Trump move to stamp out Huawei will hurt US tech

Amer­i­can semi­con­duc­tor firms could face a ma­jor hit to their top line, with Ap­ple and other Sil­i­con Val­ley gi­ants also in the crosshairs

The Daily Telegraph - Business - - Business Comment - Garry White Garry White is chief in­vest­ment com­men­ta­tor at wealth man­age­ment com­pany Charles Stan­ley Ben Mar­low is away

The US is now try­ing to kill Huawei once and for all. New sanc­tions in­tro­duced this week aim to com­pletely cut off sup­plies of Western mi­crochips to the Chi­nese tech­nol­ogy group, a move that is cer­tain to pro­voke re­tal­i­a­tion from Bei­jing. Are US tech­nol­ogy gi­ants with large Chi­nese op­er­a­tions such as Ap­ple now in the fir­ing line?

In a move de­scribed as a “lethal blow” to the Chi­nese 5G tech­nol­ogy cham­pion, the US com­merce depart­ment an­nounced fresh sanc­tions on Mon­day that re­strict any for­eign semi­con­duc­tor com­pany from sell­ing chips de­vel­oped or pro­duced us­ing US soft­ware or tech­nol­ogy to Huawei – un­less Wash­ing­ton grants them a li­cence.

This was, in ef­fect, clos­ing a loophole from its pre­vi­ous set of sanc­tions in­tro­duced in May, that aimed to stop con­tract chip mak­ers man­u­fac­tur­ing chips for Huawei. Un­der the new rules, com­pa­nies will need li­cences to sup­ply the Chi­nese com­pany with all com­po­nents, not just spe­cially de­signed pieces of equip­ment. It also adds 38 names linked to Huawei to a trade black­list. “Huawei has con­tin­u­ously tried to evade” re­stric­tions im­posed in May, Mike Pom­peo, the US sec­re­tary of state, said.

The global semi­con­duc­tor sup­ply chain is long and com­plex. Huawei re­lies on for­eign-made semi­con­duc­tors to power its 5G telecoms gear – much of these Amer­i­can. This means that US semi­con­duc­tor com­pa­nies could see a sig­nif­i­cant hit to their top line. The US is ar­guably the world leader in the pro­duc­tion of equip­ment to pro­duce mo­bile phone chips, so the move will se­verely cur­tail Huawei as a ma­jor pro­ducer of smart­phone hand­sets and 5G tech – its two core busi­nesses.

The move, ob­vi­ously, caused Bei­jing to bris­tle. “China firmly op­poses the de­lib­er­ate smear and sup­pres­sion of Huawei and other Chi­nese com­pa­nies by the United States,” Zhao Li­jian, a spokesman for China’s for­eign min­istry, said.

The move fol­lows re­cent mea­sures in­tro­duced by Wash­ing­ton to deal with “un­trusted Chi­nese apps” that Mr Pom­peo ar­gues are “sig­nif­i­cant threats to the per­sonal data of Amer­i­can cit­i­zens”, in­clud­ing WeChat. On its re­cent earn­ings call, WeChat owner Ten­cent said it be­lieved the ban ap­plied only to WeChat in the US and did not af­fect its Chi­nese app Weixin. But com­pany ex­ec­u­tives noted they were still seek­ing clar­ity on the scope of the ban. If Ap­ple can’t in­stall Weixin in China, it is likely to lead to a ma­jor slump in de­mand.

This week’s move is also likely to have a sig­nif­i­cant im­pact on the global semi­con­duc­tor sup­ply chains and hurt Amer­i­can com­pa­nies too. “These broad re­stric­tions on com­mer­cial chip sales will bring sig­nif­i­cant dis­rup­tion to the US semi­con­duc­tor in­dus­try,” ac­cord­ing to John Neuf­fer, head of the Semi­con­duc­tor In­dus­try As­so­ci­a­tion, a trade body rep­re­sent­ing Amer­i­can chip­mak­ers.

One econ­omy that will cer­tainly be hit by the move is that of South Korea, where Sam­sung Elec­tron­ics makes up more than one third of its Kospi blue-chip in­dex. Sam­sung uses US-made equip­ment and nearly 20pc of its rev­enue is from China in the lat­est quar­ter. Chips make up 17pc of South Korea’s to­tal ex­ports and is its largest sin­gle ex­port cat­e­gory. How­ever, it will also pro­vide the coun­try’s smart­phone mak­ers with an op­por­tu­nity to take busi­ness from Huawei.

So, this dis­pute ap­pears to be get­ting se­ri­ous – but Huawei has bought it­self some time. The com­pany has been build­ing vast stock­piles of the chips it needs. Reports ear­lier this year sug­gested Huawei spent more than $23bn (£18bn) on es­sen­tial com­po­nents, in­clud­ing chips. It could now have as much as a three-year sup­ply ware­housed to keep its com­pany go­ing.

US ac­tions are reshaping the global tech­nol­ogy sec­tor into a bi­fur­cated in­dus­try – and as the UK did with Huawei gear in 5G net­works, coun­tries are be­ing forced to take a side be­cause of the reach of US sanc­tions and its global in­flu­ence.

Of course, the Trump gov­ern­ment is un­pre­dictable and could be us­ing the squeeze on Huawei as lever­age. A re­view of the phase one trade deal be­tween Wash­ing­ton and Bei­jing, signed in Jan­uary, was sched­uled for last week­end, but this has not oc­curred.

Don­ald Trump said the talks had been can­celled be­cause of the two coun­tries’ dis­agree­ments over Covid-19. “I post­poned talks with China. You know why? I don’t want to deal with them now,” Mr Trump said. “What China did to the world was not even think­able. They could have stopped [the virus].”

The news caused the shares of sev­eral Asian chip mak­ers to fall – Tai­wan’s Me­di­aTek and Euro­pean com­pa­nies such as Dia­log and STMi­cro­elec­tron­ics. How­ever, in­vestors are more sub­dued on the im­pact to US tech, bet­ting that China won’t re­tal­i­ate too se­verely as it needs the in­no­va­tion that US busi­nesses bring to China. In­deed, Ap­ple be­came the first $2tril­lion com­pany af­ter the an­nounce­ment was made, which doesn’t sug­gest too much con­cern.

How­ever, the clock is now tick­ing for Huawei – what will it do when its stock­piles run out? China may be sub­dued in its re­tal­i­a­tion now, but if the US does not grant li­cences to US chip groups it will hit their rev­enues. If Wash­ing­ton forces Huawei into dire straits – Bei­jing is likely to act.

‘If Wash­ing­ton forces Huawei into dire straits – Bei­jing is likely to act’

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.