By Dan Strumpf, Yoko Kubota and Wenxin Fan
A U.S. clampdown on exports to Huawei Technologies Co. threatens
to disrupt the Chinese company's access to critical suppliers
across its businesses, from smartphones to 5G equipment -- and
Silicon Valley could share in the pain.
Huawei, the world's leading telecommunications-gear supplier and
No. 2 smartphone seller, relies heavily on the U.S. for many
advanced components, including both semiconductors and
software.
The Shenzhen-based company has said it spent about $11 billion
on U.S. components last year out of a procurement budget of $70
billion. Experts said the impact of Washington's move could extend
as well to Huawei's non-U. S. suppliers who deal in U.S. parts.
Huawei does business with Silicon Valley's biggest names,
including Qualcomm Inc. and Broadcom Inc. for smartphone chips,
Intel Corp. for cellular-tower components, and Oracle Corp. for
software. It also buys from many smaller technology suppliers
spread across the country.
The Commerce Department on Wednesday said it would put Huawei
and its affiliates on its "Entity List" on the grounds that the
Chinese company had acted contrary to U.S. national security or
foreign policy interest. The designation will force Huawei
suppliers to apply for licenses in order to keep selling to the
Chinese firm.
Huawei has long denied that the company and its equipment are at
the disposal of the Chinese government, posing a security risk for
other countries.
The measure's full impact won't be known until the Commerce
Department publishes its full listing, and it isn't clear how
forthcoming export licenses will be. Such licenses can take weeks
or months for approval, experts said, and even non-U. S. companies
might have to apply to sell to Huawei if the goods contain
U.S.-sourced components.
The restriction gives the U.S. wide latitude to disrupt Huawei's
supply chain and the Chinese company's ability to sell products and
service customer networks.
"The entity list addition is incredibly powerful," said Chris
Timura, an attorney specializing in international trade at law firm
Gibson Dunn. "This is one large section in a wall that the U.S.
government has been building around Huawei for the last couple of
years," he said.
Edison Lee, a telecom analyst at investment bank Jefferies, said
in a report he doesn't expect the U.S. to grant any such
licenses.
In a statement, a Huawei spokesman said the company "will seek
remedies immediately" to a move it warned would hurt more than
Huawei. "It will do significant harm to the American companies with
which Huawei does business."
Huawei said it has been building up inventories in the past year
as insurance against a U.S. supply disruption -- an effort that
ramped up as the U.S. squeezed Huawei and its chief Chinese rival,
ZTE Corp. Equipment maker ZTE was brought to its knees last year
after a similar Commerce Department action banned it for three
months from buying U.S. goods after it violated an agreement
resolving its earlier evasion of U.S. sanctions on North Korea.
Huawei also has been working to reduce its reliance on U.S.
suppliers. It now makes many of its own advanced chips and has
developed an operating system for its smartphones, which currently
run on Google's Android system. A Google spokesman didn't
immediately comment.
While Qualcomm's regulatory filings show around two-thirds of
the company's revenue came from China last year, Huawei wasn't
among a small number of customers that accounted for more than 10%
of its overall sales.
Qualcomm and Oracle declined to comment. Broadcom didn't respond
to a request for comment. An Intel spokesman confirmed the company
is a Huawei supplier and declined to comment further.
The Commerce Department's move comes as broader efforts to
resolve U.S.-China trade tensions falter, and it could provoke
retaliation by Beijing, which has protested what it sees as a U.S.
campaign to hobble Huawei as a global technology provider.
Chinese Foreign Ministry spokesman Lu Kang said Thursday that
Beijing opposed unilateral sanctions that "abuse" export controls,
and that it would take measures to safeguard the interests of
Chinese businesses.
The Commerce Department action was paired with a White House
executive order seen as a precursor to a ban on selling Huawei-made
products in the U.S. The order will have minimal impact on Huawei
because its products are already effectively barred in the U.S.,
although the measure could provide a template to allies considering
similar blacklists, a U.S. official said recently.
The export review process stands to deal a heavier blow to
Huawei and its suppliers.
At a gathering in Shenzhen last year to honor Huawei's major
suppliers from around the world, the 33 U.S. companies outnumbered
China's 25, according to a rundown of 92 vendors published in state
media.
Huawei's smaller U.S. suppliers include Lumentum Holdings Inc.,
a producer of optical components for telecom equipment. The
Milpitas, Calif., company didn't immediately respond to a request
for comment.
Others include two makers of chips called field programmable
gate arrays, or FPGAs: Xilinx Inc., of San Jose, Calif., and Altera
Corp., an Intel unit. FPGAs are crucial components in base
stations, which connect devices like smartphones to wireless
networks -- and which Huawei makes.
A 2016 report by CCID, an official think tank in Beijing, listed
U.S. companies that in the previous year sold chips to Huawei worth
a total of $6 billion, including $560 million from Xilinx. A
separate CCID report around that time said Xilinx was a lifeline
for Chinese telecom and chip manufacturers, providing more than
half of the FPGA chips used by Huawei and ZTE. More recent data
wasn't available.
Xilinx didn't immediately respond to a request for comment.
-- Stu Woo contributed to this article.
Write to Dan Strumpf at daniel.strumpf@wsj.com, Yoko Kubota at
yoko.kubota@wsj.com and Wenxin Fan at Wenxin.Fan@wsj.com
(END) Dow Jones Newswires
May 16, 2019 21:50 ET (01:50 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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