Will Huawei Survive the US Chip Ban?
As of September 15th 2020, non-US suppliers can no longer ship goods to Huawei if their products contain US technology. The US chip ban threatens to cut off supplies of key electronic components to Huawei's smartphones - from semiconductors to displays, to camera lenses, and vital printed circuit boards.
How will the tech giant survive the crisis?
In the short term, Huawei could rely on its stockpiles. The firm has been stockpiling chips since the end of 2018. In fact, in the past 3 months, its last-minute chip orders increased Taiwan's overall growth by 30% year-on-year.
According to Gai Keke, associate professor at the School of Computer and Science & Technology of Beijing Institute of Technology, the US ban will bring short-term pain, but will inevitably force China to build its own semiconductor industry. "I think Huawei's phone will have serious problems due to the shortage of chips in the short term," Gai said, "but in the long run, I am confident in Huawei's development."
Gai's confidence stems from his observation that Huawei has already adjusted its business strategy, expanding to more consumer electronics such as laptops. In 2019, China imported 445 billion chips, worth over $300 billion. Chip imports overtook crude oil as the most imported goods in 2013 and continued to grow in the following years. The China Semiconductor Industry Association expects the imports of chips to reach over $300 billion in 2020, for the third consecutive year.
The pain Huawei suffers during a chip shortage shows China's dependence on imported semiconductors. However, the "Chinese government already realised the importance of fundamental technology research (on semiconductors)," said Gai. "The ban only hampers business in the short term, but it does change a lot in the long run."
Faced with the ban, Huawei may make advancements in diversifying its suppliers, and become autonomous in its chip supply, but that is expected to take time.
Opportunity for Rivals
Before the chip ban, Huawei overtook Samsung to become the world's biggest smartphone seller with over 200 million units in 2019. Industry experts caution that if the company cannot solve the chip supply issue, its smartphone sales could tumble to 50 million in 2021.
Samsung has been aggressive in rolling out new products. Its second generation of foldable smartphones has gone on sale in many countries recently, including Taiwan, but Huawei's foldable smartphone is still available only in China. The two rivals were the first to roll out foldable phones in 2019, in attempts to showcase their technological capability and revive the slumping smartphone market.
Xiaomi, Oppo and Realme, all rival Chinese brands, are meanwhile expanding their share in European markets.
Apple also sees an opportunity. Although its 5G iPhone production is delayed, the US company has just unveiled a new product range, and has asked suppliers to prepare components for up to 80 million new iPhones, a relatively healthy forecast.
Impact on Suppliers
The rush to get a last batch of inventories to Huawei has given many electronics suppliers a bumper August. MediaTek's monthly sales jumped 42% year-on-year. Novatek, a supplier of display integrated circuit driver chips, reported a surge of more than 30% in monthly revenue, and TSMC grew 16% on the year.
Overall, Taiwan's electronics component exports to China, its biggest trading partner, reported around 30% growth year-over-year in June, July and August, respectively.
The impact is also being felt in the market for DRAM chips, which are needed in most kinds of electronic devices. According to a source at a Japanese semiconductor trading house, "Huawei is buying up in a last-minute procurement," as Washington's chip embargo approaches.
However, there are obvious risks for some companies of a sudden drop in sales after they can no longer ship to Huawei. It will take time for some to rebalance their customer portfolio.
TSMC, which has Huawei as its second-largest client, accounting for nearly 20% of its revenues, is likely to quickly fill some gaps due to strong demand for 5G infrastructure, high-performance computing applications and 5G smartphones from other clients such as Apple, Nvidia and AMD.
However, not every supplier has such a diverse client base, and the slowing global economy adds uncertainty. ASE Technology Holding, the world's biggest chip packaging and testing house, already warned that the ban on Huawei would hit 2020 revenues by a high single-digit percentage.
South Korean memory chipmakers, such as Samsung and SK Hynix also expect negative impacts, while the overall memory chip market could face some correction after the Huawei ban, analysts say. Huawei is Samsung's second-largest customer in semiconductors behind Apple, accounting for 3.2% of the company's sales, according to Eugene Investment & Securities. For SK Hynix, Huawei accounts for 11.4% of sales.
Some suppliers expect that demand for 5G will still grow and that their market will be stabilising after some turmoil. "We can't avoid some short-term impacts," said Joe Tseng, spokesperson for Win Semiconductors, a longtime Huawei supplier. "But for the long term we believe the overall demand will still exist, the market will stabilise and rebalance, and 5G demand is still strong."