Semiconductor Industry Concerned About Supply Chain Impacts of Increased Huawei Restrictions
The semiconductor industry was surprised by the U.S.’s increased restrictions on Huawei (see 2008170029) and expects significant short-term supply chain disruptions, industry officials and experts said in interviews. Officials also thought the initial version of the rule, issued in May (see 2005150058), was sufficient, and were frustrated that the Bureau of Industry and Security did not ask for feedback on the new requirements.
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Although the industry is preparing for short-term complications, officials said they are also concerned about the long-term impacts of a U.S. national security policy that seems to continually target U.S. industry, even if indirectly. “We're now encouraging customers in China to move away from U.S. technology and semiconductors,” one semiconductor industry official said. “Why would they in the future use U.S. technology if they’ll be subject to all these rules?”
The rule, issued last week, expanded on a May announcement that further restricted non-U.S. companies from selling chips using U.S. technology to Huawei. While officials said semiconductor supply chains will inevitably be impacted, many are still unsure how broadly the impacts will be felt. The scope of the restrictions will depend on how strictly Commerce Department officials review license applications, which can range from case-by-case reviews to presumptions of denial.
“It really depends on if [Commerce] is serious about implementing this new rule literally,” said Alen Lin, a technology industry expert and analyst with Fitch Ratings. “If they do that, it does effectively cut off Huawei from any type of semiconductors.”
Even though companies are still assessing the impact, industry officials expect many more chip makers to be affected by the new restrictions than by the ones issued in May. Officials thought those requirements had worked in targeting Huawei, which is why some said they were surprised when BIS issued more restrictions last week.
“We were caught off guard,” one semiconductor industry official said. “We thought the original May rule was working. The objective seemed to have been achieved.” But Commerce Secretary Wilbur Ross said Huawei was working with third parties to evade the restrictions, leading to a harsher set of rules.
The U.S.-China Business Council said it is “deeply concerned” about the risk of “overly broad” restrictions resulting from the rule. It could lead to “unintended consequences … that delivers a bonanza of new business to our competitors while doing nothing to improve national security,” USCBC spokesperson Doug Barry said. He said more communication between government and industry will help. “The Trump administration needs to listen carefully to the industry perspective and learn more about their business models.”
Despite asking for input on the May rule, BIS did not formally ask for feedback on the new restrictions, which irked some in industry. “We were disappointed, but are we surprised? No. That's been their general practice in this administration to not seek comments,” an industry official said. “There's a lot that this community can provide in terms of valuable advice to the Commerce Department to help make these rules more smooth.” BIS did not comment.
Although the new restrictions are “pretty broad,” the move will not deal a death blow to the global semiconductor industry, Lin said. Huawei’s ability to buy chips could be severely affected, he said, but other telecommunications equipment providers will fill the demand. Lin said Samsung and other manufacturers may even benefit. Samsung did not comment.
“I don't believe it’s a total loss for the global semiconductor industry,” Lin said. “There'll be some short-term recalibration and readjustments in the supply chain, but give it 12 to 18 months … and other manufacturers will pick up the demand for those markets.”
Other officials were disappointed BIS allowed most of the provisions in the temporary general license for Huawei to expire, rejecting extension requests. Although the agency said the license was only designed to give companies more time to abandon Huawei equipment, one telecommunications industry official said the process proved to be more complicated for some. “If it were feasible for them to get out of the issue and transition more quickly, then they would probably just be doing it” instead of asking for extensions, the official said. “It’s easier said than done.”