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After midnight on September 14, all non-US suppliers globally will need to stop shipping to Huawei if their products contain US technology. According to the export control regulation of August 17, they must obtain a permit from the US Department of Commerce if they want to do business with Huawei.
All of Huawei’s most important components are affected: from the chip to the screen, the camera lens, and the circuit board. The Chinese company began stocking all the chips in late 2018, but it is unclear if it will do so with other parts, such as screens or lenses. Wu Chia Chau, President of Nanya Technology, said: “Electronic devices are very complicated. Without any components, you cannot assemble the complete device: smartphone, laptop or base station. “
Su Tze-yun, director of the National Taiwan Security and Defense Research Institute, a supply chain expert, said that Huawei could find some low-end replacement parts. However, that makes Huawei’s products much less attractive, even for 10 years.
Huawei not only faces external waves, but is also full of storms on the inside. China’s largest tech company is at risk of a serious brain drain. They have lost hundreds of talents to their opponents. A chip industry official revealed that Huawei’s chip development team, which has been working non-stop, is now easier to breathe. Many employees are waiting to be assigned the next responsibility of the company, but they also clearly see many uncertainties ahead.
Huawei’s fate is also a turning point for the tech industry as a whole.
Suppliers must make prior adjustments to the loss of a large customer. Competitors big and small (Apple, Samsung, Xiaomi, Oppo, Vivo, Ericsson, and Nokia) are poised to gain market share. Meanwhile, companies that buy 5G equipment from Huawei must also look for alternatives. All of which shook the tech supply chain.
Why is the United States persecuting Huawei?
Its rapid growth and contact with the government worries the United States about Huawei. Tensions escalated rapidly when US President Donald Trump took office, especially after the arrest of Huawei’s chief financial officer, Manh Van Chu, daughter of founder Ren Zhengfei, in Canada at the request of the United States. Meng was accused of violating US sanctions against Iran.
In May 2019, the US placed Huawei on the commercial blacklist of the entity list, limiting the ability to use US technology and requiring US suppliers to apply for a license to sell to Huawei. In May 2020, the US tightened the ban, this time banning non-US manufacturers like TSMC from developing products for Huawei and HiSilicon if they use US equipment. In August 2020, the US struck a fatal blow by banning all vendors using US technology from selling to Huawei without a license.
Some companies have said they have applied for a license to continue selling to Huawei. When the ban was enacted last year, most chipmakers stopped deliveries, but some exceptions, such as Qualcomm and Intel, announced that they had received licenses for some products.
MediaTek, Samsung Electronics, Samsung Display, SK Hynix … all said they had applied for a license. According to Harry Clark, a partner at the law firm Orrick, even a company that previously had a sales license for Huawei must apply for a new license or modify it in accordance with new US regulations.
How do they affect Huawei phones?
In the smartphone business, until now, Huawei has been flexible with the US ban.In the second quarter, Huawei even surpassed Samsung as the world’s largest smartphone maker. However, the company’s problems also worsened.
The Kirin chip that Huawei develops itself for high-end (flagship) smartphones is in danger of “extinction” due to the ban. This week, Huawei said it would start using the Harmony 2.0 operating system on smartphones next year, implying that it no longer expects to be able to reestablish ties with Google, and admits that the supply of chips will affect the business. smartphone number.
Huawei felt the heat in the European market, where sales fell 16% in the second quarter while Samsung and Xiaomi enjoyed year-on-year growth of 20% and 48% in 2019. According to the Canalys analyst, Samsung Quickly take advantage of difficulties Huawei, affirming its position as a stable alternative while negotiating with major retailers and operators.
Donnie Teng, an analyst at Nomura Securities, said Huawei’s mobile segment faces great uncertainty. Huawei mistrusts the Mate 40, its most important flagship model. Teng also predicted that Huawei would start to lose market share at home after September 15.
Jeff Pu, an analyst at GF Securities, predicts that Huawei smartphone sales next year could fall to 50 million from 195 million this year and 240 million in 2019 if the United States does not loosen the ban.
The remaining businesses?
