Huawei Will Struggle To Operate Following Restrictions As Europe Dominates 5G Orders

Huawei revenues increase 30 percent

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Controversial Chinese telecommunications giant Huawei Technologies is once again the center of attention following the United States Department of Commerce's carrot-and-stick approach with the company. Huawei, which had its temporary general license to conduct trade with American companies for components not deemed sensitive to U.S. national security renewed last week was hit by a far more stringent ruling by the commerce department that forbid companies that manufacture products using American technologies to sell their products to Huawei.

Naturally, given the predominance of U.S. equipment in semiconductor fabrication, the implications of the new rule hit Huawei's supply chain at its crucial heart. Taiwanese TSMC, which supplies chips for Huawei products was reported to have suspended future orders from the company made after May 15th. Following these developments, Huawei's detailed statement on the matter and movements on the stock market, we can take better stock of the changing dynamics in the U.S. - China tech cold war following last week's escalation.

Related StoryOmar Sohail
Apple’s Vice President of Procurement Is Forced to Leave the Company After Passing an Unlikable Comment in a TikTok Video

Huawei Chairman Reports Rising Inventory, R&D Costs Due To Trade War Damage – 5G Commercial Contracts Won By Company In 2020 Dominated By European Orders

When considering the possible severance of ties between Huawei and TSMC for future chip orders, the effect of this development on the Chinese company's business will be two-fold. First, it will ensure that Huawei loses access to bleeding-edge semiconductor fabrication nodes from TSMC, and as a result, it will be unable to ship smartphones and routers that use processors and modems made on any and all variants of the 7nm process from the Taiwanese fab.

Secondly, given that Huawei's 5G baseband products for telecommunication carriers generally use the 16nm and 12nm nodes, even if the company successfully shifts its requirements to China's Semiconductor Manufacturing International Corporation (SMIC), its orders will naturally face delays and create gluts in the global 5G supply chain.

Huawei's chairman Mr. Guo Ping kicked off the company's Global Analysts Summit yesterday by sharing his beliefs about the company's current operating environment. Mr. Ping admitted that not only is Huawei in a "survival" mode but that the company has incurred significant cost while dealing with the aftermath of the Department of Commerce's belligerence. As per the executive, Huawei research and development expenditure ballooned by 30% year-over-year to 131.7 billion Chinese Yuan last year as it invested in alternatives for its supply chain and the company's inventories jumped by 73% year-over-year and stood at 167 billion Yuan at the end of 2019.

Huawei's Chairman Mr. Gao Ping delivering his keynote at the company's Global Analyst Summit held in Shenzhen, China yesterday. (Image: UNB News)

Yet, Mr. Ping's comments did not mention his company's plans for an alternative semiconductor supply chain in the event that Huawei is permanently forced to cut ties with TSMC. On that end, several Chinese analysts have started to provide their takes on the matter after the research industry took the weekend to churn out new reports for describing the currently changing dynamics.

As reported by Securities Times, analyst Ma Jihua believes that the American actions will isolate the country globally as European nations have continued to express interest in the company's 5G infrastructure gear. Huawei secured 91 5G equipment contracts by the end of February this year, out of which 47 are from Europe and are from Asia and other regions. The company has also shipped 600,000 5G Active Array/Antenna Units (AAU) so far reported the company in February when it introduced the Blade AAU that is capable of supporting sub-6Ghz networks.

Analyst Fu Liang believes that those who expect Huawei to bounce back from being denied access to bleeding-edge process nodes are wrong. Lian also believes that in the long run, the Commerce Department's actions will harm the U.S. as they will spur innovative solutions in China and other areas to make up for a lack of access to American technologies and thus reduce demand for their products.

Related StoryOmar Sohail
Apple’s iPhone 14 Plus Was Going to Be Named iPhone 14 Max, According to Evidence Found on Company’s Website

During trading in China on Monday, suppliers of Apple Inc (NASDAQ:AAPL) saw their stocks close lower as investors anticipated the impact of potential Chinese retaliation to the American moves. The Chinese government announced last week that it is willing to place American companies including Apple and Qualcomm in an 'unreliable entity' list that could see them face investigations and other restrictions.

TSMC (NYSE:TSM), for its part, termed reports that it had suspended orders from Huawei as "market rumors" after reiterating that it does not disclose customer negotiations. However, the company will find it difficult to move forward following the Commerce Department's changes as it is forced to terminate future business with Huawei given that current conditions hold.

WccfTech Tv
Filter videos by