China announced last Friday a tightening of the measures that regulate technology exports, including everything related to artificial intelligence, which is interpreted as an attempt to stop the sale of the US TikTok business to companies such as Oracle or Microsoft. who are interested and what President Donald Trump wants. It is also considered as a first response by China to the virtual ban on anyone selling chips to Huawei, decreed by Trump two weeks ago, and which puts the Chinese company’s telecommunications networks and smartphones business in serious trouble in the very short term. . The American semiconductor industry is very concerned about this new escalation in the confrontation between both countries, because its exports of chips to China are vital for it, as for the entire global electronic equipment industry. China is accelerating its plans to not rely on the United States for chip manufacturing and is seeking support from Japanese companies keen on supplying equipment and technology to China, while pressuring Taiwan to keep its companies from bowing down. from the United States.
The veto imposed on August 17 by the United States on the sale to Huawei and all its subsidiaries of any chip that is manufactured or designed with equipment that includes American technology, which in practice implies an almost total ban, threatens to lead to a commercial conflict of gigantic dimensions. Both parties have much to lose and very little to gain, although it does not seem that this matters much to Donald Trump and his restricted circle of close associates, determined to overcome unfavorable polls at any cost to continue being president of the United States in the next elections of the November 4th.
In these last two weeks, the list of countries and telecommunications operators that have decided not to buy or continue to buy Huawei 5G network equipment has increased, heeding pressure from the United States, whose president publicly assures that China “spies” thanks to Huawei’s telecommunications equipment and by order of its Government, and which the company categorically denies. India is thought to have vetoed its country’s operators from purchasing Huawei and ZTE equipment, according to various media reports, although the government has not issued any official order or statement, perhaps because it has no clear alternative. The mobile phone market in India, both 4G and 5G, is set to be the largest in the world by number of users after China, although subscription prices are very low and it needs suppliers with very competitive prices and high technology , such as those offered by Huawei and ZTE.
Also Bouyghes Telecom, the French operator that wanted to postpone the auction of 5G licenses scheduled for this end of September, has finally accepted the conditions imposed by its Government and will dismantle, from now until 2028, the 3,000 antennas supplied by Huawei in areas with higher population density. Huawei had already given up installing 5G antennas in the Île-de-France (Paris and surroundings) and, as reported on August 27, has agreed to dismantle Huawei’s antennas in four cities with facilities considered strategic in 2023, another nine in 2025 and the rest of French cities in 2028, up to a total of 3,000. The French state is not opposed to having Huawei antennas in the less populated territories, said Olivier Roussat, CEO of the Bouyghes group, in the presentation of quarterly results last week, and considers that removing 3,000 antennas in eight years will have an impact limited financial.
It is estimated that Huawei has a cumulative stock of components for the next four to six months, although the really strategic chips could run out before the end of the year and jeopardize its activity
On August 24, the GSMA, the Association that brings together the vast majority of large telecommunications operators around the world, announced that Huawei, ZTE, Ericsson and Nokia had passed an independent audit that ensured that their equipment complied with the first phase of security requirements imposed by the GSMA and the 3GPP, the body that regulates and approves all mobile phone specifications. More tests will be carried out to clear up any doubt of lack of security, although it is not believed that this modifies the US criteria against Huawei and ZTE and the decisions already taken in many countries, at least in the short term, because for most analysts it is of an essentially political decision.
The US ban on selling chips to Huawei has put the company on the ropes. Richard Yu, head of Huawei’s consumer business, which includes the company’s successful smartphones and nearly half of the group’s turnover, assured at the beginning of August that the Kirin chipsets, the core of the most advanced smartphones, They will be extinguished as of September 15, when the Taiwanese TSMC stops supplying them as a result of the second order of August 17. “It will be a great loss for us, because we have spent more than ten years developing these chips,” Yu said.
MediaTek, a Taiwanese company that in recent years has developed a very competitive range of chipsets for smartphones, especially with the new Dimensity range, now assures that it has consulted with its lawyers and could supply these chipsets to Huawei, according to a spokesman for the company to Reuters. The issue is not clear and it is certain that it will receive tremendous pressure not to do so and, in any case, MediaTek’s Dimensity products are focused more towards the mid-range and upper-middle range and not like the Kirin, clearly comparable to the most Qualcomm or Samsung (which now also manufactures for Qualcomm, such as TSMC).
When Huawei runs out of stocks of products ordered and manufactured by TSMC, it will have to turn to Chinese smartphone chipset manufacturers such as SIMC, which are clearly inferior even to MediaTek’s, thus reducing Huawei’s international smartphone business. finished if the American veto persists. The big beneficiaries will be the smartphone manufacturers Oppo, Xiaomi and Vivo, among others, which are also Chinese but can continue to buy from Qualcomm and MediaTek. Even ZTE, which for now is not hurt as much as Huawei, although it is in the crosshairs of the US Administration.
