INTC Intel Corporation

By Dan Strumpf in Hong Kong and Asa Fitch in San Francisco 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 29, 2019).

The U.S. blacklisting of Huawei Technologies Co. is casting a net that extends far wider than its target: It is curbing the revenue of American and Japanese electronics companies, cutting into Taiwanese chip orders and giving Huawei's competitors a chance to take advantage.

The Trump administration's decision to restrict the sale of U.S. technology to the Chinese tech giant is hitting American suppliers, which took $11 billion in orders from Huawei last year. These include big companies like Intel Corp. and Qualcomm Inc. and smaller players such as Qorvo Inc., which makes radio-frequency filters and is more heavily reliant on Huawei.

The ripples have radiated through the global supply chain as the U.S. campaign wipes millions of units off the company's smartphone sales and threatens its plans to be the leading global producer of 5G telecommunications-networking equipment.

With a global procurement budget of $70 billion, Huawei is key to a network of interconnected suppliers across the world. Many non-U. S. suppliers have reduced exports to Huawei because of concerns of running afoul of Commerce Department restrictions, which curb the sale of U.S.-origin technology to the company.

The damage coursing through the supply chain has driven some suppliers to find ways to resume some shipments without falling foul of the ban, exporting components manufactured outside the U.S. with mostly foreign-made parts. Still, tech companies and analysts remain spooked by the continuing tech fight between the U.S. and China, and manufacturing may be shifted to avoid being caught in the crossfire.

Lost revenue for Huawei, the world's largest maker of networking equipment, could total $30 billion this year and next, Ren Zhengfei, the company's founder and most powerful executive said June 17. Smartphone sales fell 40% outside of China in the month following the U.S. blacklisting compared with the month before, Mr. Ren said. He later said the slowdown was easing. Huawei was the world's No. 2 seller of smartphones in the first quarter of this year.

Huawei's rivals are looking for an advantage. Xiaomi Corp., the world's fourth-largest maker of smartphones, is budgeting about $727 million over the next three years to boost smartphone sales in China and better compete with Huawei on its home turf, a company spokesman said.

A possible reprieve for Huawei could be on the horizon, as the Group of 20 summit is held in Japan this week: Beijing has set the removal of Huawei from the U.S. blacklist as a precondition for any trade deal with Washington, The Wall Street Journal reported Thursday.

It is unclear how far resumed shipments would go to ease the pain of Huawei's blacklisting. On June 21, Drew Nelson, the chief executive of the U.K. chip wafer maker IQE PLC said the listing "is having far-reaching and long-lasting impacts on global supply chains." IQE expects revenue for the year will be less than previously forecast.

U.K.-based chip-design firm ARM Holdings PLC suspended its business with Huawei and Dutch chip maker NXP Semiconductors NV also halted some business with the Chinese company following the ban. An ARM spokesman said the company remains compliant with U.S. rules. An NXP spokeswoman didn't respond to a request for comment.

Orders are falling at Taiwan's chip-making giants, which count sales to Huawei by the billions of dollars. Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co., the world's biggest contract chip manufacturer, said after the company's annual meeting June 5 that it is seeing lower demand from Huawei, likely due to slowing smartphone demand and higher inventories. A TSMC spokeswoman later told The Journal the company regrets the remarks and doesn't comment on individual customers.

The prospect of Huawei cutting orders of display panels to Japan Display Inc. led Taiwanese touch-panel maker TPK Holding Co. to drop out of an investor group planning to bail out the struggling Japanese company, according to people involved in the bailout discussions.

For South Korean suppliers, which sell parts to Huawei and its competitors, the blacklisting presents both pain and opportunity. They include Samsung Electronics Co., SK Hynix Inc. and LG Display Co., some of which have production facilities inside China that aren't likely exposed to U.S. restrictions on selling to Huawei. While a fall in Huawei smartphone sales could blunt some of those companies' business, sales of rivals' devices -- which also use South Korean parts -- could see an uplift.

In the U.S., Qorvo, which makes radio-frequency chips used in Huawei smartphones, said last month it expected a $50 million reduction in quarterly revenue due to the Huawei supplier ban. And Broadcom Inc. cut its revenue estimate for the year by $2 billion following the Huawei blacklisting, saying it now expects full-year revenue of $22.5 billion. The company also missed analysts' revenue targets by $160 million for its fiscal second quarter that ended in May.

Analog Devices Inc. in May said it expected to generate about $1.45 billion in revenue during its current quarter, around $100 million less than Wall Street had expected.

Others are experiencing a short-term rise in demand as other Chinese companies stock up on components in case curbs on U.S. technology exports are expanded. Ambarella Inc., a U.S. maker of chips that go into security cameras for several Huawei rivals, is being asked to ship orders sooner, according to Louis Gerhardy, an executive at the company. Ambarella is accelerating production, but demand could shift or drop off if more of its customers get blocked.

"It makes it more difficult to manage the business," said Mr. Gerhardy.

In many ways, business is continuing as usual at Huawei. The company hasn't slowed down production at its smartphone production plants, partly in anticipation of a pickup in sales in China, according to a person familiar with the matter.

Huawei's core business serving telecom carriers continues to sign new contracts for 5G network rollouts, including a 5G deal earlier this month signed with Russian carrier MTS. The company has signed 50 such 5G contracts to date.

--Takashi Mochizuki in Tokyo and Timothy W. Martin in Seoul contributed to this article.

Write to Dan Strumpf at daniel.strumpf@wsj.com and Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

June 29, 2019 02:47 ET (06:47 GMT)

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