By Dan Strumpf, Yoko Kubota and Wenxin Fan
The U.S. move to scrutinize exports to Huawei Technologies Co.
threatens to disrupt the Chinese technology leader's access to
critical suppliers it uses across its businesses, from smartphones
to 5G. Any pain will reverberate through Silicon Valley too.
Huawei, the world's leading telecommunications-gear supplier and
No. 2 smartphone seller, relies heavily on the U.S. for many
advanced components, from chips for handsets and mobile-networks
infrastructure to the software that runs its smartphones.
The Shenzhen-based company last year bought about $11 billion in
U.S. components of its $70 billion procurement budget, according to
the company, but experts said the impact of Washington's move could
also extend to Huawei's non-U.S. suppliers who deal in U.S.
parts.
Huawei does business with Silicon Valley's biggest names:
Qualcomm Inc. and Broadcom Inc. for smartphone chips, Intel Corp.
for cellular-tower components, Oracle Corp. for software, as well
as an army of smaller technology firms spread across the country
for other parts.
The Commerce Department's decision Wednesday to put Huawei and
its affiliates on its "entity list" -- on grounds that Huawei had
acted contrary to U.S. national security or foreign policy interest
-- will force Huawei suppliers to apply for licenses to keep
selling to the Chinese firm, complicating the Shenzhen company's
ability to procure critical supplies. Huawei has long denied its
equipment poses any security risk.
The measure's full impact won't be known until the department
publishes its full listing, and it isn't clear how forthcoming
licenses will be. Such licenses can take weeks or months for
approval, experts said, and even non-U.S. companies might have to
apply if they sell goods containing U.S.-sourced products to
Huawei. It gives the U.S. wide latitude to disrupt Huawei's supply
chain and its 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 the U.S. move, calling it "in no one's
interest. It will do significant harm to the American companies
with which Huawei does business."
Huawei said it has been stockpiling inventories in the past year
as an insurance plan against a U.S. supply disruption -- an effort
that ramped up as U.S. officials made moves against Huawei and its
chief Chinese rival ZTE Corp. That company was brought to its knees
last year after a similar Commerce Department action that
blacklisted it for three months, banning it from buying U.S. goods
after it violated an agreement resolving earlier evasion of U.S.
sanctions.
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 its own operating system for its smartphones, which
currently run on Google's Android system. A Google spokesman didn't
immediately comment.
Qualcomm and Broadcom didn't respond to requests for comment. An
Oracle spokeswoman declined to comment. An Intel spokesman
confirmed the company is a Huawei supplier and declined to comment
further.
The Commerce Department's move is the latest by the U.S. against
Huawei as the trade fight between the U.S. and China deepens. Talks
between the two sides over a fresh trade agreement broke down a few
days ago; the export move opens the door to potential retaliation
by Beijing, which has been spoken out forcefully against what it
calls a U.S. campaign to hobble Huawei.
China's 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. That order will have minimal impact on Huawei
because its products are effectively banned in the U.S. anyway,
although it could provide a template to allies considering similar
blacklists, a U.S. official said recently.
The export review process, however, stands to deal a heavier
blow to Huawei and its suppliers.
At an annual gathering honoring Huawei's major suppliers from
around the world in Shenzhen last year, 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.,
in Milpitas, Calif., a producer of optical components for telecom
equipment. Lumentum 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 Huawei manufactures and which connect devices like
smartphones to wireless networks.
A 2016 report by CCID, an official think tank in Beijing, listed
U.S. companies that sold chips worth a total $6 billion to Huawei
in 2015, including $560 million from Xilinx. A separate CCID report
around the time said Xilinx was a lifeline for Chinese telecom and
chip manufacturers. Xilinx provided more than half of the FPGA
chips used by Huawei and ZTE, the report said. 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 12:06 ET (16:06 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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