Chip and phone supply chain shaken as Huawei faces deadly threat

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The global chip and smartphone industries are bracing for serious disruption after the United States launched tougher sanctions on Huawei that some say could mean “death” for the company.

Washington said Monday that no company in the world would be allowed to sell semiconductors made using unlicensed U.S. software or equipment if Huawei were involved at any stage of the transaction.

The move filled a loophole in a May version of the rule that allowed Huawei to purchase out-of-the-box chips if they weren’t customized to its designs.

Observers said given the dominance of US tools in some segments of chip manufacturing, the new rule amounted to a blanket ban on all chip sales to Huawei, hitting its 5G equipment and handset business.

“We believe this step will significantly (almost completely) reduce Huawei’s ability to source semiconductors from anyone,” said Manish Nigam, head of Asian technology research at Credit Suisse, in a note. of research.

Huawei is likely to have finished manufacturing 5G networking equipment and smartphones once stocks run out early next year.

Dan Wang, Gavekal research

The toughening of US measures comes as Huawei battles for the title of the world’s largest cellphone maker and tries to roll out its 5G networks around the world against opposition from Washington.

“Huawei likely ended up as a maker of 5G networking equipment and smartphones once stocks run out early next year,” Gavekal Research’s Dan Wang said in a sanctions report titled: “ A death penalty for Huawei ”.

“It stops now [US chipmakers] Nvidia, Intel, everyone, and they haven’t been affected before, ”an industry expert said, adding that the stricter restrictions would affect billions of dollars in business in the industry.

Zhao Lijian, a spokesman for the Chinese Foreign Ministry, said on Tuesday that the new sanctions against Huawei were “undisguised bullying” and that the United States “was expanding the concept of national security and abusing the power of the State”.

Analysts said MediaTek would likely be the first victim. The Taiwanese chip design company has helped spawn generations of Chinese handset manufacturers by offering out-of-the-box chip solutions. MediaTek shares fell nearly 10% early in Tuesday, causing semiconductor stocks to fall across Asia.

After the initial Huawei chip restrictions in May, Huawei had planned to switch its smartphones from in-house-designed chips to those of MediaTek to circumvent the ban.

“MediaTek will face an impact, although partially offset by its 38% share in other vendors,” Credit Suisse analyst Randy Abrams said in a research note. The bank demoted the company to neutral status.

Analysts said the news would bolster rival smartphone makers towards Huawei.

“If Huawei cannot buy chipsets for its handsets, its handset business will likely disappear,” wrote Edison Lee of Jefferies.

He predicted that Oppo, Vivo and Xiaomi would gain global market share. That would boost Qualcomm as the three rival Chinese brands relied more on the American chip design house which competes with MediaTek.

However, some analysts have said Washington’s tough decision against Huawei could play out differently if Beijing retaliates.

“Since these sanctions have a significant impact on Huawei, there could be retaliation from China,” said Sebastian Hou of CLSA. He named Huawei’s smartphone competitor Apple and Qualcomm as potential targets.

South Korean computer chipmakers Samsung Electronics and SK Hynix, which supply memory chips to Huawei, assessed the potential impact on Tuesday.

“We understand that all supply of chips, including memory chips, to Huawei will be subject to new US regulations,” said Sanjeev Rana, Seoul-based technology industry analyst at CLSA. Samsung and SK Hynix declined to comment.

Analysts have seen some possible benefits of Huawei’s woes for Samsung’s mobile phone and 5G network companies. “We can expect the smartphone market to rebalance with Huawei’s market share occupied by other smartphones. [companies] and therefore, it would be neutral to the demand for memory chip, ”Rana added.

Samsung shares edged up in Seoul on Tuesday, while SK Hynix edged down.

Among Japanese companies, Sony’s shares fell more than 1%. Jefferies analyst Atul Goyal estimated that Huawei was Sony’s biggest customer for image sensors after Apple, accounting for around 20% of its operating profit and revenue.

“Sony has already reduced the output of the image sensor and …[is]already taking into account Huawei’s impact in their forecasts, ”Goyal said.

In the longer term, analysts expect Sony to recoup some of Huawei’s losses by increasing sales to other Chinese smartphone makers, such as Vivo and Xiaomi.

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