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US moves to cut Huawei off from global chip suppliers

The Trump administration has today moved to block shipments of semiconductors to Huawei Technologies from global chipmakers, in an action ramping up tensions with China.

The US Commerce Department said it was amending an export rule to "strategically target Huawei's acquisition of semiconductors that are the direct product of certain US software and technology."

The reaction from China was swift with a report saying it was ready to put US companies on an "unreliable entity list," as part of countermeasures in response to the new limits on Huawei, China's Global Times reported today.

The measures include launching investigations and imposing restrictions on US companies such as Apple, Cisco Systems, Qualcomm as well as suspending purchase of Boeing planes, the report said

The rule change is a blow to Huawei, the world's second biggest smartphone maker, as well as to Taiwan's Taiwan Semiconductor Manufacturing, a major producer of chips for Huawei's HiSilicon unit as well as mobile phone rivals Apple and Qualcomm.

Huawei needs semiconductors for its widely used smartphones and telecoms equipment. It is at the heart of a battle for global technological dominance between the US and China.

Huawei, which has warned that the Chinese government would retaliate if the rule went into effect, did not immediately comment today.

"The Chinese government will not just stand by and watch Huawei be slaughtered on the chopping board," Huawei Chairman Eric Xu said in March.

The US is trying to convince allies to exclude Huawei gear from next generation 5G networks on grounds its equipment could be used by China for spying. Huawei has repeatedly denied the claim.

Huawei has continued to use US software and technology to design semiconductors, the Commerce Department said, despite being placed on a US economic blacklist in May 2019.

Under the rule change, foreign companies that use US chipmaking equipment will be required to obtain a US license before supplying certain chips to Huawei, or an affiliate like HiSilicon. The rule targets chips designed or custom-made for Huawei.

In order for Huawei to continue to receive some chipsets or use some semiconductor designs tied to certain US software and technology, it would need to receive licenses from the Commerce Department.

Commerce Secretary Wilbur Ross told Fox Business "there has been a very highly technical loophole through which Huawei has been in able, in effect, to use US technology with foreign fab producers."

Wilbur Ross called the rule change a "highly tailored thing to try to correct that loophole."

Ross said in a written statement Huawei had "stepped-up efforts to undermine these national security-based restrictions."

The Commerce Department said the rule will allow wafers already in production to be shipped to Huawei as long as the shipments are complete within 120 days from today. Chipsets would need to be in production by today or they would be ineligible under the rule.

The US placed Huawei and 114 affiliates on its economic blacklist citing national security concerns. That forced some US and foreign companies to seek special licenses from the Commerce Department to sell to it.

Separately, the Commerce Department extended a temporary license that was set to expire today to allow US companies, many of which operate wireless networks in rural America, to continue doing business with Huawei until August 13. It warned it expected this would be the final extension.

The Trump administration has taken a series of steps aimed at Chinese telecom firms in recent weeks.

The US Federal Communications Commission (FCC) last month began the process of shutting down the US operations of three state-controlled Chinese telecommunications companies, citing national security risks.

The FCC also in April approved Alphabet's Google's request to use part of an 8,000-mile undersea telecommunications cable between the US and Taiwan, but not Hong Kong, after US agencies raised national security concerns.

This week, President Donald Trump extended for another year a May 2019 executive order barring US companies from using telecommunications equipment made by companies deemed to pose a national security risk, a move seen aimed at Huawei and peer ZTE.


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