Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  News  >  Economy & Forex  >  All News

News : Economy & Forex
Latest NewsCompaniesMarketsEconomy & ForexCommoditiesInterest RatesBusiness LeadersFinance ProfessionalsCalendarSectors 
All NewsEconomyCurrencies / ForexCryptocurrenciesEconomic EventsPress releases

Huawei's $105 billion business at stake after U.S. broadside

share with twitter share with LinkedIn share with facebook
share via e-mail
0
05/16/2019 | 12:24pm EDT
People visit Huawei's booth at an exhibition during the World Intelligence Congress in Tianjin

HONG KONG/BEIJING (Reuters) - The latest U.S. broadside against Huawei that puts the Chinese firm on an exports blacklist threatens to rattle the global tech supply chain, linked closely to the $105 billion (82 billion pounds) business of the world's top supplier of telecoms network equipment.

The Trump administration has said it would add Huawei Technologies and 70 affiliates to its "Entity List" - a move that will likely ban the firm from acquiring U.S. components and technology without government approval, adding another incendiary element to the U.S.-China trade war.

The ban is not yet effective.

A similar U.S. ban on China's ZTE Corp had almost crippled business for the smaller Huawei rival early last year before the curb was lifted.

Such sanctions on Huawei are, however, likely to have ramifications beyond the company itself, analysts said.

It would disrupt Huawei's business at a minimum and all but put it out of business in an extreme, while its U.S. suppliers would also be hit, they said.

Out of $70 billion Huawei spent for component procurement in 2018, some $11 billion went to U.S. firms including Qualcomm, Intel Corp and Micron Technology Inc, and they could see that revenue disappear.

On the other hand, U.S. companies like Apple face the risk of severe retaliation from China, a key market.

"This is going to be very messy," a China-based source at a U.S. tech company said.

It will be tough for Huawei too, the person said, noting none of its U.S. suppliers "can be replaced by Chinese ones, not within a few years, at least. By then, they are already dead".

Revenue for the company, also the world's second-biggest maker of smartphones, touched 721 billion yuan ($105 billion) last year, eight times ZTE's and half the annual sales of South Korea's Samsung Electronics Co.

But its business has come under pressure over the past year given mounting international scrutiny, led by U.S. allegations that its equipment could be used by Beijing for spying, a concern the company has said is unfounded.

STOCKPILING

A range of Asian and European suppliers would also be hurt if Huawei was forced to curb production, while telecom carriers that rely on Huawei, and have largely resisted U.S. calls to bar the company, would be left scrambling just as countries race to roll out next-generation 5G mobile networks.

"Huawei being unable to manufacture network servers, for example, because they can't get key U.S. components would mean they also stop buying parts from other countries altogether," said an executive at a Huawei chip supplier.

"They can relatively better manage component sourcing for mobile phones because they have their own component businesses for smartphones. But server and network, it's a different story," the executive said.

According to brokerage Jefferies, the sanctions would mean a "nightmare for China's 5G" too. The country, which is targeting a nationwide rollout next year, will very likely slow down its 5G push as a result, it added.

However, industry participants pointed out that Huawei had been stockpiling components such as chips to ease disruptions.

Its initial target was to build inventories of six to nine months, and it has recently been raised to 12 and, in some cases, 24 months, Jefferies said.

Shares in Huawei suppliers fell across in Asia on the news of the U.S. blacklist.

South Korea's Samsung dropped 2.4%, SK Hynix fell 3.5%, while China's Luxshare Precision Industry fell as much as 6.1%. Shares in ZTE also tumbled.

Huawei has said it is "ready and willing to engage with the U.S. government and come up with effective measures to ensure product security".

Its rotating Chairman Eric Xu also told Reuters in a recent interview that "in case of unforeseen events ... we definitely have our contingency plan. What we have prepared has already been used in some of our products in the Chinese market".

Huawei has spearheaded China's campaign to develop its own high-end technologies to reduce reliance on imports and such efforts have taken on urgency after U.S. sanctions on ZTE.

The ZTE case led to some "benefits" and "external pressures have developed into internal drivers" in China, said Wan Gang, vice chairman of China's parliamentary advisory body.

TRADE TALKS

The pain for Huawei's supply chain would be redoubled if the trade war put a damper on the Chinese technology industry.

"The bigger concern would be U.S. allies that used to buy Huawei's components may not continue businesses with Huawei, because of fear of possibly upsetting the United States," said Doh Hyun-woo, an analyst at NH Investment & Securities in Seoul.

The Trump administration's rhetoric towards China had cooled in recent days after another round of tariffs between the world's top two economies and a selloff on global stock markets.

Tensions escalated on Wednesday after U.S. President Donald Trump signed an executive order barring American companies from using telecommunications equipment made by firms deemed to pose a national security risk.

While the president's order did not specifically name any country or company, U.S. officials have previously labelled Huawei a "threat".

"The U.S. seems to have already decided to nail Huawei down," said the China-based U.S. tech company source.

"The problem is that because there doesn't seem to be a prospect for a trade deal in the near future, the U.S. has expedited the process of killing Huawei."

(This story has been refiled to amend headline)

(Reporting by Sijia Jiang in Hong Kong, Josh Horwitz in Shanghai, Ju-min Park and Heekyong Yang in Seoul, Michael Martina and Cate Cadell in Beijing, Makiko Yamazaki in Tokyo; Writing Miyoung Kim; Editing by Himani Sarkar)

By Sijia Jiang and Michael Martina

Stocks mentioned in the article
ChangeLast1st jan.
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) 0.16% 7.0958 Delayed Quote.3.14%
share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news "Economy & Forex"
07:59pJapan August core CPI rises 0.5% year/year
RE
07:32pRUBIO : Today's Suspension Agreement is a Significant Win for American Tomato Growers
PU
07:11pUK appeals for public help in setting post-Brexit trade with Japan
RE
06:57pNPS NATIONAL PARK SERVICE : Thirty-one Bison from the North Rim are Relocated
PU
06:52pU.S. building coalition after Saudi oil attack, Iran warns against war
RE
06:41pWORLD BANK : North Macedonia to Strengthen Public Finance and Improve Competitiveness with World Bank Support
PU
06:36pTrump adviser says U.S. president ready to escalate trade war if no deal agreed soon - SCMP
RE
06:36pChinese officials to visit U.S. farmland as trade talks continue -U.S. agriculture chief
RE
06:26pMain IKEA retailer expects to exceed renewable energy goal by year's end
RE
06:08pNegative trend in German exports to continue - Finance Ministry
RE
Latest news "Economy & Forex"