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Huawei crackdown

Huawei delays production of flagship phone after US crackdown

Chinese tech group assessing availability of key components, suppliers say

TAIPEI/TOKYO -- Huawei Technologies has told some suppliers to delay production for its newest flagship smartphone as the Chinese tech company weighs potential supply-chain disruptions from an escalating U.S. crackdown, several sources familiar with the situation told the Nikkei Asian Review.

Huawei has asked for halts to production of some components for its latest Mate series of phones, and has also trimmed orders of parts for the coming quarters, as it tries to assess the impact on its smartphone business of Washington's tightening export controls, sources said.

The unveiling of the latest Mate series, usually in the second half of the year, is Huawei's answer to Apple's new generation of iPhones. Huawei, the world's second-largest smartphone maker, usually adopts its most advanced processor designs for the Mate lineup, using chips from its own HiSilicon semiconductor design unit.

But the Trump administration's action in May further restricting Huawei's access to U.S. technology has left the Chinese company uncertain about HiSilicon's ability to supply parts such as mobile processors, communication chips and artificial intelligence accelerator chips. The U.S. has issued orders to prevent non-U.S. suppliers from using U.S. equipment to produce chips to specifications drawn up by Huawei and HiSilicon.

That has forced the Chinese telecom equipment maker to reassess its inventory of HiSilicon chips and look at alternative suppliers for the Mate, as it tries to balance production of the smartphone with expected demand next year.

Huawei has delayed its mass-production schedule for the Mate series, according to two supply-chain sources familiar with Huawei's smartphone manufacturing plan.

"We now see the postponement of the mass production of Mate series will be for at least one to two months," one person said, adding that this was because the Chinese company was still finalizing and resolving supply-chain issues following the new U.S. restrictions.

Another executive with a Huawei supplier said his company had planned to begin making parts for Mate phones this month, as well as Huawei's Honor brand of phones. But the executive said Huawei had already told the company to put production on hold until further notice.

"One of the reasons to pause is that Huawei is reviewing the inventory level of its HiSilicon mobile chips and is busy verifying other mobile platforms by [Taiwanese chip designer] MediaTek and Qualcomm [of the U.S.]. But verifying other mobile platforms could lead to redesigns of the mechanical parts of the smartphones, which will take time," the executive said.

The postponement of production plans does not necessarily mean the launch of the latest Mate models will be delayed. The Chinese company may unveil its product first and start selling the handset later, when the final products are ready.

Other component suppliers also told Nikkei that Huawei has asked them to scale back up to 20% of orders for coming quarters, after it aggressively stocked up on components for the first half of 2020 in preparation for a U.S. clampdown.

"Huawei has informed us that it would cut some 20% of its orders for the July to September quarter, and could revise this even lower in the December quarter, " an executive with a chip supplier told Nikkei. "If this trend continues, we cannot avoid a decline."

Huawei declined to comment.

Rattled by the coronavirus outbreak, along with Washington's relentless squeeze, the Chinese company this year shifted its focus from smartphones, where sales face headwinds overseas, to its telecom business. The company has secured contracts to supply most Chinese telecom operators' 5G infrastructure, as China accelerates nationwide deployment of the technology.

Huawei's Mate 30 series, introduced last year, was its first handset lacking support from Google Mobile Services -- including some widely-used services such as Google Maps, Gmail, YouTube, and Google Play -- after the U.S. added Huawei to the so-called entity list to restrict its access to American technology.

While losing Google's support hit Huawei's overseas smartphone sales, the company dominates the Chinese market, with a share of more than 41% in the January to March period, a sign that patriotic Chinese consumers are rallying behind a domestically made product.

Huawei shipped 240 million smartphones in 2019, overtaking Apple as the world's No. 2 manufacturer, with a global market share of 17.6%. However, in the first quarter of this year, the Chinese company's handset shipments fell nearly 18% on the year as the coronavirus pandemic hit its home market.

Yasuo Nakane, senior analyst at Mizuho Securities, said in a report on June 4 he estimates Huawei's full-year smartphone shipments will drop 10% to 180 million from his previous forecast. "Meanwhile, [Huawei's] technology road map may be stalled for about a year," Nakane added.

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