Telecommunications equipment has been Huawei’s backbone for decades, playing an important role in helping Chinese operators build 5G infrastructure. Huawei has prepared enough components for at least 1 year. However, the speed of 5G installations in China has slowed as Huawei scrambles to redesign and remove as much American technology as possible from its products. Overseas, many places like the UK have decided to limit the use of Huawei equipment.
Huawei currently owns about 28% of the telecommunications equipment market. If the supply cannot be long-term, the beneficiaries will be Samsung, Ericsson, Nokia and some Japanese companies such as NEC, Fujitsu. According to Stephane Teral, veteran telecom expert at LightCounting Market Research, Samsung, an extremely active newcomer in the telecommunications and networking equipment markets, could be hit the hardest because it has gained market share in those markets. hot spots like Japan and the US, receiving attention in many other markets. The recent $ 6.7 billion deal with Verizon brought Samsung to the “top” with Ericsson, Huawei and Nokia.
Opportunities for opponents
Samsung, Huawei’s biggest rival in the smartphone market, is aggressively launching new products. The second-generation folding smartphone is sold in many countries, while Huawei’s similar products are only sold in China. Xiaomi, Oppo, and Realme are busy expanding their market share in Europe.
According to Chiu Shih Fang, an analyst at the Taiwan Economic Research Institute, Xiaomi is extremely urgent abroad because its domestic market is already dominated by Huawei. However, Xiaomi may regain share of the Chinese market if Huawei cannot launch as many new smartphones as before.
Apple didn’t miss the chance either. Although the production of 5G iPhones has been delayed, the American company plans to launch a new product line this year and asks partners to prepare enough components for up to 80 million 5G iPhones, which shows great prospects. optimistic.
Nomura expert Teng said that by 2021, all of Huawei’s competitors – Samsung, Oppo, Vivo, Xiaomi and Apple – hope to attract between 20 and 30 million Huawei customers.
What does it mean for providers?
Many vendors were quick to deliver products to Huawei before the ban went into effect, leading to an extremely active August. MediaTek’s sales in August were up 42% year-on-year. Novatek, a Display Driver IC provider, posted a revenue increase of more than 30%, while TSMC increased 16%. Taiwan’s electronic component exports to China increased by about 30% in June, July and August.
The market for DRAM chips, essential components in all kinds of electronic devices, is also heating up. According to Nikkei research, the price of 8-gigabyte DDR4 chips last week was about $ 2.95, an increase of 7% month-on-month. According to sources from the Japanese semiconductor trading company, Huawei is buying until the last minute.
However, the provider will see a sudden drop in revenue once it does not sell to Huawei. They will need time to balance their client base. TSMC, where Huawei is the second largest customer contributing almost 20% of revenue, quickly filled some vacancies thanks to other firms such as Apple, Nvidia, AMD.
However, not all providers have as diverse a customer base as TSMC. The economic slowdown increases its burden. ASE Technology Holding, the world’s largest chip packaging and testing company, has warned that Huawei’s ban will lead to a sharp drop in revenue in 2020.
Korean memory chip makers like Samsung and SK Hynix are also forecasting a negative impact, while the entire market must readjust after Huawei’s ban. Huawei is Samsung’s second largest customer after Apple, accounting for 3.2% of the company’s sales. With SK Hynix, Huawei contributes 11.4% of sales.
Some vendors believe that demand for 5G will continue to increase and the market will stabilize in the long term after some turmoil.
Huawei and US presidential elections
Regardless of who wins the November 3 US presidential election, many believe the tensions between the United States and China have not disappeared as the world’s two largest economies compete for technological hegemony.
Joe Biden, President Trump’s rival, has also shown a tough stance toward China. His campaign highlights policies that restrict China’s economic power and influence and improve America’s competitiveness in tech areas like 5G and artificial intelligence. But he also openly criticized Trump’s trade war over the ruined American economy. If he wins the election, he said he will work more closely with his allies to pressure China on many issues and open up with Beijing to address global challenges.
Many observers and experts believe that under Biden’s leadership, the United States has more opportunities for dialogue with China, and there is a possibility that Washington will ease its ban on consumer electronics that do not have much contact. national security and important areas such as 5G core network, artificial intelligence.
