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Huawei crackdown

Huawei's top phone assembler suspends part of production at China plant

Flex says ‘majority’ of shipments resume, leaving some still in question

People walk past an advertisement for Huawei's Honor smartphones at an airport in Shenzhen.   © Reuters

GUANGZHOU/TAIPEI -- Huawei Technologies' biggest smartphone assembler has halted at least part of its production for the world's second-largest handset maker, two sources told the Nikkei Asian Review, following the U.S. blacklisting of the Chinese company.

Singapore-based Flex, which has its operational headquarters in Silicon Valley and is listed on Nasdaq, told employees on Thursday that it needed to suspend manufacturing for Huawei.

"We got notices from the company that the production lines for Huawei smartphones and other devices need to be stopped to wait for further notice on May 23," one Flex employee told Nikkei outside the company's main factory in the southern Chinese city of Zhuhai.

"The company cited the trade war as the reason for the suspension," the employee said. "We are not sure when the production work will resume."

Another supply chain source familiar with the matter told Nikkei that Flex had stopped some of the production for Huawei this week, but the person could not specify the scope of the suspension.

Flex confirmed on Saturday that to ensure compliance with the new rules, shipments to Huawei and its affiliates were halted immediately after the U.S. put the Chinese company on its blacklist. Deliveries for the “majority” of products have since restarted, suggesting that some deliveries remained suspended. 

"We have resumed shipments for the majority of the products we assemble for Huawei, after determining that these products are compliant and not covered by the new restrictions," the group said in a statement.  

A Flex factory in the southern Chinese city of Zhuhai, where a worker said production for Huawei had been partially halted. (Photo by Yusuke Hinata)

Flex is following moves by other Huawei suppliers and customers in Asia, the U.S. and Europe to limit their business with the Chinese company after its placement on Washington's Entity List, which restricts its access to American technology.

Huawei declined to comment.

Photos circulating on Chinese social media platform Baidu Tieba show a line of trucks stretching out of Flex's Zhuhai plant on Monday night. In a newsletter on Friday, Shanghai-based tech consultancy CINNO revealed what it said was a Flex internal notice telling employees to take leave from May 23 through May 30 as the company "continues to review its compliance" with the new U.S. export controls.

Huawei's other major smartphone contract manufacturers include FIH Mobile, a unit of Taiwan's Hon Hai Precision Industry, as well as mainland China-based BYD, Huaqin Communication Technology, Wingtech Technology and others, according to research firm IDC. Huawei produced about 10% of its phones in-house during the October-December quarter of last year, IDC data shows.

A supply chain source told the Nikkei Asian Review that Huawei has already produced about 85 million smartphones so far this year after a rush to assemble -- more than the roughly 75 million units it shipped during the first half of 2018.

The Nikkei Asian Review last week reported that Huawei has stockpiled chips and other components -- up to a year's supply for some parts -- as the company foresaw the U.S. crackdown following the arrest of its chief financial officer, Meng Wanzhou, on Dec. 1.

The pressure on the world's No. 2 smartphone maker is rising as many U.S. suppliers, such as chipmakers Micron Technology, Qorvo and Lumentum, need to cut ties to follow the blacklisting.

Non-U.S. suppliers that use American technology in their products, including German chipmaker Infineon and U.K. chip designer Arm Holdings, also face a need to halt some product shipments to Huawei to avoid violating U.S. law. Many mobile operators, including KDDI and SoftBank Corp. of Japan, Taiwan's Chunghwa Telecom and British Telecom's EE have also suspended or delayed the launch of Huawei's new phones.

Nomura Securities on Thursday downgraded its forecast for Huawei's 2019 smartphone shipments.

"Huawei's smartphone supply chains have started to see the negative impact following the Trump administration's moves against the Chinese company, with their orders have been cut in the past few days," Nomura said in a research note.

"In general, we observed that 20% to 30% cuts (or even higher) from June for mid- to low-end segment phones could have occurred. We would not rule out the possibility of cuts or product launch delays for Huawei's high-end segment in the future," the note added.

Nikkei staff writer Kensaku Ihara in Taipei contributed to the report.

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