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The U.S. made waves when it banned sales of components to Chinese smartphone maker, Huawei earlier this week.
Huawei relies on hundreds of components that will be unavailable to the firm as a result of the U.S. blacklist. Its left the company scrambling to come up with a back up plan for components soon to be unavailable, many of which are crucial to building and shipping devices.
However, as we mentioned previously, the Chinese tech giant has been afraid this day would come for quite some time, perhaps ever since ZTE suffered a ban over a year ago due to the souring Sino-American trade relationship.
Huawei will have enough parts for months, TSMC will continue to supply... for now
Brokerage and investment firm CLSA, headquartered in Hong Kong, has advised that Huawei has been stockpiling components way above and beyond what its demand-planning schedule called for in an attempt to survive a potential U.S. ban of components sales. That day has now arrived and Huawei may survive without interruption to its production lines for as much as 6 months thanks to its foresight leading up to the current situation.
A manufacturer can stockpile massive amounts of inventory, but when it comes to software, things are much trickier. Google has backed the U.S. ban and is retreating from Huawei. As our Mobile section journalist Omar Sohail mentioned earlier today, Huawei could see shipments decline by almost a quarter. No company wants to see its sales plummet, but a decrease in shipments could extend Huawei's timeline as it pertains to producing devices with its limited supply of components.
Sebastian Hou is an investment analyst at CLSA and he believes Huawei will be good through the remainder of 2019.
For the rest of the year, I think the company should be fine on smartphones and networking equipment. In the short term, they still have enough inventory to weather through this period, but the inventory will be used up eventually. So how these trade talks will progress in the next few months is still pretty critical to (its) future survival.
Hou does state that despite HiSilicon's ability to provide high performance chips to Huawei, it would be dead in the water if TSMC stopped fabricating the chips. We reported earlier TSMC will continue to supply its Chinese customers for the time being.
Even if Huawei can last 6 months, the firm will need to resolve its supply issues shortly if it is to continue growing at the same rapid pace its shown in the last few years.
There is in fact an interesting caveat to TSMC's promise to continue fabbing chips for HiSilicon. TSMC uses American IP to produce chips, and if 25 percent or more of the product relies on American equipment or tech, then its subject to the U.S. Export Administration regulations which would formally place the exports under the blacklist. The report from CLSA mentions its currently 15-20 percent of TSMC's sales to HiSilicon so the flow of chips will continue on for now.
Of course, TSMC (NYSE:TSM) will be affected too if it should be banned from selling to Huawei. TSMC is currently trailing the market as a whole and is up only 4 percent YTD while the S&P 500 is up nearly 12 percent. A large chunk of revenue getting erased from TSMC's forecast would hurt the company and its stock price in a big way.