U.S. Moves to Cut Off Chip Supplies to Huawei -- 2nd Update

By Katy Stech Ferek

The Trump administration announced a new export restriction on Friday designed to cut off Chinese telecom-equipment maker Huawei Technologies Co. from overseas manufacturers who supply semiconductors.

The restriction stops foreign semiconductor manufacturers whose operations use U.S. software and technology from shipping products to Huawei without getting a license from U.S. officials first.

That new license authority could give the Commerce Department the ability to block the sale of semiconductors manufactured by Taiwan Semiconductor Manufacturing Co., for Huawei's HiSilicon unit, which designs chips for the company.

Commerce officials have worked on the new restriction for months.

The restriction further tightens the U.S. export-control system's existing rules related to Huawei. Washington alleges that Huawei gear could be used by Beijing to spy globally, which Huawei has repeatedly denied.

Huawei didn't immediately respond to a request for comment on the new restriction.

China's Ministry of Commerce and Ministry of Foreign Affairs didn't immediately respond to emailed requests for comments late Friday.

A year ago, Commerce Department officials put Huawei on an export blacklist that they keep of companies considered to be national-security threats. That move was designed to cut Huawei off from some U.S. semiconductor makers, but some manufacturers later found loopholes in the rule that enabled them to resume shipments, frustrating some Trump administration officials.

"This is not how a responsible global corporate citizen behaves. We must amend our rules exploited by Huawei and HiSilicon and prevent U.S. technologies from enabling malign activities contrary to U.S. national-security and foreign-policy interests," said Commerce Secretary Wilbur Ross in his announcement of the new rule.

The move will be a likely major blow to Huawei, the world's largest maker of telecommunications equipment and No. 2 vendor of smartphones. Huawei in recent years has emerged as one of China's dominant makers of semiconductors through its HiSilicon chip-design subsidiary. Its chips are widely used across its business lines, including in its networking base stations, smartphones and other products.

Over the last year, Huawei has largely accommodated the Commerce Department's entity listing through a technicality that allowed it to buy chips from American companies--such as Qualcomm Inc. and Intel Corp. -- that are manufactured overseas. It has also greatly ramped up the use of HiSilicon-designed chips, primarily built by TSMC, thereby greatly reducing its reliance on the U.S. supply chain.

Huawei is now capable of building both 5G base-stations and advanced smartphones free of American technology, The Wall Street Journal reported in December.

However, the new rule effectively removes TSMC -- a Taiwanese company -- as a supplier to Huawei, throwing into jeopardy the ability of the company to procure advanced chips at all, potentially affecting new smartphone launches and the delivery of 5G equipment, analysts said. Almost all HiSilicon chips are made by TSMC using American technology, according to a report by consulting firm Eurasia Group.

At a news conference discussing the company's annual results in March, Eric Xu, Huawei's deputy chairman, warned that Beijing would retaliate against American companies operating in China if the Trump administration moved ahead with the new rule.

Hu Xijin, editor of the nationalist Global Times newspaper, in a tweet on Friday warned that Qualcomm, Cisco Systems Inc., Apple Inc. and Boeing Inc. could all be targets of retaliation. Mr. Hu is typically seen as channeling the views of more hawkish members of China's Communist Party leadership.

Write to Katy Stech Ferek at katherine.stech@wsj.com

(END) Dow Jones Newswires

May 15, 2020 10:11 ET (14:11 GMT)

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