the Kirin 900 series, accounted for 36 per cent of total smartphone shipments in the first quarter, according to Omdia. The Kirin 900 series is widely adopted not only in Huawei’s flagship model, but also in the mid-high line-up models such as the Honor and Nova series.
“The impact of the US sanctions spreads across price segments,” Hong added. “[The ban] on Huawei producing Kirin processors via [TSMC] will have an impact not limited to Huawei’s top line-up but also on its mid-range.”
While Yu publicly said supply of the top of the line Kirin chips will soon dry up, company executives privately told the Post that they are confident the company can still produce high end smartphones because Huawei has a back up plan, which they declined to disclose.
In any case, the impact of the sanctions has not been reflected in Huawei’s performance this year. In fact, driven by increased demand in China as the world’s second-largest economy recovers from disruptions caused by the coronavirus pandemic, Huawei was able to over take Samsung Electronics for the first time in global smartphone shipments in the second quarter
“If the sanctions continue and Huawei is unable to produce Kirin processors through TSMC, it is expected that any impact on Huawei’s smartphone business will not materialise before 2021,” said Hong. Huawei is reportedly shifting orders for earlier versions of its Kirin smartphone processors from TSMC to mainland Chinese wafer foundry Semiconductor Manufacturing International Corp (SMIC), which is behind the industry leaders in technological expertise.
SMIC will also need to apply for a US license to provide chips to Huawei because its wafer fabrication plants use equipment from US suppliers such as Lam Research.
Separately, Qualcomm has been lobbying the US government for a waiver to supply 5G smartphone chips to Huawei, The Wall Street Journal reported at the weekend.
After Huawei was put on the Entity List in May last year, Qualcomm and other US suppliers were banned from selling products to the Chinese company without permission from Washington.
Qualcomm has argued that the latest sanctions on Huawei have “inadvertently created massive financial opportunities for the two foreign competitors of Qualcomm,” the WSJ quoted the company as saying to government officials.
However, it is unclear if foreign 5G chip suppliers like South Korea’s Samsung Electronics and Taiwan’s MediaTek – Qualcomm’s major rivals – could supply Huawei if their chips are also made using US technology. In June, US Commerce Secretary Wilbur Ross told Reuters that Washington would “aggressively” crack down on any bid to “evade the intent” of the new Huawei curb.
Celia Chen
Celia is a tech reporter for the Post, covering companies such as Tencent, JD.com and Foxconn. She also covers start-up news and China’s tech world. Prior to joining the Post, she worked for China Daily.
• South China Morning Post. Published: 7:45pm, 10 Aug, 2020. Updated: 11:07pm, 10 Aug, 2020:
https://www.scmp.com/tech/big-tech/article/3096775/us-sanctions-bite-huawei-admits-big-loss-supply-high-end-kirin
This article appeared in the South China Morning Post print edition as: Huawei’s phone business feels heat from US sanctions