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2020-05-16

U.S. pushes to cut Huawei off from major suppliers of chips as China eyes retaliation

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On Friday, the Trump administration moved to block global supplies of chips to blacklisted telecoms equipment giant Huawei Technologies [HWT.UL], spurring fears of Chinese retaliation and hammering U.S. chipmaking equipment producers' shares.

A new rule, unveiled by the Department of Commerce and first reported by Reuters, expands U.S. authority to require licenses to sell semiconductors made abroad with U.S. technology to Huawei, expanding its reach to stop exports to No. 2 smartphone manufacturers worldwide.

"This action puts America first, American companies first, and American national security first," a senior official in the Commerce Department said Friday in a telephone briefing to reporters.

Huawei, the world's leading manufacturer of telecoms equipment, was not responding to a request for comment.

News of the move against the company hit European stocks as traders sold into the day's gains, while shares of chip equipment manufacturers like Lam Research (LRCX.O) and KLA Corp (KLAC.O) fell about 5 and 3 percent in U.S. trading respectively.

China 's reaction was swift, with China's Global Times report on Friday saying Beijing was ready to put U.S. firms on a "unreliable list of entities," as part of countermeasures in response to Huawei's new limits.

The measures include the launch of investigations and the imposition of restrictions on U.S. companies such as Apple Inc (AAPL.O), Cisco Systems Inc (CSCO.O) and Qualcomm Inc (QCOM.O), as well as the suspension of Boeing Co (BA.N) aircraft purchases, the report cited a source here.

The rule of the Commerce Department, effective Friday but with a grace period of 120 days, also hits Taiwan Semiconductor Manufacturing Co Ltd (2330.TW), the largest contract chipmaker and key Huawei supplier, which announced plans on Thursday to build a US-based plant.

TSMC said on Friday that it is "following closely the U.S. export rule change" and working with external counsel to "conduct legal analysis and ensure comprehensive review and interpretation of those rules."

The department said the rule is intended to prevent Huawei from continuing to "diminish" its status as a blacklisted company , meaning U.S.-made sophisticated technology suppliers must seek a U.S. government license before selling it.

"There has been a very highly technical loophole through which Huawei has in fact been able to use U.S. technology with foreign fab producers," Secretary of Commerce Wilbur Ross told Fox Business News on Friday, calling the rule change "a highly tailored thing to try to correct that loophole."

Last year, due to national security concerns, the company was added to the "entity list" of the Commerce Department, amid accusations from Washington that it violated U.S. sanctions against Iran and can spy on customers. Huawei has denied the charges.

Frustration among China hawks in the administration that Huawei's entity listing was not doing enough to curb its access to supplies prompted an effort to crack down on the company that culminated in Friday 's rule, first reported by Reuters in November.

Washington lawyer Kevin Wolf, a former Department of Commerce official, said the rule appeared to be a "novel, complex expansion of U.S. export controls" for chip-related items made from U.S. technology abroad and sent to Huawei. But he stressed that chips designed by companies other than Huawei and manufactured using U.S. technology could still be sold to the company without the requirement of a license.

While the new rules will apply to chips no matter how sophisticated they are, a senior U.S. Official of the State Department who also briefed reporters on Friday opened the door to some flexibility for the company, echoing previously Trump administration repriefs granted to Huawei.

"This is a requirement to grant licences. It doesn't necessarily mean things are denied, "the official said , adding that the rule gives greater" visibility "to the U.S. government in the shipments. "What's going to happen with those applications, we'll have to see ... Each application is judged according to its merits.

After essentially barring Huawei from buying from U.S. suppliers, the Department of Commerce granted licenses to some of Huawei 's biggest U.S. partners to continue selling to the company, while also allowing smaller rural telecoms to continue buying Huawei equipment to keep their networks up and running.

Huawei, who needs semiconductors for his smartphones and telecommunications equipment, has been at the heart of a battle for global technological dominance between the U.S. and China, whose relationship has sown over the origins of the deadly coronavirus in recent months.

While the rule change is intended to squeeze Huawei and hit the chip foundries on which it relies, U.S. chipmaking equipment manufacturers could face long-term pain if chipmakers develop new equipment sources beyond the reach of U.S. rules.

But for now, most chipmakers rely on equipment manufactured by U.S. companies such as KLA, Lam Research and Applied Materials (AMAT.O) which did not respond to requests for comment.

While some of the complex tools required to make chips come from companies outside the U.S., such as Japan's Tokyo Electron (8035.T) and Hitachi (6501.T) and the Netherlands' ASML (ASML.AS), analysts say it would be hard to put together a whole toolchain to produce advanced semiconductors without at least some American equipment.

Article Edited by | John Heine |

Jhon is an incredibly talented freelance writer. He has been working of about 18 months as a reporter for some internet based print-based newspapers. He brings together significant news reports from the Technology and entertainment areas. we hope you're doing well if you see any inappropriate phrases please let us know on our contact page at the bottom. thank you!    .

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