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HUAWEI IS ACTIVATED the ropes. Starting at midnight on September 14, the Chinese tech giant will be deprived of essential semiconductor supplies. Without chips, you can’t make the smartphones or mobile network equipment that your business depends on. The latest US rules, finalized on August 17, prohibit companies around the world from selling chips to Huawei if they have been manufactured with a US chip manufacturing kit. American semiconductor companies, for which Huawei has been a lucrative customer, have implored their government to extend the deadline, as have their industry bodies. A full pardon seems unlikely.
Now it seems likely that Huawei will follow one of three paths. The first involves Washington licensing suppliers so they can sell chips to the company on a limited basis. This would allow Huawei to stay in business, almost. MediaTek, a Taiwanese chipmaker that is one of its main suppliers, has applied to the United States Department of Commerce (retheC) for such permission. To maintain Huawei’s advantage, vendors interested in producing chips designed by its in-house semiconductor unit, HiSilicon, are unlikely to get such a dispensation.
Even a weakened Huawei may not satisfy the United States. the retheCThe default setting is deny permissions. That would force the Chinese company to take more desperate measures, such as making its own chips using older technology that could be sourced from supply chains that don’t include US companies. Pierre Ferragu of New Street Research, a technology and telecommunications research firm, expects Huawei to do so within 12 months.
This trail has gotten rockier. On September 4, Reuters reported that the US Department of Defense has proposed putting Semiconductor Manufacturing International Corporation (minimum salary), China’s top chipmaker, on the same blacklist as Huawei. The Pentagon alleges that minimum salary works with the Chinese armed forces, thus posing a threat to national security. A blacklist would destroy minimum salary, which depends on American machine tools. Its share price fell nearly a quarter on the news. minimum salary he denies having military ties and said he is in “complete shock.” The threat of such action may deter minimum salary to partner with HiSilicon, as Huawei might have expected.
This leaves the third eventuality. Huawei may go bankrupt or be forced to sell parts of its business. This wouldn’t happen right away: At the end of 2019 it had cash reserves of 371 billion yuan ($ 53 billion), enough to cover operating costs for a year and a half. But if things get complicated, you can download HiSilicon. Huawei’s chip design arm is one of the most advanced such equipment in the world. According to IC Insights, an analyst firm, HiSilicon broke into the top ten design companies by revenue in the first half of 2020, the first Chinese firm to do so. Since it will no longer be able to design chips for its owner after September 14, HiSilicon could profitably focus on doing so for third parties in China. That would generate a new source of income for Huawei. If instead Huawei were forced to shut down HiSilicon, its laid off engineers would be hired by chip design teams at other Chinese tech giants such as Alibaba, Tencent and ByteDance. Or they could start new design companies of their own; many are said to be escaping preventively.
Each scenario worries companies like Qualcomm. The great American chip designer lists Chinese competition as a risk in its annual filings. Last year, Chinese sales accounted for $ 11.6 billion of Qualcomm’s $ 24.3 billion in revenue. A HiSilicon released from Huawei would threaten those sales.
Huawei is putting on a brave face. It says it will spend more than $ 20 billion on research and development this year, $ 5.8 billion more than in 2019 and almost as much as Amazon, a company with twice its sales. He hopes to obtain new sources of income that are less vulnerable to American attacks. They are unlikely to decline even if Joe Biden becomes president next year. But as Uncle Sam tightens control, he risks squeezing Chinese technology in a way he no longer controls. Huawei hopes to hold out until then.■
This article appeared in the Business section of the print edition under the title “Creative Destruction.”
