Huawei will be crippled by Trump, but in the long term his actions might end up hurting U.S. component suppliers even more
Despite Huawei’s bluster and assertions by its founder that the U.S. has underestimated the Chinese telecommunications giant, the short- to medium-term impact of being cut off from the supply of U.S. chips and other components is likely to be severe, with some observers going so far as questioning whether Huawei can remain viable.
Longer term, however, some analysts believe that it is U.S. suppliers who will feel the pain most acutely as China responds to the ban on U.S. companies selling chips and other components to Huawei by redoubling efforts to become self-reliant and placing heightened emphasis on sourcing components from suppliers based in Europe and elsewhere in Asia.
“If you look at electronic systems companies in China — smartphone companies or whoever — basically all of their future designs for as far as we can see for probably decades out now, when they go to do a new design for a system, they are going to be looking at non-U.S. parts,” said Bill McClean, president of IC Insights, in an interview with EE Times.
McClean said that going forward, Chinese systems suppliers will choose an alternative to a part offered by a U.S. company if the alternative is at all viable. If, for example, Texas Instruments has a part that competes with parts from companies such as STMicroelectronics, NXP Semiconductors, or Renesas Electronics, the Chinese company is going to go with one of the other vendors, McClean said.
“They’re going to avoid U.S. suppliers any chance they get going forward, even if this thing is settled tomorrow,” McClean said. “The fear of God has been put into them, and so they are going to be looking at South Korean companies, Japanese companies, and European companies, and if there is an alternative, they are going to pick it. I guarantee that. The trust is gone.”
Handel Jones, CEO of International Business Strategies, told EE Times that the ban on supplying Huawei is going to encourage an already-significant effort underway in China to become self-reliant. The Chinese government has already pumped billions into bolstering its domestic semiconductor production in recent years and is planning to invest more than $160 billion over 10 years in order to reduce its reliance on foreign semiconductors to supply its massive domestic semiconductor market.
“Longer term, what we see is a fairly significant effort to become independent of the U.S.,” Jones said. He estimates that China could be completely independent of U.S. chips in as soon as three to five years, as long as it still has access to TSMC or rival foundry Samsung Electronics.
According to Goldman Sachs, at least 70 American firms have significant exposure to Huawei. Most U.S. chipmakers, including Intel, Qualcomm, Xilinx, and Broadcom, have stopped supplying Huawei to comply with the U.S. government export ban. Non-American companies including Japan Display, Toshiba, and TSMC have reported checking their supply chains for restricted American technology. (TSMC later announced that it would continue supplying wafers to Huawei subsidiary HiSilicon through the rest of this year.)
China may halt rare-earth mineral exports
In the near term, Intel, Broadcom, Micron, and Qualcomm — among others — will see their sales drop as they extricate themselves from Huawei in compliance with the Trump Administration’s ban. In the third quarter of 2018 alone, Huawei accounted for more than $300 million of Broadcom’s sales, more than $230 million of Qualcomm’s sales, and nearly $90 million of Intel’s sales, according to Goldman Sachs. Micron said in a recent regulatory filing that 13% of its sales in the first half of fiscal 2019 came from Huawei.
Market analysts have hammered the stocks of businesses deemed too dependent on Huawei. Qorvo, Skyworks Solutions, Keysight Technologies, Inphi, and Lumentum — among others — have been downgraded by analysts in the wake of the U.S. government ban.
Huawei Catches a Break with TSMC
Some U.S. companies have revised their revenue projections in the wake of the ban. Lumentum, an optical and photonic products manufacturer, cut the lower end of its revenue guidance for the current quarter by 7.4% to $375 million from $405 million. Sales to Huawei accounted for 18% of Lumentum’s total revenue in its latest quarter.
While the Huawei ban may well turn out to be a significant blow to the U.S. chip industry in the longer term, many fear that the real impact to U.S. chip firms could come if China chooses to retaliate for Huawei’s placement on the export blacklist by restricting the export of so-called rare-earth minerals. China has, in recent weeks, increased tariffs on rare earths in the midst of the trade war and threatened to halt exports altogether after the blacklisting of Huawei.
Estimates are that China supplies as much as 90% of rare-earth minerals, which are critical to semiconductor production. While there are some rare-earth mines in California and other places, the U.S. imports as much as 80% of the rare-earth materials that it uses — mostly from China.
Asked about the possibility of China restricting or banning the export of rare-earth minerals in retaliation for the Huawei move, McClean said it’s possible that China could institute such a ban in the name of national security.
“The gloves are off now,” McClean said. “Anything goes now because of what the U.S. government is doing to Huawei.”