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TOKYO – U.S. sanctions against Huawei Technologies that went into effect on Tuesday forced Japanese chipmakers to launch a broader network for companies to fill the gap left by lost sales to the largest telecommunications equipment provider in Japan. China.
The US Department of Commerce has banned all exports to the Chinese telecommunications company of semiconductors made with US technology, exempting only shipments that are already en route. Japanese companies supplied about 1.1 trillion yen ($ 10.4 billion) in parts to Huawei last year, according to British research company Omdia.
This ban was the main reason Sony last month slashed its capex plans for the three years through fiscal 2020 by roughly $ 470 million. The Japanese company brings in billions of dollars a year from image sensor sales to Huawei, which came to a complete halt on Tuesday.
Sony is considering applying for a license to sell from Huawei. But “we have to work on diversifying our clients,” said a company executive.
One opportunity lies in selling out to smartphone makers, including Apple and Chinese players, who are positioned to eat up Huawei’s market share if the ban forces the company to cut production. Sony is also looking to develop sensors for a broader range of applications, including cars and industrial machinery, rather than relying so heavily on mobile devices.
Renesas Electronics stopped supplying Huawei with semiconductors for 5G network base stations on Tuesday. Meanwhile, the Japanese chipmaker is increasing marketing for rival base station makers such as Sweden’s Ericsson and Finland’s Nokia.
Toshiba spin-off Kioxia suspended shipments of flash memory to Huawei on Tuesday. The company plans to repurpose capacity that would otherwise be idled by the ban to produce chips for other smartphone manufacturers and for data centers.
The pervasive nature of sanctions presents compliance challenges. Even supplying chips to a third party could violate US export regulations if Huawei eventually uses the products in question. Jeff Wang, president of Tokyo-based subsidiary Huawei Japan, pointed out last month the “extremely important role of Japan in global supply chains.”
Companies are forced to examine the routes their parties take to avoid potentially risky transactions, and getting a complete picture will take time.
Toshiba temporarily halted all shipments of hard drives and chips on Tuesday, citing the need to determine whether any of its products are covered by the ban.
Any company that violates the sanctions will not be able to import US software and technology covered by export regulations, either from the US or from third countries. The rules cover such a huge number of products that such a ban would be a significant barrier to manufacturing and marketing.
Violators can face other penalties in addition to this, including fines of up to $ 1 million and imprisonment, along with the reputational risks that come with breaching US regulations.
“We have to be cautious with our investment plans from fiscal 2021 onwards,” said a Sony executive who is concerned that the dispute between Huawei will drag on.
As for Huawei, production is not expected to be hit immediately, as the company rushed to stock up on parts before the sanctions took effect. The spot price of DRAM chips, vital for smartphone production, has risen 7% since the beginning of this month, which a representative of a semiconductor trading company attributed to Huawei’s latest wave of purchases.
But the company’s smartphone shipments are forecast to drop 70% in 2021 compared to the total expected for this year, according to one estimate. DRAM prices “will fall in mid-September as [Huawei] stop building their inventories, “said Akira Minamikawa of Omdia.
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