Specialists estimate that Huawei has a cumulative stock of components for the next four to six months, although there is no reliable information on the number of truly strategic chips it has. In any case, although Huawei’s purchases have been very high in the last twelve months (there is talk of 80,000 million dollars), it is not foreseeable that it can continue to supply 5G radio stations and really competitive smartphones beyond next spring. According to information from the Japanese newspaper Nikkei on August 19, both Huawei and ZTE have reduced the installation of 5G base stations in China in recent weeks, although it is not known whether as a result of operators reducing their orders or to save components critics. By the end of June, a total of 410,000 5G base stations had been installed in the country and it is expected to supply some 600,000 more stations in this second half of the year.
Huawei is deploying intense activity on all fronts within its grasp so as not to be stranded. Just yesterday, the Financial Times published that the company is strengthening its cloud business to ensure its survival. It is a business that has been growing very fast since last January and the company is now putting it at the level of smartphones and radio stations. It so happens that Intel supplies the Xeon processors that make up Huawei’s servers and, according to a source quoted by the Financial Times, signed a license with Intel last year that allows the American company to continue supplying its processors to the company. China. The server chips, concedes a spokesperson close to Huawei, may not have the same features as before, but the cloud-based services that Huawei will provide will not be impacted and will offer the same, even with a little more quality.
The Chinese government has not responded to the US veto on Huawei on August 17 so far, but its refusal to give up TikTok shows that it will act in favor of Huawei in a proportionate but forceful manner
Huawei also relies on supplies from the Japanese semiconductor industry. According to Jeff Wang, president of Huawei’s Japanese subsidiary, located in Tokyo, purchases from Japanese suppliers grew more than 50% last year. In a non-face-to-face briefing cited by Nikkei, Wang said last Monday that Japan will have “an extremely important role in global supply chains” and that Huawei “has built a stable and long-term relationship with Japanese suppliers.”
In 2019, Wang added, Huawei has bought components in Japan worth $ 10.3 billion, up from $ 7 billion the previous year. Huawei’s first subsidiary in Japan was established in 2005 and in June it employed 950 people. An executive of the company assured in the same briefing that Huawei has been buying components in Japan since 2018, so he considers that the US veto will not have a great impact. Japanese industry, on the other hand, is eager to penetrate the Chinese market, both when it comes to selling components such as telecommunications equipment from suppliers such as NEC or Fujitsu. Japan also has major manufacturers of semiconductor production equipment and specialists in photolithography equipment, such as Canon, Nikon or Olympus.
Huawei, and especially the Chinese government, is also looking a little lower than Japan, specifically Taiwan. Just last week, the Taiwan government announced that it would closely monitor proposals from Taiwan investors to manufacture semiconductors and other components in mainland China, fearing that China would take over its technology. According to specialists, at least 3,000 Taiwanese engineers specializing in semiconductor manufacturing have entered the payroll of Chinese chip factories since 2015, as a result of the Made in China 2025 initiative, which wants the country to be much more self-sufficient in manufacturing of semiconductors within five years.
Just a week ago, senior trade representatives of the United States and China reaffirmed their commitment to the first phase of the trade agreement between the two countries, which involves the obligation to buy US goods from China, basically agricultural. Both the Foreign Trade Representative, Robert Lighthizer, and the US Treasury Secretary, Steven Mnuchin, had a phone call with Vice Premier Liu He and pledged to do whatever is necessary to ensure the success of the agreement. The call was supposed to have been made on August 15, six months after the engagement began, but Trump said a week earlier that he had postponed it “because he didn’t want to talk to them.”
Until last Friday, the Chinese government had not responded to the US veto on Huawei on August 17. And, in fact, he did not mention it when he communicated that he had issued an order that expanded the export control list, including technologies related to artificial intelligence. “We are studying the new regulations and, as with any international transaction, we will comply with the laws, which in this case include those of China and the United States,” said Erich Andersen, general counsel of ByteDance, the parent company of TikTok, which Trump said in August that the company had until mid-September to sell its US operations. Microsoft and Walmart as well as Oracle and a group of venture capital companies were interested and were due to make a formal proposal this week, but the Chinese order should put negotiations on hold.
The next few weeks will be key for Huawei’s future in 2021. At first, it was thought that the Chinese government had not taken action on the TikTok issue, because it was a strategically much less important company than Huawei. Now that it has effectively blocked all TikTok sales, it is expected that the Chinese government will not leave Huawei alone. On September 14, the deadline given by the United States expires so that no one will sell chips to Huawei in the future. China may wait for the presidential elections to take place, but no one doubts that it will act in favor of Huawei in a proportionate but forceful manner.