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Huawei crackdown

New ban on Huawei blocks access to non-US chipmakers

Major suppliers like TSMC forced to rethink strategies

Huawei's Kunpeng 920 chipset, designed as an alternative to Intel chips, is displayed at the Chinese group's headquarters in Shenzhen.   © Reuters

TAIPEI -- The U.S. government on Friday further tightened export controls on Huawei Technologies' access to American equipment and software, a move designed to restrict access by China's biggest tech company to vital semiconductor supplies.

Any foreign chipmakers producing chips from designs by Huawei and its affiliates with the use of American design tools or equipment will have to apply for a license from the U.S. Commerce Department, the department said on its website.

Details have yet to be published by the Bureau of Industry and Security, but the rule appears to cover important Huawei suppliers such as Taiwan Semiconductor Manufacturing Co., the world's biggest contract chipmaker, industry executives and legal analysts said.

Restricted access to American semiconductor technology threatens to deal a blow to Huawei, from its smartphone and telecom equipment businesses to its arm HiSilicon Technologies, China's top chip design house.

"Huawei's [chip] design capability will be severely damaged," said Mark Li, a veteran semiconductor analyst with Bernstein Research.

TSMC -- which counts Huawei as its second-largest customer, the source of 15% to 20% or revenue -- also faces risk to its earnings, Li added.

Huawei will face difficulties acquiring semiconductors from non-U.S. suppliers after the new restrictions announced in Washington on Friday.    © Getty Images

The license requirement will take effect in 120 days, according to the Commerce Department's announcement.

TSMC puts Huawei's chip designs into production, including advanced processors and 5G modem chips used in its flagship smartphones and latest telecom equipment, as well as the company's latest Kunpeng 920 server processors designed as an alternative to Intel products.

The Commerce Department's move came as TSMC, also a top supplier to Apple, announced plans to build a $12 billion advanced chip facility in the U.S. state of Arizona. U.S. Secretary State Mike Pompeo said the investment "bolsters the U.S. national security at a time when China is trying to dominate cutting-edge tech and control critical industries."

The Taiwanese company finds itself caught in the crossfire over critical technology between the U.S. and China.

Other Huawei suppliers likely to be affected include Taiwan's Win Semiconductors, which helps the Chinese company produce its radio frequency chip designs. These chips were set to replace supplies from U.S. chipmakers Qorvo and Skyworks in a de-Americanization campaign.

The rule will also affect Huawei's mid- to low-end chip orders with China's top contract chipmaker, Semiconductor Manufacturing International Corp., or SMIC. Such non-U.S. manufacturers could be subject to the U.S. new export control rule because they still rely on American chipmaking equipment from Applied Materials, Lam Research, KLA Group and others.

Kevin Wolf, a U.S. export control lawyer with Akin Gump, told the Nikkei Asian Review that the new rule change is targeted at Huawei and HiSilicon chip designs made outside the U.S. but with U.S.-origin technology or equipment and destined for Huawei.

But it will not affect Huawei's non-U.S. chip suppliers, such as memory suppliers Samsung Electronics, SK Hynix and Kioxia, as well as sensor makers STMicroelectronics and Sony, unless they help Huawei put its own chip design into work, Wolf said.

That said, any roadblocks for TSMC, SMIC, Win Semiconductor and their peers will have a ripple effect across the whole tech supply chain. Huawei is one of the world's biggest buyers of tech components, for applications ranging from telecom equipment, servers and surveillance cameras to smartphones, tablets and notebook computers.

Last year on the same day, Huawei was placed on the U.S. Entity List, which restricts its access to chips from most American chipmakers, including over national security concerns. Huawei, in turn, looked to HiSilicon to design more chips and outsourced chip designs to chip contract manufacturers such as TSMC and SMIC for production.

Thanks to such collaboration, Huawei was able to have the world's most advanced smartphone chips, such as its 5G smartphone chip Kirin 990 for its flagship Mate 30 and P40 phone series in the past year. Huawei's HiSilicon is also the world's biggest surveillance camera chip developer and a top television chip provider. The U.S. government saw such practices as a loophole to its ruling.

But Huawei had been aware of the risk of further export rule changes since last year and has stockpiled networking processor chips for 5G base stations, Nikkei reported in January. The Chinese company was also aware of the huge impact that would result if its crucial supplier TSMC could not continue to help it manufacture chips.

Huawei Rotating Chairman Eric Xu warned on March 31 that if the U.S. further tightened export controls for TSMC, it would lead to "an endless blow of disastrous aftermaths across industries."

"I think the Chinese government will not just stand by and watch Huawei being slaughtered, and I believe the Chinese government will also take some countermeasures," Xu said.

TSMC said in a statement Friday that it was "following the U.S. export rule change closely."

"The semiconductor industry supply chain is extremely complex, and is served by a broad collection of international suppliers," TSMC said. "Thus, TSMC is working with outside counsels to conduct legal analysis and ensure a comprehensive examination and interpretation of these rules."

Huawei and SMIC did not immediately respond to Nikkei Asian Review's request for comment.

"The uncertainty of the entire supply chain immediately looms when the Department of Commerce dropped the news today. Although the department allows suppliers to apply for a license, we don't know what exactly will happen," Jonah Cheng, chief investment officer at J&J Investment and a veteran tech analyst at UBS, told the Nikkei Asian Review. "In the meantime, we also don't know what countermeasures the Chinese government might take."

"With the new ban, Huawei is likely to lose its advantage in introducing products that come with good performance and competitive price in the markets without the advanced chip supplies from TSMC," Cheng, who has monitored the global chip industry for more than a decade, said.

In the meantime, the U.S. government's move marks a major watershed moment in the decoupling of China from American technology suppliers. "Unless non-American chip equipment suppliers never churn out replacements, U.S. chip equipment makers' global market share will be affected significantly in the long term," the analyst said.

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