Huawei’s Temporary License Not Renewed By U.S As 38 Of Its Affiliates Sanctioned

Ramish Zafar

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

Chinese telecommunications giant Huawei Technologies Co. witnessed another setback today as the United States Department of Commerce expanded the scope of the foreign-direct produced (FDP) rule to tighten the noose on the company's ability to secure access to chips fabricated on leading-edge semiconductor nodes. The changes come as the Department expands the list of companies affiliated with Huawei that are subject to restrictions for products deemed to be important for American national security and foreign policy objectives.

Huawei's 38 Affiliates Added To Commerce Department's Entity List To Prevent Company From Securing Semiconductors

As part of the changes, the Commerce Department has added 38 more companies with connections to Huawei, that according to officials, have enabled the company to acquire chips designed and manufactured through U.S.-origin technology. The affiliates are located in 20 countries across the globe and are mostly those that market themselves as providing cloud computing solutions.

In addition, Huawei's Temporary General License (TGL) that allowed it to secure software updates for its products has not been renewed by government officials. This license expired on Thursday night and was one of the few mediums through which American companies could continue business with the company. It covered the maintenance of telecommunications equipment present in the U.S. and Huawei's smartphones receiving software updates for Google's Android.

Modifications to the FDP rule target Huawei's ability to secure advanced semiconductors through its affiliates and they also prevent such parties from using the components for their end-products. Previous sanctions against the company have come in the backdrop of U.S. concerns about the company's growing presence in the global 5G network rollout through networking equipment susceptible to Chinese laws.

Huawei's Chairman Mr. Gao Ping delivering his keynote at the company's Global Analyst Summit held in Shenzhen, China earlier this year where company management provided its strategy to combat American export restrictions. Image: UNB News

The amendments come following what government officials insinuate were workarounds developed by Huawei to buy export-controlled products. Additions to the Entity List include companies that are located in Europe, Russia and Latin America amongst other regions, and the shift will make securing access to the chips by the Chinese company more difficult than before.

They follow restrictions introduced by the Commerce Department earlier this year that prevented Taiwanese fab TSMC from selling chips that used American-origin technologies to Huawei. These chips are at the heart of Huawei's products such as its smartphones, and its networking equipment - with the company left with few alternatives to secure them from following the sanctions.

After the restrictions were introduced, San Diego-based chip designer Qualcomm Incorporated reportedly pressurized officials to let it conduct business with Huawei. Qualcomm argued that Huawei was likely to purchase the products from other companies and use them in its gadgets, and if American laws prevented Qualcomm from selling its products to Huawei, then competitors such as MediaTek and Samsung would swoop in.

Huawei has beefed up its research and development efforts following the sanctions to develop technologies critical for survival in today's tech industry in-house. Rumors on Chinese social media that were denied by company officials also speculated that Huawei plans to finish a fabrication line by the end of this year for chips manufactured on the 45nm node. In comparison, flagship smartphone devices use processors built on nodes more than six times smaller than 45nm. A node refers to the dimensions of a transistor (an electric circuit) that is printed on silicon, and smaller sizes refer to the latest manufacturing technologies.

Commerce Secretary Wilbur Ross stated that the rule changes follow Huawei and its associated affiliates' efforts to "fulfill the policy objectives of the Chinese Communist Party". In a statement made to the Washington Post on Thursday, the company stated it was monitoring the TGL expiry, but it did not comment on other matters.

Some of the entities placed on the list include Huawei Cloud Argentina, Huawei Cloud Netherlands, Huawei OpenLab Munich, Huawei Cloud Hong Kong, Huawei Technologies R&D UK and Huawei OpenLab Moscow.

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