Chinese telecommunications equipment makers Huawei and ZTE have slowed their 5G base station installation in the country amid increasing uncertainty in its key component supply chain, Nikkei Asian Review reported Wednesday.
Why it matters: The two companies grabbed more than 80% of 5G base station contracts from China’s three main telecom carriers. The throttling of their 5G base station construction signals that US export controls are taking hold, curbing their ability to source key components.
- The slowdown is also a result of Chinese carriers’ prudent investment strategy for the next-generation wireless technology.
Details: Huawei and ZTE are working on re-designing some of their 5G products to remove as many US parts as possible, Nikkei reported. They told some suppliers to slow down shipments of certain 5G base station-related products in June.
- A ZTE component and part supplier executive said the company was told to slow shipments in June, and July shipments came to a near standstill. The executive said the company had to go through product verification tests again as ZTE has changed many of its designs.
- A Huawei supplier also told Nikkei that Huawei had changed some designs and replaced equipment used in the manufacturing process, which led to a slowdown in the installation of 5G base stations.
- Torrential rains and floods in southern China in the past few months have also contributed to delays in 5G base station installations, the report said.
Cautious stance: China’s three state-owned carriers—China Mobile, China Unicom, and China Telecom—have maintained prudent 5G budgets despite Beijing’s push to build more 5G cell towers, part of the so-called “new infrastructure” initiative in the post-virus stimulus measures.
- China Mobile kept its annual capital expenditure plan unchanged at RMB 179.8 billion (around $26 billion). Yang Jie, chairman of China Mobile, told reporters last Thursday that the company’s overall capital expenditure on 5G would not “increase drastically” in the next three years.
- China Unicom and China Telecom are jointly building a 5G network in the country. China Unicom Chairman Wang Xiaochu said last Wednesday that the alliance has saved the pair more than 40 billion yuan in capital expenditures over the year, according to the Nikkei report.
- However, the two carriers have kept their annual capital expenditure plan, totaling RMB 155 billion, unchanged for this year.
- The three carriers’ combined budget for 5G buildout in 2020 is RMB 180.3 billion, according to state-run China News Service.
Context: On Monday, the US Commerce Department expanded restrictions on Huawei, forcing non-US companies to apply for a license to sell chips made using American technology to Huawei.
- The Trump administration has already banned US companies from shipping components and technology to Huawei, and cut it off from overseas semiconductor manufacturers that use American software and technology.