Huawei Is Having Difficulty Security Suppliers Amid US Sanctions

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Suppliers are pushing back on efforts by Huawei to move production into China amid US sanctions, reports indicate. As companies operating in the US and elsewhere continue to step back from Huawei, the company is looking to move some suppliers into China and bolster production at those that are already there. But suppliers are wary the repercussions of US sanctions leveled against the tech giant.

That's according to a number of industry insiders and sources said to be familiar with the problem. At least three executives have reportedly spoken out on the matter. Each comes around to the same conclusion.

Namely, some suppliers have already ceded to Huawei and moved some operations to China. That's predominantly happened over the past year but others are reluctant. But, with each supplier effectively depending on others and some companies refusing outright to respond, it's going to be a monumental challenge for Huawei to get all of its suppliers on board.

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Some suppliers, one industry executive notes, are explicitly choosing to work with the US rather than Huawei. The country's policies have reduced production of products in China by limiting products that can be sold within its borders containing China-produced components and equipment. The end goal, which Huawei has repeatedly decried, is to alleviate national security concerns over the Chinese government's hold on companies from the region.

As a result, US companies are asking the same suppliers that Huawei is in talks with to move production away from China. And the companies are complying with the former.

The problem is further being compounded by low demand fueled in part by ongoing health concerns globally. That has not only destabilized the consumer market for smartphones and other technology. It's generated uncertainty about where future trends will lead on demand.

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What pressures are being exerted on suppliers by US sanctions?

Among suppliers who are not working to make Huawei's path forward easier is TSMC. The Taiwanese supplier is the world's most valuable semiconductor company and largest non-semiconductor foundry. But it won't be supplying any components to Huawei or that company's HiSilocon chipset subsidiary in the long term.

As early as late 2020 and well into 2021, it won't be supplying any components at all. Otherwise, TSMC — which recently began work on a multi-billion-dollar US-based fabrication lab — risks a retaliatory response from the US government. And that's a risk the company has said it simply isn't willing to take.

Other suppliers, including those operating outside of the US, are facing similar threats if they work with Huawei amid sanctions. As a result of the sanctions and possibility of reprisals, they aren't likely to move to help Huawei either. The company is effectively being forced to turn inward and to secondary suppliers. Primarily, those have been suppliers already in China.

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Does this hurt Huawei in the long term?

Huawei has, up until this point, managed to stay on top of its game. Not only have sales gone better than expected for Huawei both in China and abroad. It is also on track to finish out the year in terms of its upcoming smartphones. Its 5nm-chipset-bearing Huawei Mate 40 flagship, for instance, is still on track to release in 2020. The expected timeframe for that is some time in October.

For now, it is still the world's second-largest Android OEM and largest 5G networking equipment supplier. It's the third-largest buyer of semiconductors on the planet according to analysts at Gartner. But that holding could begin to slip in 2021 though.

If the Chinese mobile and telecoms equipment giant doesn't manage to keep production and supply up, it could start to lose its grip on its position. To maintain momentum and keep sales on an upward trend, the company only has a few options left to it.

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Huawei will need to convince suppliers already operating in China to bolster production or others to move some production to China. That would place those companies, at least theoretically, beyond the reach of US sanctions.

Conversely, it may need to look to suppliers who are not well-established or at the top of the totem. Otherwise, its supply chain may ultimately collapse, forcing a severe reduction in production, sales, and revenue.

In any case, the current state of affairs does not appear to bode well for the Chinese tech giant.

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