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Huawei crackdown

US memory storage giant to suspend partnership with Huawei

Western Digital CEO expresses concern about the global tech supply chain

Western Digital CEO Steve Milligan speaks at the Global Digital Summit 2019 in Tokyo on June 11. (Photo by Karina Nooka)

TOKYO -- U.S. storage device maker Western Digital has suspended its strategic partnership with Huawei and halted all shipments to the Chinese company after the U.S. blacklisted it, Western Digital CEO Steve Milligan told Nikkei on Tuesday.

The company announced a strategic cooperation agreement with Huawei in April aimed at strengthening their partnership in areas such as hard drives and nonvolatile flash storage technology. Western Digital has also been supplying Huawei with products, including flash memory for smartphones.

The U.S. Commerce Department put Huawei on its trade blacklist in May, essentially banning American companies from doing business with the telecom equipment maker without permission. "That required us to reassess our relationship with Huawei," said Milligan, who was in Tokyo for Nikkei's Global Digital Summit 2019.

California-based Western Digital is the world's third-largest NAND flash memory chipmaker by market share, behind Samsung Electronics of South Korea and Japan's Toshiba Memory. While Huawei accounts for less than 10% of the company's revenue, it is a "meaningful customer," Milligan said.

Many U.S. chipmakers, including Qualcomm, Qorvo, Lumentum, Advanced Micro Devices and Skyworks, have either confirmed that they must stop doing business with the Chinese company or have cut their earnings forecasts following the U.S. blacklisting.

In the wake of the ban, Huawei's only possible suppliers of memory chips are Toshiba, Samsung or SK Hynix, a South Korean chipmaker. Memory chips are crucial components and go into a vast array of electronic devices -- smartphones, laptops, networking equipment, data center servers, connected cars.

Hideki Maeno, consulting director at IHS Markit Japan, said Huawei would be hit if supplies of devices such as hard drives and memory tighten, although it has yet to run into problems. The suspension of the partnership between Western Digital and Huawei signals Washington's crackdown will freeze not just shipments but all forms of business between the two companies.

Milligan also said the company has not engaged in any technology transfers with Chinese companies and has no immediate plans to do so, although it has an ongoing joint venture with a Beijing-backed company Tsinghua Unigroup. The venture was formed in late 2015 to sell Western Digital's data center storage systems in China.

"We are working with the U.S. government at various different levels," said Milligan. The company is also considering a license to resume trade with Huawei.

Milligan said he has met with members of the Trump administration, including Commerce Secretary Wilbur Ross and Treasury Secretary Steve Mnuchin, to explain the impact of the rules regarding Huawei on Western Digital and the broader technology industry.

Milligan emphasized that he hopes for a constructive relationship between the world's two largest economies, and that Western Digital has worked to create a positive relationship with both governments, as well as with Japan and Europe.

"The tech supply chain in the world is quite entangled," said Milligan, suggesting that undoing that would be "dramatic" and "not good [in the] longer term for either China or the U.S."

IHS Markit's Maeno said the damage could spread from U.S. companies such as Western Digital to global supply chains, hurting suppliers to U.S. manufacturers as well.

Despite uncertainties, data is "evolving quite rapidly, and all of us have to evolve with that," Milligan said in a speech at the event.

According to the CEO, Western Digital devices store almost 50% the of world's data. The company hopes to become a "data infrastructure company" that helps customers to use the vast amount of data they have, rather than just storing it.

Milligan said the company is adapting to changes in the way data is processed, predicting that 75% of data will be processed outside data centers by 2025.

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