The Trump administration's reported plans to restrict non-U.S. companies from supplying Huawei Technologies Co. Ltd. would impact the Chinese company's production capacity and equipment quality if implemented.
While the government has not confirmed discussions about extending the supply ban to include foreign-made shipments that use more than 25% of U.S. technology, analysts at Jefferies Equity Research wrote in a Dec. 1 report that this threshold is "highly controversial" as it would be difficult to determine which products it covers.
For Huawei and its suppliers, understanding who would be most affected and how is challenging enough, given the nature of modern supply chains. The telecom network equipment supply chain has a variety of software and hardware components and associated intellectual properties, and to figure out the portion of U.S. technology involved is "quite complex," Nikhil Batra, an associate research director at industry research company IDC, said.
Despite the complexity, Huawei, and potentially its suppliers, have begun making supply and product adjustments to mitigate risks, according to analysts.
Risks to Huawei
Production of Huawei's telecom base stations may be one area hit by a ban expansion, Batra said. Germany's Infineon Technologies AG and Taiwan's Taiwan Semiconductor Manufacturing Company Ltd. supply Huawei with components for base stations and would have to review their business with the Chinese company if the ban is extended, Jefferies wrote.
As of September, Huawei had the capacity to make 5,000 base stations per month without U.S. technology. This will rise to 1.5 million for 2020, a spokesperson said.
"Even if Huawei is taken off the export control list tomorrow, and even if President Trump and Chairman Xi strike a huge trade deal, there remains every incentive for Huawei, ZTE Corp., Datang Telecom Technology Co. Ltd., and other [Chinese] key players to 'design-out' American components," Michael Clauser, global head of data and trust at technology public policy firm Access Partnership, said. "It is already happening and it will continue."
Huawei's latest phone, the Mate 30, contained no U.S. parts, the company told reporters.
If substitutions are found, the company will need to integrate them with the rest of its production and delivery capacities, a process that can be time-consuming and costly, Batra said.
The challenge would be in manufacturing semiconductor chips used for base stations and also phones, Jefferies said. As well as Infineon and TSMC, Taiwan's WIN Semiconductors Corp. supplies Huawei with semiconductor chips for phones.
Looking closer to home, Clauser said China does not produce field programmable gate arrays, or FPGAs, which are vital to 5G networks because they enable chips to evolve with technical standards. U.S.-based Xilinx Inc. and Intel Corp. are among the major suppliers of FPGAs worldwide.
The U.S. on Nov. 18 granted an additional 90-day license to U.S. companies, including Microsoft Corp., Xilinx, Micron Technology Inc. and Intel, to continue supplying to Huawei legally.