The change in the export rule of the US Department of Commerce prohibits foundries like TSMC from shipping chips to Huawei that were made with American technology. Next week, TSMC will no longer be able to ship the cutting-edge 5nm chips that the company hoped to use to power the Mate 40 line to the Chinese manufacturer; the latter would be the company’s most technologically advanced phones of the year. The chips are also used in 5G base stations that Huawei sells to its telecom customers for its 5G networks.
How fast would the United States back down to Huawei if China threatened Apple?
TSMC has been operating the line 24 hours a day in an attempt to help Huawei build up a supply of chips before it is not allowed to buy more. What will happen to Huawei once it runs out of these 5nm chips is uncertain. According to NotebookCheck, last week’s IFA trade show in Berlin was the first to open its doors to live attendees and businesses since the start of the coronavirus pandemic. But Huawei did not present its 5nm chip at the show as expected, which could be a bad omen for the future of the company.
TSMC will have to stop delivering chips to Huawei starting next week
Huawei, which normally plays an important role at IFA, had a much smaller presence than usual. The company, and its second main brand Honor, presented only wearables and laptops at the expo, indicating that the future of Huawei’s smartphones is up in the air. Supply chain members familiar with the situation said Huawei determined last year that being excluded from its US supply chain could be just the beginning of US attacks against the company; as a result, Huawei reserved TSMC capacity in advance as a precautionary measure. It was a hit as the company has been amassing an inventory of the chip, designed in-house by Huawei’s HiSilicon unit.
While Huawei fans might be tempted to blame TSMC for this problem, the company has been accommodating Huawei. The latter was the foundry’s second-largest customer last year, accounting for 15-18% of its 2019 revenue. Apple is TSMC’s largest customer.
The change in the US export rule also prevents Mediatek from shipping 5G chips to Huawei without obtaining US permission, and Huawei cannot obtain Snapdragon chips from Qualcomm without permission either. TSMC, after all, produces high-end chips from both designers. China’s leading foundry SMIC is a pair of process nodes behind TSMC and is not a viable candidate for Huawei to use as a replacement at this time.
Huawei will reportedly have enough chips for three to six months of use and has told its fanbase that the Mate 40 series will definitely hit the market powered by the Kirin 5nm chipset. But what does the future hold for Huawei? With the US government blaming China for the coronavirus outbreak, the current administration does not appear to be in the mood to dole out favors to any company based in the country. Still, you never know where salvation will come from. When Chinese manufacturer ZTE (also considered a threat to US national security) was banned from its US supply chain in 2018, the company was going through a difficult time until President Trump released a tweet saying he was working with President Xi on “a way to get (ZTE) back into business, fast. Too many jobs have been lost in China.” Finally, the Department of Commerce reached an agreement with ZTE. But that was then and this is now.
If Huawei can’t find a way around the ban on chips, China could retaliate against the US by making things difficult for US companies that have their products assembled in the country, including Apple. How quickly would the US roll back to Huawei if China prevented Apple from exporting its devices outside of China?
