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The global chip and smartphone industries are pushing for severe restrictions after the US launched tougher sanctions against Huawei that could mean some “death” for the company.
Washington said on Monday that no company worldwide would allow the manufacture of semiconductors made with U.S. software or equipment without selling a license if Huawei was involved in any stage of the transaction.
The move closed for a while in a May version of the rule that allowed Huawei to buy chips off the shelf if they were not adapted to its designs.
Observers said that, given the dominance of US tools in certain segments of chipmaking, the new rule achieved a low ban on all chip sales to Huawei, beating its 5G hardware and handset companies.
“We believe this step will reduce Huawei’s (almost complete) ability to source any semiconductor from anyone,” said Manish Nigam, head of Asian technology research at Credit Suisse, in a research note.
Huawei is probably ready as a maker of 5G network equipment and smartphones once its inventories are out early next year.
Dan Wang, Gavekal Research
The tough US measures come as Huawei is on the hunt for the title of the largest handset maker on the planet and is trying to roll out its 5G networks around the world against Washington’s opposition.
“Huawei is likely ready to become a maker of 5G network devices and smartphones once their inventories are out early next year,” said Dan Wang, of Gavekal Research, in a report on the sanctions entitled “A Death Sentence For Huawei.”
‘This stops now [US chipmakers] Nvidia, Intel, everyone, and they were not affected before, “said an industry expert, adding that the stricter restrictions would affect billions of dollars in business in the sector.
Zhao Lijian, a spokesman for China’s foreign ministry, said on Tuesday that the new sanctions against Huawei were “unbridled bullying” and that the US was “expanding the concept of national security and abusing state power.”
Analysts said MediaTek would likely be the first victim. The Taiwanese chip design house has helped spawn generations of Chinese handset manufacturers by offering chip solutions on the shelf. MediaTek shares fell nearly 10 percent in early trading on Tuesday, leading an Asia-wide road in semiconductor shares.
Following the initial Huawei chip restrictions in May, Huawei had planned to switch its smartphones from in-house chips designed to those of MediaTek to get the ban.
“MediaTek will have an impact, though partially offset by its 38 percent stake in other suppliers,” Randy Abrams, an analyst at Credit Suisse, said in a research note. The bank downgraded the company to Neutral.
Analysts said the news would encourage competing smartphone manufacturers to Huawei.
“If Huawei can’t buy chipsets for their handsets, their handset business will probably disappear,” Edison Lee wrote at Jefferies.
He predicted that Oppo, Vivo, and Xiaomi would win worldwide market share. This would give Qualcomm a boost as the three rival Chinese markets became more confident in the US chip design house that competes with MediaTek.
However, some analysts said that Washington’s fierce move against Huawei could play out differently if Beijing retaliated.
“Given such sanctions that significantly affect Huawei, there may again be representation from China,” Sebastian Hou told CLSA. He cited Apple, Huawei’s competitor in the smartphone market, and Qualcomm as potential targets.
The computer chip manufacturers of South Korea Samsung Electronics and SK Hynix, which supply memory chips to Huawei, were to assess on Tuesday about the possible impact.
“Our understanding is that all chip supplies, including memory chips, to Huawei will be subject to the new U.S. regulations,” said Sanjeev Rana, a Seoul-based technical sector analyst at CLSA. Samsung and SK Hynix declined to comment.
Analysts saw some possible upside to Huawei’s misery for Samsung’s mobile phone and 5G networking companies. “We can expect the smartphone market to rebalance with the market share that Huawei has acquired through other smartphones [companies] and therefore it would be neutral for the demand for the memory chip, ”added Rana.
Shares of Samsung rose higher in Seoul on Tuesday while SK Hynix plunged slightly.
Among Japanese companies, shares in Sony fell more than 1 percent. Jefferies analyst Atul Goyal estimated that Huawei was Sony’s largest customer in image sensors after Apple, accounting for 20 percent of its company revenue and image sensor revenue.
“Sony has already reduced the image sensor output and …[is]already taking into account the Huawei impact in their forecast, “said Goyal.
In the long run, analysts expect Sony to recover some of Huawei’s losses by expanding sales to other Chinese smartphone makers, such as Vivo and Xiaomi.
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