US officials have complained many times about “loopholes” that allow Huawei to keep its chip supply chain running in the face of export controls. Now it seems that the “loopholes” are closed, and tight.
After being subjected to three rounds of export restrictions, the telecommunications equipment and smartphone maker has lost nearly all access to semiconductors using US technology—meaning the high-end chips it needs for its carrier and handset businesses.
Richard Yu, president of Huawei’s consumer business, said Aug. 7 that the company had to stop making its in-house Kirin chips, which are widely used on the company’s mobile devices, because they are made using US technology.
Despite the looming bans, Huawei has been on a roll lately. The company was ranked the world’s largest smartphone vendor for the first time in the second quarter. However, in an event last week, Yu said the growth of Huawei’s smartphone sales during this period had been “affected” by “a shortage of components.”
In other people’s eyes, however, the situation could be much worse. Analysts told Reuters that US export restrictions would threaten Huawei’s status as the world’s largest handset maker, and warned its smartphone business would “disappear entirely” if it could not source the chips it needs.
The uncertainty in Huawei’s supply chain has also taken a toll on its carrier business. The British and French governments have told domestic telecom operators to phase out Huawei equipment, citing the risks of the company’s supply chain continuity.
It looks like the end of the world for the company. But what options does Huawei still have? We asked experts, and it doesn’t look good.
What happened this week?
Huawei has faced escalating US restrictions for over a year.
May 16, 2019: The US government bans American companies from shipping components and technology to Huawei, but granted the company a series of reprieves, the last of which expired in August.
May 15, 2020: The White House announces plans to tighten its stranglehold, cutting Huawei off from global semiconductor foundries that use American software and technology to Huawei. These news rules officially took effect on Tuesday.
Aug. 17: US government expands licensing requirements, seeking to prevent Huawei buying US-linked chips through subsidiaries or third-party vendors
After Tuesday’s deadline, Huawei will lose access to most of the semiconductor fabrication plants in the world that can make high-end chips because they use US technologies. Huawei cannot buy ready-made chips that contain US technology from any third parties because of the August ban.
Experts said that the US will move swiftly to block any further “loopholes.” The company has stockpiles of chips, but only enough to last a few months. It has to plan out how to use these stockpiles in order for its production to continue.
Can Huawei still get chips?
Huawei has an in-house chip designer known as Hisilicon. This subsidiary designs a variety of chips used in Huawei’s products. They include the Kirin series for mobile devices and the Balong series for telecommunications gear.
Hisilicon could struggle to continue designing Kirin or Balong chipsets because it lost access to US-origin electronic design automation (EDA) tools, Jan-Peter Kleinhans, project director at Germany tech-policy think tank Stiftung Neue Verantwortung, told TechNode in an email.
EDA is a category of software tools for designing electronic systems such as integrated circuits and printed circuit boards. The EDA industry is dominated by three US, or US-linked, firms—Synopsys, Cadence, and Mentor Graphics. Together they account for 60% to 70% of the global EDA market and around 95% of sales in China.
But even if Huawei managed to design chips, it would still need an outsourced fabrication plants to manufacture them, like nearly all semiconductor companies. Taiwan Semiconductor Manufacturing Co. (TSMC), South Korea’s Samsung, and Chinese company Semiconductor Manufacturing International Corp. (SMIC) are Huawei’s existing suppliers. All three are forbidden to use US-origin manufacturing equipment to fabricate chips for Huawei, Kleinhans said.
They can apply for licenses to continue supplying Huawei—but it’s up to Washington whether to grant them. SMIC, China’s biggest chipmaker, said Tuesday it had applied to the US government for a license to continue supplying to Huawei. TSMC reportedly planned to apply for a license to continue shipping to the company. A unit of Samsung is also seeking approval from the US government to continue supplying Huawei.
“The outlook is rather grim,” Kleinhans said. “Also, even if Huawei finds ways around the current restrictions, the US government’s trajectory is pretty clear: this is now the third export ban against Huawei. There can easily be a fourth or a fifth, if they deem it necessary.”
So far, none of the applications have been approved.
How will Huawei make phones?
With Huawei’s chip stockpile, smartphone production may not need to halt immediately. But the question is: How long will Huawei’s stockpile last?
Four to 10 months, according to analyst Will Wong at market research firm IDC.
Wong told TechNode that Huawei currently has a stock of high-end chips from TSMC and medium- to low-end chips from Mediatek, a Taiwanese chip designer.
“We are confident that Huawei’s chip stock can last until the end of this year,” Wong said. “It is possible that Huawei will still have chips to use in the first half of 2021, but, in this period the uncertainty is huge.”
The company might use Mediatek chips to produce more medium- to low-end phones during the rest of the year to make up its losses in the high-end handset market, said Wong, adding that Huawei might have to save some chips for production next year.
“All Huawei has to do is to bide its time, because there might be a turnaround after the November US presidential election,” he said.
“No matter how much chip stock does Huawei have, it has to race against time,” he said. “There may be a better situation after the election, or perhaps Huawei can manage to produce chips in China, but the key is time.”
A Huawei spokesman declined to comment on questions about the company’s plans for chip sourcing. He said in a statement to TechNode that the company is “still evaluating the long term impact of the matter at hand and are actively seeking solutions to minimize the impact for everyone.”
How will Huawei’s carrier business be affected?
The US government has been pushing Western countries to avoid Huawei equipment in their next-generation 5G networks, saying that the Chinese government could use its gear for spying purposes. Huawei, the world’s largest supplier of telecom equipment, has repeatedly denied the allegations.
Eventually, some US allies announced they would begin excluding Huawei. But what made some European countries dodge Huawei products were not Washington’s security warnings, but the possibility that the company would not be able to supply them due to semiconductor export bans.
In July, the United Kingdom and France instructed telecom operators to phase out Huawei equipment from their current networks over the next few years. Both countries cited the uncertainty around the company supply chain as a reason for doing so.
“The UK government revised its 5G strategy and excluded Huawei from further 4G/5G deployments exactly because they are not confident that Huawei will be able to serve British operators in the future because of the US export control,” said Kleinhans.
“Following the UK’s analysis, I think it’s fair to say that Huawei will struggle to maintain or even upgrade customer networks in the near future,” he said.