U.S. Restriction of Chipmakers’ Critical Blow Deals to Huawei
The recent US sanctions against technology giant Huawei threaten to destroy the company and increase hostility towards China, which could disrupt technology industries around the world.
Huawei Technologies Ltd. is one of the world’s largest manufacturers of smartphones and networking equipment, but the $123 billion a year company is under threat after Washington announced new restrictions on the use of U.S. technology by foreign companies manufacturing its processor chips.
Over the past year, Huawei has made efforts to maintain its business following the introduction of U.S. restrictions last May that restricted access to U.S. components and software.
Our business will inevitably be affected, Huawei’s president Guo Ping said at a conference with industry analysts on Monday.
Nevertheless, last year’s problems have helped us to develop thicker skin and we are confident that we will find solutions quickly, Mr Goh said.
On Monday, the company said it would take some time to understand the consequences of the recent restrictions.
The conflict is politically explosive because Huawei is more than just the most successful private company in China. He is the national champion of the industries promoted by the ruling Communist Party in the hope of making China a global competitor for cheap technology.
On Monday, the Chinese Ministry of Commerce warned of the protection of the legitimate rights and interests of Chinese companies, but gave no details of possible reprisals. In the past, Beijing has threatened to publish an unreliable list of organisations that could limit the activities of US companies in China.
The friction over Huawei exacerbates the deterioration of Sino-American relations.
Both parties had declared a cease-fire in the trade war, but disputes over the origin of the coronavirus pandemic that had engulfed the world economy had given rise to fears that the agreement might fail.
Huawei is at the centre of the dispute between the US and China over Beijing’s technological ambitions, for which Washington fears that US industrial leadership will be undermined.
Huawei has few alternatives if Washington refuses to allow its suppliers to use American technology. The company has developed a number of its own chips, but even the largest non-U.S. manufacturers, such as the Taiwanese giant TSMC, need U.S. components or production equipment.
Every electronic system manufactured by Huawei can be adversely affected, said Jim Handy, a semiconductor analyst for objective analysis, in an e-mail. Most Chinese alternatives have not yet been created.
The new restrictions announced on Friday are the third round of sanctions aimed at making it more difficult for Huawei to gain access to US technology and markets.
In his statement, Huawei criticised the US decision as arbitrary and damaging, warning that it would affect the operation and maintenance of the company’s installed networks in more than 170 countries.
The U.S. government has deliberately turned its back on the interests of Huawei’s customers and consumers, she said.
The Declaration states that this decision will undermine confidence and cooperation in the global semiconductor industry and harm other industries that depend on it.
Trump’s administration claims that Huawei is a security risk, which the company denies, and is trying to convince its European allies and others not to use its technology in the next generation of telecommunications networks.
Chinese officials accuse Washington of raising false security issues to harm rival growing U.S. technology companies.
The potential impact goes far beyond Huawei. The company spends tens of billions of dollars annually on components and technology from U.S. and other vendors, purchases that can be stopped if smartphones and other products are blocked.
American suppliers have already complained to Washington that the restrictions imposed on Huawei’s access to American components and other technology last May will cost them billions of dollars in lost sales.
The company’s US telecommunications market evaporated after a 2012 congress panel identified Huawei and its Chinese competitor ZTE Corp. as a security threat and urged telephone operators to avoid it.
Last year’s sanctions require U.S. companies to obtain government permission to sell chips and other technology to Huawei. While the company continues to use Google’s Android operating system on its smartphones, it has lost the ability to pre-install the music, maps and other Google services that customers expect on their phones.
Huawei has launched its own operating system for smartphones and pays the developers to create applications that run on it. But the company claims that sales are affected.
Nevertheless, Huawei recorded a profit of 62.7 billion yuan (8.8 billion dollars) in 2019 and total turnover increased by 19% compared to the previous year.
The sanctions illustrate Huawei’s dependence on technology suppliers, even though Huawei has one of the largest research and development budgets in the world.
Huawei has its own HiSilicon semiconductor unit, but needs manufacturers, including TSMC, to produce the most advanced chips.
Beijing has spent the past two decades and billions of dollars building the Chinese semiconductor industry. However, the largest manufacturer, SMIC, can only produce chips two generations after TSMC.
Huawei has already started transferring part of its production from TSMC to SMIC, although SMIC is not yet able to produce Huawei’s latest Kirin 980 chipset, said Neil Thomas, a researcher at the Paulson Institute in the United States. But the minimum wage could probably yield Huawei chips from an earlier generation.
Then, in March, President Eric Xu warned that further US pressure on Huawei could provoke Chinese reprisals that could paralyse global industry.
Beijing is not going to sit back and watch Huawei get killed, Xu said. The effect on global industry would be astonishing.
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