Huawei's US provider shares a slide, but says it can survive blacklisting

Shares of leading US suppliers on the Huawei list stumbled on Thursday following a new rule requiring US companies to seek government approval before selling to China's tech giant.

Earlier this week, Huawei was added to the so-called list of entities from the US Bureau of Industry and Security. This means that US companies will need a license from the government to sell or transfer technology to Huawei.

Huawei has more than 30 US companies that it says are "essential suppliers", selling its components to everything from smartphones to telecom network equipment.

Many of these companies are listed on the stock market and suffered heavy losses on Thursday at the close of the US market. Qualcomm was down 4%, Micron by almost 3%, and semiconductor companies Qorvo and Skyworks, down 7% and 6%, respectively.

CNBC solicited feedback from these four companies on the inclusion of Huawei on the list of entities. No one replied.

Huawei, for its part, said the US government's decision could significantly harm such US companies.

"This decision is not in anybody's interest, it would hurt Huawei's US businesses significantly, would affect tens of thousands of jobs in the United States, and disrupt the existing mutual trust and collaboration in the US. global supply chain, "a spokesman for Huawei said Friday.

"Huawei will immediately seek solutions and find a solution to this problem, and we will also proactively mitigate the effects of this incident."

It appeared that Huawei had been preparing for this situation for some time. The world's largest manufacturer of telecommunications equipment told some suppliers six months ago that it wanted to build a one-year foundation of critical elements to prepare for any US trade war issue. and China, according to a report of the Nikkei Asian Review released Friday.

In recent years, Huawei has also tried to reduce its dependence on US companies by investing in its own chip technology for consumer products, including smartphone processors and 5G chips. The 5G refers to the next generation of mobile networks that promises ultra-fast speeds and the ability to support new technologies such as driverless cars.

He Tingbo, chairman of the chip division Huawei Hi-Silicon, called "crazy" the US decision to put it on the list of entities, in a letter to employees translated by CNBC. She added that the company had been preparing for several years and that Huawei was creating "spare tires" – apparently referring to additional components that would allow it to survive if the United States cut off the supply of fresh fuel.

"All the spare tires we have created are no longer spare tires," he said in his letter.

The storage and development of its own chip technology could help Huawei weather the storm in the short term, experts said.

Yet this is bad news for the major suppliers.

"Even if it could hit Huawei enough, it will also affect those companies because Huawei has grown big enough to make up a substantial part of their revenue," said Neil Shah, Research Director at Counterpoint Research.

"Huawei has … started to stock enough components for the next 8 to 12 months, so that it should ideally be little affected in the short term." Huawei would wait for this to be resolved 39 there, but there will always be a suspended sword, "added Shah. .

While Huawei has invested in certain components, there are other smartphone components for which it does not have its own technology and for which it relies heavily on US components.

"It will be catastrophic for Huawei," said Friday's "Squawk Box Asia," Edward Snyder, chief executive officer of Charter Equity Research.

"So yes, they have internal components, but they lack a lot of what they need to do the most advanced things, and there is no question of buying American for that," he added. .

The analyst said that Huawei's smartphone business, which has allowed the consumer division to be the company's largest revenue, could "suffer".

"Huawei's phone business will suffer, in my opinion, significantly, and that means that they will lose shares." Well, anyone will sell these phones, and it will not be ZTE because they do not have It will probably be Samsung, and maybe others (original equipment manufacturers) like Oppo, Vivo, Xiaomi who buy a lot of Qualcomm, "Snyder said.

CNBC has contacted 11 Huawei suppliers registered in the United States.

Corning, a specialty glass manufacturer, said it would continue to comply with commercial regulations.

"Corning's optical communications business has a large global customer base, and we are confident that our optical communications business will remain on track to meet its $ 5 billion sales target." 2020, with continued growth beyond, "said a spokesperson at CNBC. "We do not believe this issue will have a significant impact on Corning's overall financial performance."

A spokesman for Flex, a US-based design and manufacturing company, said it was "watching the situation closely and reviewing" the list of entities to determine its impact on its business.

Several other companies did not respond to CNBC's request for comment.

One concern is that the Chinese government may retaliate against suppliers exposed to China, such as Qualcomm. But analysts said they were not worried at the moment.

"Qualcomm is a very strategic player in China and a mainstay of the country's smartphone supply chain.If China engaged in this way with retaliation, Qualcomm could disrupt negatively the national players of the region, which is unlikely in the short term, "Daniel Ives, director general of equity research, told CNBC.

Lu Kang, spokesman for the Chinese Foreign Ministry, said on Thursday that the government was opposed to the latest US initiative.

"We oppose the act of any country to impose unilateral sanctions on Chinese entities on the basis of its domestic legislation, and to abuse export control measures while making the" national security "a catch-all phrase," he said, adding taking the necessary steps to preserve the legitimate rights and interests of our businesses. "