Originally Published by Financial Times
Author: Kathrin Hille, Edward White, and Kana Inagaki
New US sanctions bar Chinese telecom equipment maker from buying semiconductors
The global chip and smartphone industries are bracing for severe disruption after the US launched tougher sanctions against Huawei that some said could mean “death” for the company.
Washington said on Monday that no company worldwide would be allowed to sell semiconductors made using US software or equipment without a licence if Huawei was involved at any stage of the transaction.
The move closed a loophole in a May version of the rule that allowed Huawei to buy off-the-shelf chips if they were not custom-made to its designs.
Observers said given the dominance of US tools in certain segments of chipmaking, the new rule amounted to a blanket ban on any chip sales to Huawei, hitting its 5G equipment and handset businesses.
“We believe this step to significantly (almost completely) curtail Huawei’s ability to source any semiconductor from anyone,” Manish Nigam, head of Asian technology research at Credit Suisse, said in a research note.
The toughened US measures come as Huawei is vying for the title of the biggest handset maker on the planet and is trying to roll out its 5G networks around the world against opposition from Washington.
“Huawei is probably finished as a maker of 5G network equipment and smartphones once its inventories run out early next year,” said Dan Wang, of Gavekal Research in a report on the sanctions titled: “A Death Sentence For Huawei”.
“This now stops [US chipmakers] Nvidia, Intel, everyone, and they were not impacted before,” said an industry expert, adding that the tighter restrictions would affect billions of dollars in business across the sector.
Zhao Lijian, a spokesman for China’s foreign ministry, said on Tuesday that the new sanctions against Huawei were “undisguised bullying” and the US was “stretching the concept of national security and abusing state power”.
Analysts said MediaTek would probably be the first victim. The Taiwanese chip design house helped spawn generations of Chinese handset makers by offering off-the-shelf chip solutions. MediaTek’s shares dropped by almost 10 per cent in early trading on Tuesday, leading an Asia-wide plunge in semiconductor stocks.
After the initial Huawei chip restrictions in May, Huawei had been planning to switch its smartphones from chips designed in-house to those from MediaTek to get around the ban.
“MediaTek will face an impact, though partially offset by its 38 per cent share into other vendors,” Randy Abrams, an analyst at Credit Suisse, said in a research note. The bank downgraded the company to Neutral.
Analysts said the news would boost rival smartphone producers to Huawei.
“If Huawei cannot buy chipsets for its handsets, its handset business will probably disappear,” wrote Edison Lee at Jefferies.
He predicted that Oppo, Vivo and Xiaomi would gain global market share. This would boost Qualcomm as the three rival Chinese brands relied more heavily on the US chip design house that competes with MediaTek.
However, some analysts said Washington’s tough move against Huawei could play out differently if Beijing hit back.
“Given such sanctions significantly impact Huawei, there could be retaliation from China,” said Sebastian Hou at CLSA. He named Apple, Huawei’s competitor in the smartphone market, and Qualcomm as potential targets.
South Korea’s computer chip manufacturers Samsung Electronics and SK Hynix, which supply memory chips to Huawei, were on Tuesday assessing the potential impact.
“Our understanding is that all chip supply, including memory chips, to Huawei will be subjected to the new US regulations,” said Sanjeev Rana, a Seoul-based tech sector analyst with CLSA. Samsung and SK Hynix declined to comment.
Analysts saw some possible upside from Huawei’s woes for Samsung’s mobile phone and 5G networks businesses. “We can expect the smartphone market to rebalance with Huawei’s market share taken up by other smartphone [companies] and hence it would be neutral to the memory chip demand,” Mr Rana added.
Shares in Samsung edged higher in Seoul on Tuesday while SK Hynix dipped slightly.
Among Japanese companies, shares in Sony fell more than 1 per cent. Jefferies analyst Atul Goyal estimated that Huawei was Sony’s biggest customer in image sensors after Apple, accounting for about 20 per cent of its image sensor operating profits and revenue.
“Sony has already reduced image sensor output and . . . [is] already taking into account the Huawei impact in their forecast,” Mr Goyal said.
Longer-term, analysts expect Sony to recover some of the losses from Huawei by expanding sales to other Chinese smartphone makers, such as Vivo and Xiaomi.
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