What will Huawei do if it is unable to purchase chips from outside?

On the evening of August 17, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce issued a revised ban on Huawei, which further restricted Huawei's use of U.S. technology and software to produce products, and added 38 Huawei subsidiaries to the entity list.

On the morning of August 18, MediaTek's stock price fell 10% in the Taiwan stock market. In response, MediaTek said that the company has always followed the relevant laws and regulations of global trade, is closely monitoring the changes in US export control rules, and is consulting external legal counsel to obtain the latest regulations in real time for legal analysis to ensure compliance with relevant rules. Based on the evaluation of existing information, there is no significant impact on the company's short-term operating conditions.

(Image source: Screenshot of the statement on the U.S. Department of Commerce’s official website)

Previously, the United States had attempted to cut off Huawei's purchase of American chips and other key components through the "Entity List". The Entity List has officially come into effect on August 14. In addition, in May this year, the United States further upgraded its restrictions on Huawei and planned to block TSMC from manufacturing chips for Huawei. According to regulations, TSMC will no longer be able to continue to manufacture chips for Huawei after September 14.

This series of measures by the United States means that Huawei's path to purchasing chips from abroad will be "blocked" . The 38 newly added entities mainly involve Huawei Cloud, Huawei OpenLab's subsidiaries at home and abroad, as well as Huawei's acquisition of Israeli IT company Toga Networks and Huawei Technologies' R&D company in the UK. Since Huawei was first included in the Entity List in May 2019, the total number of Huawei subsidiaries included in the US "Entity List" has reached 152 .

The U.S. Commerce Department said the new measures take effect immediately and should deter Huawei from attempting to circumvent U.S. export controls. The U.S. Commerce Department also said in a statement that it would not extend the temporary general license for users of Huawei equipment and telecommunications providers that expired on Friday, and that all parties must now submit license applications for previously authorized transactions.

"The new rules make it clear that any use of U.S. software or U.S.-made equipment is prohibited and requires a license," U.S. Commerce Secretary Wilbur Ross said in an interview. Restrictions on chips designed by Huawei were imposed in May, but Huawei took some circumventing measures.

U.S. Secretary of State Mike Pompeo said the State Department strongly supports the Commerce Department's expansion of its foreign direct product rule, which will prevent Huawei from circumventing U.S. law by substituting chip production and providing tools obtained from the United States for off-the-shelf (OTS) chip production .

Some analysts pointed out that the US Department of Commerce's move is aimed at preventing Huawei from circumventing US export controls to use electronic components developed or produced with US technology .

On May 15 this year, the first anniversary of the release of the "Entity List" by the United States, the restrictions on Huawei were further upgraded. The U.S. Department of Commerce announced new regulations that will strictly restrict Huawei from using U.S. technology and software to design and manufacture semiconductor chips to protect U.S. national security, that is, to upgrade Huawei's chip control. This means that under the new regulations, companies such as TSMC will not be able to produce chips for Huawei.

In response, Huawei issued a statement saying that it is conducting a comprehensive assessment of the incident and expects that our business will inevitably be affected. "We will do our best to find a solution, and we hope that customers and suppliers will work with Huawei to eliminate the adverse effects of this discriminatory rule."

On August 7 , Huawei Consumer Business CEO Yu Chengdong also said at the China Information Technology Hundred People Conference that the domestic semiconductor technology has not caught up, and the Mate 40 Kirin 9000 chip is likely to be the last generation of Kirin high-end chips. Due to US sanctions, Huawei's world-leading Kirin series chips will not be manufactured after September 15, and will become a swan song .

(Photo source: Xinsheng Community)

In May this year, at the opening ceremony of Huawei's Global Analyst Conference, Huawei's rotating chairman Guo Ping responded to the new US export control regulations, saying that under the heavy pressure of the "Entity List", "the good news is that Huawei is still alive now", and Huawei's business will inevitably be greatly affected, but is confident that a solution can be found as soon as possible .

According to the details of the ban previously announced by the United States, although Huawei's Kirin chips are difficult to produce, it does not affect third-party chip design companies from providing standard products to Huawei.

At this year's annual report communication meeting, Huawei's rotating chairman Xu Zhijun said that even in this situation (upstream chip foundry is banned), Huawei can still purchase chips from Samsung in South Korea, MediaTek in Taiwan, and Spreadtrum in China to produce mobile phones. Even if Huawei makes sacrifices because it cannot produce chips for a long time, I believe that many chip companies will grow up in mainland China. Huawei can also develop and produce products with chips provided by chip manufacturers in South Korea, Japan, Europe, and Taiwan.

In early August, MediaTek said that it would launch higher-end chips at the end of this year and next year, but it was not convenient to comment on information related to a single customer. Currently, MediaTek can accept orders from Huawei .

"A month ago, MediaTek updated the latest flagship mobile phone chip roadmap for Chinese customers. Many specifications are dominated by Huawei's specifications." A source said in the Yicai report. It is reported that Huawei recently ordered 120 million chips from MediaTek, and seven of the mobile phones released this year use MediaTek chips.

However, MediaTek's high-end chip manufacturing is also completed by TSMC. So strictly speaking, MediaTek's chip production is absolutely inseparable from American technology and American equipment.

At the same time, there are reports that Qualcomm has been mobilizing resources to deal with the situation since June this year, and has applied to the US Department of Commerce for a license to sell chips to Huawei. Qualcomm CEO Steve Mollenkopf also said in the latest earnings call that Qualcomm is determining how to sell chips to all mobile phone manufacturers, including Huawei .

In addition, in response to the US's technological suppression of Huawei, Huawei launched the "spare tire" plan as scheduled. This plan includes the "Nanniwan" project, which aims to avoid the use of US technology to manufacture terminal products . Huawei's consumer business department is accelerating the promotion of notebook and smart screen product business, and Huawei's new notebook will not contain any parts using US technology.

In response to the U.S. Department of Commerce further escalating its ban on Huawei, at the regular press conference of the Chinese Ministry of Foreign Affairs on August 18, spokesman Zhao Lijian stated that China firmly opposes the U.S.'s deliberate smearing and suppression of Chinese companies such as Huawei. For some time, the U.S. has generalized the concept of national security and abused state power to impose various restrictive measures on Chinese companies such as Huawei without any real evidence. This is a naked act of hegemony. It must be emphasized that what the U.S. has done has completely pierced the fig leaf of the market economy and fair competition principles that the U.S. has always boasted about, violated international trade rules, and undermined the global industrial chain, supply chain, and value chain, which will inevitably damage the U.S. national interests and its own image.

Zhao Lijian stressed that the more hysterical the US's suppression of Chinese companies such as Huawei is, the more it proves the success of these companies , and the more it proves the hypocrisy and hegemony of the US. Many successful companies in other countries have had similar experiences in history. This dishonorable practice of the US has been and will continue to be widely opposed and boycotted by other countries.