This could make it the most damaging US attack to date against a Chinese company, US officials said, a report said on Wednesday as a “tool of strategic influence” for the Chinese Communist Party. Huawei Technologies Co Ltd for its part denounced the American allegations and described the new measures as “arbitrary and pernicious”.
Founded in 2004, HiSilicon develops chips primarily for Huawei, and for most of its existence has been an afterthought in a global chip business dominated by American, Korean, and Japanese companies. Like most electronics companies, Huawei relied on others for the chips that powered its equipment.
But heavy investments in research and development have helped move HiSilicon rapidly, and in recent years the unit of 7,000 employees has been at the heart of Huawei’s growth as a dominant player in the sector. of smartphones and in the emerging sector of 5G telecommunications networks.
HiSilicon’s Kirin smartphone processor is now considered comparable to those created by Apple Inc (AAPL.O) and Qualcomm Inc (QCOM.O) – a rare example of an advanced Chinese semiconductor product that competes globally.
HiSilicon is also at the heart of Huawei’s 5G leadership, entering the breach when the U.S. cut off access to certain U.S. chips last year.
In March, Huawei revealed that 8% of the 50,000 5G base stations sold in 2019 were not equipped with any American technology, using HiSilicon chipsets instead.
But the U.S. export control rule, first reported by Reuters last week, aims to block HiSilicon’s access to two essential tools: US companies’ chip design software, including Cadence Design Systems Inc (CDNS.O) and Synopsys Inc (SNPS.O), and the manufacturing prowess of the “foundries”, led by Taiwan Semiconductor Manufacturing Co Ltd (2330.TW), which make chips for many of the best semiconductor companies in the world.
With the new restrictions, HiSilicon “will be in a situation where they will not be able to make chips at all, or if they do, they will no longer be at the cutting edge,” said Stewart Randall, who follows the Chinese chip industry in Shanghai. Intralink advice.
Without its own processors, Huawei will lose its edge over its domestic smartphone competitors, analysts said. International sales had already been wiped out by a ban on the use of major Google software.
According to industry sources, Huawei has stored chips, and the new US rule will not take effect for 120 days. US officials also note that licenses may be granted for certain technologies. HiSilicon can also continue to use the design software it has already acquired.
HILSILICON IN TOUGH SPOT
However, analysts agree that HiSilicon is in a difficult situation. Almost every chip factory in the world – including the leading foundry in China, Semiconductor Manufacturing International Corp (0981.HK) – buy equipment from the same equipment manufacturers, led by the American companies Applied Materials Inc (AMAT.O), Lam Research Corp (LRCX.O) and KLA Corp (KLAC.O).
The new American rule requires licenses for companies using American machines to make chips designed by Huawei and delivered to the Chinese firm. Certainly, the new rule will not accept items shipped to a third party, which allows manufacturers of HiSilicon such as TSMC to be able to send chips to manufacturers of HiSilicon devices who can send them directly to a customer.
Although there are alternatives to American machines, the Japanese company Tokyo Electron Ltd (8035.T), for example, manufactures equipment that rivals the materials used – replacing American technology is not as simple as replacing a machine.
“You almost have to think of it like a heart transplant,” said Dan Hutcheson, CEO of VLSI Research, noting that chip production lines are finely tuned systems where everything has to work well together.
Doug Fuller of the Chinese University of Hong Kong said Huawei has a few options. He could get around the rule by having suppliers deliver directly to Huawei customers, although U.S. officials have said they will be vigilant about such solutions.
Huawei and the Chinese government could redouble their efforts to develop production capacities that do not require American tools, by investing in nascent Chinese competitors and by buying from Japanese and Korean companies, even if this required quality sacrifices.
Or Huawei could turn away from HiSilicon and return to buying from foreign, but not American, suppliers. “We’re talking about Huawei that only turns to Samsung processors,” for his smartphone, said Fuller.
(This story has been re-recorded to add the word “at” to paragraph 1)
Josh Horwitz reports in Shanghai; Additional reports by David Kirton in Shenzhen and Stephen Nellis in San Francisco; Editing by Jonathan Weber and Lisa Shumaker
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