The latest U.S. broadside against Huawei that puts the Chinese firm on an exports blacklist threatens to rattle the global tech supply chain, linked closely to the $105 billion business of the world’s top supplier of telecoms network equipment.
The Trump administration has said it would add Huawei Technologies and 70 affiliates to its “Entity List” – a move that will likely ban the firm from acquiring U.S. components and technology without government approval, adding another incendiary element to the U.S.-China trade war.
The ban is not yet effective.
A similar U.S. ban on China’s ZTE Corp had almost crippled business for the smaller Huawei rival early last year before the curb was lifted.
Such sanctions on Huawei are, however, likely to have ramifications beyond the company itself, analysts said.
It would disrupt Huawei’s business at a minimum and all but put it out of business in an extreme, while its U.S. suppliers would also be hit, they said.
Out of $70 billion Huawei spent for component procurement in 2018, some $11 billion went to U.S. firms including Qualcomm, Intel Corp and Micron Technology Inc, and they could see that revenue disappear.
On the other hand, U.S. companies like Apple face the risk of severe retaliation from China, a key market.
“This is going to be very messy,” a China-based source at a U.S. tech company said.
It will be tough for Huawei too, the person said, noting none of its U.S. suppliers “can be replaced by Chinese ones, not within a few years, at least. By then, they are already dead”.
Revenue for the company, also the world’s second-biggest maker of smartphones, touched 721 billion yuan ($105 billion) last year, eight times ZTE’s and half the annual sales of South Korea’s Samsung Electronics Co.
But its business has come under pressure over the past year given mounting international scrutiny, led by U.S. allegations that its equipment could be used by Beijing for spying, a concern the company has said is unfounded.
A range of Asian and European suppliers would also be hurt if Huawei was forced to curb production, while telecom carriers that rely on Huawei, and have largely resisted U.S. calls to bar the company, would be left scrambling just as countries race to roll out next-generation 5G mobile networks.
“Huawei being unable to manufacture network servers, for example, because they can’t get key U.S. components would mean they also stop buying parts from other countries altogether,” said an executive at a Huawei chip supplier.
“They can relatively better manage component sourcing for mobile phones because they have their own component businesses for smartphones. But server and network, it’s a different story,” the executive said.
According to brokerage Jefferies, the sanctions would mean a “nightmare for China’s 5G” too. The country, which is targeting a nationwide rollout next year, will very likely slow down its 5G push as a result, it added.
However, industry participants pointed out that Huawei had been stockpiling components such as chips to ease disruptions.
Its initial target was to build inventories of six to nine months, and it has recently been raised to 12 and, in some cases, 24 months, Jefferies said.
Shares in Huawei suppliers fell across in Asia on the news of the U.S. blacklist.
South Korea’s Samsung dropped 2.4%, SK Hynix fell 3.5%, while China’s Luxshare Precision Industry fell as much as 6.1%. Shares in ZTE also tumbled.
Huawei has said it is “ready and willing to engage with the U.S. government and come up with effective measures to ensure product security”.
Its rotating Chairman Eric Xu also told Reuters in a recent interview that “in case of unforeseen events … we definitely have our contingency plan. What we have prepared has already been used in some of our products in the Chinese market”.
Huawei has spearheaded China’s campaign to develop its own high-end technologies to reduce reliance on imports and such efforts have taken on urgency after U.S. sanctions on ZTE.
The ZTE case led to some “benefits” and “external pressures have developed into internal drivers” in China, said Wan Gang, vice chairman of China’s parliamentary advisory body.―Yahoo Finance